Brazil Quarterly Update – October 2019

Economic activity remains sluggish this year, but we expect accommodative monetary policy to support growth in the next quarters; downside risks are difficult internal conditions and slowing global growth. Insurance premium growth continues to improve, in particular life lines.

Brazil's GDP expanded by 1% yoy in 2Q19, exceeding expectations after disappointing in 1Q19 (0.5%). Growth was supported by a rebound in investments (5.2%) and improved exports (1.8%). Both agriculture and industry sectors returned to positive territory, however still weak (0.4% and 0.3%). The sluggish economic activity this year has been driven mostly by increased political uncertainties weighing on business sentiment and investment, high unemployment and lower exports (mainly due to a decline in mining sales after the January dam disaster at Vale, the world's largest iron ore producer, and collapsing demand from Argentina). On a positive side, the much-needed pension reform, critical for public debt sustainability, passed the final stage in Senate this month.

After some dilutions, savings from the reform are estimated at BRL 800 billion over ten years. While some policymakers have worked on an aspiring agenda of deregulation and privatizations, the president has struggled to coordinate the reforms with the fragmented and polarized Congress, and has created internal crises of his own; the latest being with his party (PSL).

Key takeaways

  • GDP growth slightly recovered in 2Q19, thanks to a rebound in investments and improved exports.
  • Despite sluggish economic activity this year, we expect growth to improve next year.
  • We forecast inflation to remain under control and additional rates cuts by the central bank.
  • Total insurance premiums increased by 2.6% in 6M19, on the back of solid growth in life business.
  • P&C premiums shrank by 2.5% dragged by negative growth in motor business, offsetting increases in specialty and property lines.
  • Ceded premium growth increased by 10% in 6M19.

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Economic Outlook Brazil Quarterly Update - 28 October 2019

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