Brazil politics: Dilma on a roll

Brazil’s president, Dilma Rousseff, is enjoying an extraordinary level of approval for a president now in her second year in office. She is more popular than her predecessors were at this stage in their terms, despite a plethora of corruption scandals and increasing opposition from members of her own multi-party coalition, who have been frustrated by her reluctance to distribute enough government jobs and political favours. Ms Rousseff has also sought to raise her profile on the international stage, although results in this area have been mixed.

The president’s popularity can be attributed to her deft handling of an economic slowdown (to which her government has responded with a range of stimulus measures) and her willingness to investigate, and oust, cabinet ministers and advisors accused of corruption (six of her ministers resigned in her first year in office). Her approval ratings are not only at the highest level since she was inaugurated in January 2011, but are also among the best for any democratically elected leader in the world.

According to a March opinion poll by a research firm, Ibope, Ms Rousseff’s approval rate stood at 77%, up by five percentage points from December 2011. This compares with 54% for her predecessor, Luiz Inácio Lula de Silva, at the same stage in his presidency (15 months) and 57% for the prior president, Fernando Henrique Cardoso. Her support is stronger in the northeast (82%), but it is also high in the southeast (75%), a region that has often supported the opposition. This shows that her support base is more expansive than Lula’s (whose backing was concentrated in the northeast and among low-income voters) and also reflects her increasing popularity among the growing middle class, together with still-strong support among poorer Brazilians.

Firm but flexible governance

Voters seem to approve of Ms Rousseff’s firm style of governing, including her determined attitude towards Congress (the legislature). She recently managed to defuse another rebellion by the centrist Partido do Movimento Democrático Brasileiro (PMDB) and other smaller parties of her broad-based congressional coalition. She also has secured legislative approval of some key bills, including a civil servants’ pension reform (Funpresp) and the World Cup bill (which provides the legal framework for the upcoming World Cup games).

She has faced some setbacks, however. On April 26th lawmakers passed a controversial forestry code, which pits landowners against environmentalists, without the compromises the government had carefully negotiated. Ms Rousseff could veto the law, though this could be overridden by a simple majority vote by legislators. The law eases the rules, designed to reduce deforestation, mandating the amount of land farmers must preserve.

Overall, however, Ms Rousseff has shown that her firm style does not necessarily entail a state of permanent confrontation and gridlock with Congress. She has proven flexible and, when she has needed specific projects to be approved (like Funpresp), she has been ready to release some funds to please allied parties. The upcoming municipal elections in October 2012 will be an important test of Ms Rousseff’s popularity and of the current balance of power within the ruling alliance (especially between the PMDB and the governing Partido dos Trabalhadores) and among other political forces ahead of the presidential election of 2014. It is widely assumed that Ms Rousseff will seek another term.

Foreign policy record is mixed

The president’s recent forays on the international stage have also demonstrated her toughness, though the results have been mixed. She has stepped up her diplomatic activities in recent months, demonstrating a firm style in her dealings with foreign counterparts, including the US. Within less than two months, she met with the German chancellor, Angela Merkel, and with the leaders of Russia, India, China and South Africa during a BRICs (Brazil, Russia, India and China) summit in the Indian capital, New Delhi. She also had a separate meeting with the Indian prime minister, Manmohan Singh, before meeting the US president, Barack Obama, in Washington and attending the Summit of the Americas in Colombia in mid-April.

These trips have helped to raise Ms Rousseff’s profile internationally, but have not substantially furthered Brazil’s foreign policy goals. Starting with the US visit, Ms Rousseff managed to include in the discussions the suspension of a military procurement contract that Embraer (a Brazilian aircraft manufacturer) initially won with the US Air Force, which was later cancelled, demanding that the US honour it. However, the more important issue of Brazil’s desire for a permanent seat at the UN’s Security Council (a goal of the country’s foreign policy for at least two decades) was barely mentioned. Ms Rousseff was not granted state visit treatment, and she did not receive the same kind of backing that Mr Obama has given to the Indian premier, who also wants a Security Council seat.

Moreover, Ms Rousseff’s repeated attacks against the “currency war” have caused unease in Europe and the US for some time, and the fact that Ms Rousseff reiterated the issue prominently during her meetings with Ms Merkel and Mr Obama (as well as at the Summit of the Americas later on) caused some irritation (especially in Germany). The fact that Brazil blames developed countries for the currency war, but carefully avoids any criticism of China (now Brazil’s main trading partner), does not help Ms Rousseff’s argument either.

With respect to Brazil’s effort to boost its leadership role among emerging economies, initiatives such as trade in local currencies (by-passing the US dollar) or the creation of a common development bank among the BRIC economies (which would act as a counterbalance to the World Bank) are unlikely to advance in the short to medium term. Brazil and other developing countries did not even manage to agree on a common candidate for the presidency of the World Bank as an alternative to the US candidate, who ultimately got the post.

(Source: viewswire.eiu.com)

@1 year ago
#The Economist #The Economist Intelligence Unit #EIU Country Report 

Mexico economy: Better outlook, with caveats

Mexico was hit harder than most Latin American countries during the global recession of 2009, and last year recovered only part of its lost output. This year it will benefit from the improved short-term outlook for the US, with which it has close trading and investment ties. The Economist Intelligence Unit has therefore upgraded its forecast for Mexico’s growth. However, the recovery is marred by the relatively poorer performance of the domestic economy and it dependence on the export sector, which will exacerbate Mexico’s vulnerability to external shocks.

Mexico’s GDP grew by an estimated 5% in 2010, but failed to rebound fully from the 6.1% contraction of the previous year. Brighter prospects in the US in 2011—we have revised our growth forecast there to 2.7% from 2.2% previously—will support firmer growth in Mexico as well. We now project that Mexico’s economic activity will increase by 3.9%, versus a forecast of 3.5% previously. But this expansion will again be largely export-led, with domestic demand insufficiently strong to drive growth independently.

Provided that our US import forecasts materialise, Mexican growth should remain relatively buoyant in the medium term (3.5-4%), but close synchronicity with the US business cycle means that any deterioration in conditions in the northern market will be felt immediately and sharply in Mexico. Export-oriented manufacturing will continue to perform better than domestically oriented services into the medium term. Mexican growth will also be below the Latin American regional mean, reflecting weaker links with rapidly growing Asia.

Weak labour market

Evidence of the slower recovery in domestic demand is reflected in the latest labour statistics, which show that job creation remains weak and employment in manufacturing (the strongest-growing sector) is still significantly below pre-crisis levels. In December 2010, Mexico’s seasonally adjusted unemployment rate stood at 5.55%, virtually unchanged from November (and among the highest on record in 2010) and higher than the 5.36% registered in December 2009. Employment in manufacturing has continued to rise (by around 4% year on year each month since July), but it remains around 7% below the pre-2008 peak.

Wage growth also remains fairly lacklustre. In manufacturing, wages have risen by around 5% year on year, but in wholesale and retail trade wages have continued to contract, while in non-financial services, growth has been low (negative in real, inflation-adjusted, terms). Although this will help to subdue inflation pressures, it has influenced consumer confidence, which has dipped since September. By contrast, surveys in the manufacturing sector show that confidence among producers has continued to strengthen, on the back of rising output and exports. These trends further underscore the fact that the ongoing recovery has not translated into solid gains in the labour market. Most of the recovery remains linked to external factors.

That said, the faster expansion in the US will boost demand for Mexican exports, which will help to reduce excess capacity and support business expectations on both sides of the border. In this environment, companies may be keener to commit to new investment and job creation.

Further, recent evidence of some Chinese firms setting up factories in Mexico for export to the US, as well as some firms choosing Mexico over China owing to lower transport costs, will also provide some support to manufacturing and employment growth. And it will help to compensate for the market share that Mexico has lost to Asian producers in recent years.

Inflation largely contained

On the inflation front, we expect that disciplined fiscal management and currency appreciation will keep price pressures contained in the near term. However, convergence to OECD inflation rates will be precluded by sluggish progress on supply-side reforms needed to improve competitiveness and reduce the costs of public utilities. Although inflation was subdued in much of 2010, this attested to the weakness of demand-side price pressures. However, a low base of comparison and rising commodity prices pushed inflation to 4.4% at the end of 2010, above the official 2-4% target range. We expect minor overshooting above the 4% mark to continue during much of 2011.

Currency appreciation will help to keep supply-side pressures in check while weak pressures on wages will curb demand-side inflation. Inflation is likely to remain at the upper end of the central bank’s target range during 2012-15. This will be lower than the average annual rate of 5.2% in 2008‑09 (owing to international food supply shocks), but significantly higher than OECD inflation (of 1.2-2%).

Peso not overvalued

Mexico, like many other emerging markets, has seen its currency strengthen in recent months, but given the more significant period of depreciation in late 2008 to early 2009, its current level is not overvalued. This largely reflects the fact that growth has been weaker than in other emerging markets and that Mexico is linked to a major developed economy (the US) rather than other fast-growing emerging economies.

Massive monetary stimulus in the US, combined with the ongoing global recovery and exceptionally low interest rates, will support the peso in the short term, with further appreciation to Ps11.6:US$1 expected in mid-2011. As quantitative easing (QE) expires in the US, the peso is expected to weaken slightly to Ps12.2:US$1 by the end of the year. We expect the peso to remain at around Ps12:US$1 in 2012. Low trade exposure to Asia will prevent firmer export growth and workers’ remittances will remain depressed, but, offsetting this, foreign direct and portfolio investment inflows will increase, though remain below potential.

Meanwhile, the central bank will remain committed to a floating peso and averse to intervening except in the event of acute volatility, in order to avoid any suggestion that it is targeting a particular exchange rate.

Deficits to widen again

On the trade front, Mexico’s performance will remain highly reliant on US import demand—the US buys around 80% of Mexico’s exported production. Full-year preliminary data indicate that the trade deficit came in at US$3.1bn in 2010, compared with US$4.6bn in 2009. The shrinking of the deficit relates more to weaker import growth than faster export growth. In 2011 the deficit is expected to widen as import growth accelerates.

We estimate that the current-account deficit narrowed to 0.6% of GDP in 2010 (from 0.7% of GDP in 2009). The deficit is expected to rise throughout the next several years to reach 3.6% of GDP by 2015, driven mainly by a widening of the trade deficit.

(Source: viewswire.eiu.com)

@2 years ago
#The economist #The economist intelligence unit #EIU Country report 
Brazil politics: Dilma on a roll

Brazil’s president, Dilma Rousseff, is enjoying an extraordinary level of approval for a president now in her second year in office. She is more popular than her predecessors were at this stage in their terms, despite a plethora of corruption scandals and increasing opposition from members of her own multi-party coalition, who have been frustrated by her reluctance to distribute enough government jobs and political favours. Ms Rousseff has also sought to raise her profile on the international stage, although results in this area have been mixed.

The president’s popularity can be attributed to her deft handling of an economic slowdown (to which her government has responded with a range of stimulus measures) and her willingness to investigate, and oust, cabinet ministers and advisors accused of corruption (six of her ministers resigned in her first year in office). Her approval ratings are not only at the highest level since she was inaugurated in January 2011, but are also among the best for any democratically elected leader in the world.

According to a March opinion poll by a research firm, Ibope, Ms Rousseff’s approval rate stood at 77%, up by five percentage points from December 2011. This compares with 54% for her predecessor, Luiz Inácio Lula de Silva, at the same stage in his presidency (15 months) and 57% for the prior president, Fernando Henrique Cardoso. Her support is stronger in the northeast (82%), but it is also high in the southeast (75%), a region that has often supported the opposition. This shows that her support base is more expansive than Lula’s (whose backing was concentrated in the northeast and among low-income voters) and also reflects her increasing popularity among the growing middle class, together with still-strong support among poorer Brazilians.

Firm but flexible governance

Voters seem to approve of Ms Rousseff’s firm style of governing, including her determined attitude towards Congress (the legislature). She recently managed to defuse another rebellion by the centrist Partido do Movimento Democrático Brasileiro (PMDB) and other smaller parties of her broad-based congressional coalition. She also has secured legislative approval of some key bills, including a civil servants’ pension reform (Funpresp) and the World Cup bill (which provides the legal framework for the upcoming World Cup games).

She has faced some setbacks, however. On April 26th lawmakers passed a controversial forestry code, which pits landowners against environmentalists, without the compromises the government had carefully negotiated. Ms Rousseff could veto the law, though this could be overridden by a simple majority vote by legislators. The law eases the rules, designed to reduce deforestation, mandating the amount of land farmers must preserve.

Overall, however, Ms Rousseff has shown that her firm style does not necessarily entail a state of permanent confrontation and gridlock with Congress. She has proven flexible and, when she has needed specific projects to be approved (like Funpresp), she has been ready to release some funds to please allied parties. The upcoming municipal elections in October 2012 will be an important test of Ms Rousseff’s popularity and of the current balance of power within the ruling alliance (especially between the PMDB and the governing Partido dos Trabalhadores) and among other political forces ahead of the presidential election of 2014. It is widely assumed that Ms Rousseff will seek another term.

Foreign policy record is mixed

The president’s recent forays on the international stage have also demonstrated her toughness, though the results have been mixed. She has stepped up her diplomatic activities in recent months, demonstrating a firm style in her dealings with foreign counterparts, including the US. Within less than two months, she met with the German chancellor, Angela Merkel, and with the leaders of Russia, India, China and South Africa during a BRICs (Brazil, Russia, India and China) summit in the Indian capital, New Delhi. She also had a separate meeting with the Indian prime minister, Manmohan Singh, before meeting the US president, Barack Obama, in Washington and attending the Summit of the Americas in Colombia in mid-April.

These trips have helped to raise Ms Rousseff’s profile internationally, but have not substantially furthered Brazil’s foreign policy goals. Starting with the US visit, Ms Rousseff managed to include in the discussions the suspension of a military procurement contract that Embraer (a Brazilian aircraft manufacturer) initially won with the US Air Force, which was later cancelled, demanding that the US honour it. However, the more important issue of Brazil’s desire for a permanent seat at the UN’s Security Council (a goal of the country’s foreign policy for at least two decades) was barely mentioned. Ms Rousseff was not granted state visit treatment, and she did not receive the same kind of backing that Mr Obama has given to the Indian premier, who also wants a Security Council seat.

Moreover, Ms Rousseff’s repeated attacks against the “currency war” have caused unease in Europe and the US for some time, and the fact that Ms Rousseff reiterated the issue prominently during her meetings with Ms Merkel and Mr Obama (as well as at the Summit of the Americas later on) caused some irritation (especially in Germany). The fact that Brazil blames developed countries for the currency war, but carefully avoids any criticism of China (now Brazil’s main trading partner), does not help Ms Rousseff’s argument either.

With respect to Brazil’s effort to boost its leadership role among emerging economies, initiatives such as trade in local currencies (by-passing the US dollar) or the creation of a common development bank among the BRIC economies (which would act as a counterbalance to the World Bank) are unlikely to advance in the short to medium term. Brazil and other developing countries did not even manage to agree on a common candidate for the presidency of the World Bank as an alternative to the US candidate, who ultimately got the post.

(Source: viewswire.eiu.com)

1 year ago
#The Economist #The Economist Intelligence Unit #EIU Country Report 
Mexico economy: Better outlook, with caveats

Mexico was hit harder than most Latin American countries during the global recession of 2009, and last year recovered only part of its lost output. This year it will benefit from the improved short-term outlook for the US, with which it has close trading and investment ties. The Economist Intelligence Unit has therefore upgraded its forecast for Mexico’s growth. However, the recovery is marred by the relatively poorer performance of the domestic economy and it dependence on the export sector, which will exacerbate Mexico’s vulnerability to external shocks.

Mexico’s GDP grew by an estimated 5% in 2010, but failed to rebound fully from the 6.1% contraction of the previous year. Brighter prospects in the US in 2011—we have revised our growth forecast there to 2.7% from 2.2% previously—will support firmer growth in Mexico as well. We now project that Mexico’s economic activity will increase by 3.9%, versus a forecast of 3.5% previously. But this expansion will again be largely export-led, with domestic demand insufficiently strong to drive growth independently.

Provided that our US import forecasts materialise, Mexican growth should remain relatively buoyant in the medium term (3.5-4%), but close synchronicity with the US business cycle means that any deterioration in conditions in the northern market will be felt immediately and sharply in Mexico. Export-oriented manufacturing will continue to perform better than domestically oriented services into the medium term. Mexican growth will also be below the Latin American regional mean, reflecting weaker links with rapidly growing Asia.

Weak labour market

Evidence of the slower recovery in domestic demand is reflected in the latest labour statistics, which show that job creation remains weak and employment in manufacturing (the strongest-growing sector) is still significantly below pre-crisis levels. In December 2010, Mexico’s seasonally adjusted unemployment rate stood at 5.55%, virtually unchanged from November (and among the highest on record in 2010) and higher than the 5.36% registered in December 2009. Employment in manufacturing has continued to rise (by around 4% year on year each month since July), but it remains around 7% below the pre-2008 peak.

Wage growth also remains fairly lacklustre. In manufacturing, wages have risen by around 5% year on year, but in wholesale and retail trade wages have continued to contract, while in non-financial services, growth has been low (negative in real, inflation-adjusted, terms). Although this will help to subdue inflation pressures, it has influenced consumer confidence, which has dipped since September. By contrast, surveys in the manufacturing sector show that confidence among producers has continued to strengthen, on the back of rising output and exports. These trends further underscore the fact that the ongoing recovery has not translated into solid gains in the labour market. Most of the recovery remains linked to external factors.

That said, the faster expansion in the US will boost demand for Mexican exports, which will help to reduce excess capacity and support business expectations on both sides of the border. In this environment, companies may be keener to commit to new investment and job creation.

Further, recent evidence of some Chinese firms setting up factories in Mexico for export to the US, as well as some firms choosing Mexico over China owing to lower transport costs, will also provide some support to manufacturing and employment growth. And it will help to compensate for the market share that Mexico has lost to Asian producers in recent years.

Inflation largely contained

On the inflation front, we expect that disciplined fiscal management and currency appreciation will keep price pressures contained in the near term. However, convergence to OECD inflation rates will be precluded by sluggish progress on supply-side reforms needed to improve competitiveness and reduce the costs of public utilities. Although inflation was subdued in much of 2010, this attested to the weakness of demand-side price pressures. However, a low base of comparison and rising commodity prices pushed inflation to 4.4% at the end of 2010, above the official 2-4% target range. We expect minor overshooting above the 4% mark to continue during much of 2011.

Currency appreciation will help to keep supply-side pressures in check while weak pressures on wages will curb demand-side inflation. Inflation is likely to remain at the upper end of the central bank’s target range during 2012-15. This will be lower than the average annual rate of 5.2% in 2008‑09 (owing to international food supply shocks), but significantly higher than OECD inflation (of 1.2-2%).

Peso not overvalued

Mexico, like many other emerging markets, has seen its currency strengthen in recent months, but given the more significant period of depreciation in late 2008 to early 2009, its current level is not overvalued. This largely reflects the fact that growth has been weaker than in other emerging markets and that Mexico is linked to a major developed economy (the US) rather than other fast-growing emerging economies.

Massive monetary stimulus in the US, combined with the ongoing global recovery and exceptionally low interest rates, will support the peso in the short term, with further appreciation to Ps11.6:US$1 expected in mid-2011. As quantitative easing (QE) expires in the US, the peso is expected to weaken slightly to Ps12.2:US$1 by the end of the year. We expect the peso to remain at around Ps12:US$1 in 2012. Low trade exposure to Asia will prevent firmer export growth and workers’ remittances will remain depressed, but, offsetting this, foreign direct and portfolio investment inflows will increase, though remain below potential.

Meanwhile, the central bank will remain committed to a floating peso and averse to intervening except in the event of acute volatility, in order to avoid any suggestion that it is targeting a particular exchange rate.

Deficits to widen again

On the trade front, Mexico’s performance will remain highly reliant on US import demand—the US buys around 80% of Mexico’s exported production. Full-year preliminary data indicate that the trade deficit came in at US$3.1bn in 2010, compared with US$4.6bn in 2009. The shrinking of the deficit relates more to weaker import growth than faster export growth. In 2011 the deficit is expected to widen as import growth accelerates.

We estimate that the current-account deficit narrowed to 0.6% of GDP in 2010 (from 0.7% of GDP in 2009). The deficit is expected to rise throughout the next several years to reach 3.6% of GDP by 2015, driven mainly by a widening of the trade deficit.

(Source: viewswire.eiu.com)

2 years ago
#The economist #The economist intelligence unit #EIU Country report