Morgan Stanley improves estimates for Brazilian economy and recommends attention to the labor market By Reuters

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SÃO PAULO (Reuters) – The Morgan Stanley (NYSE 🙂 raised the projections for the performance of the Brazilian economy in 2020 and 2021, assessing that both consumers and businessmen are in a better position to contribute to the recovery, in the midst of a stimulating monetary policy.

The North American bank started to see a contraction of 4.5% of the Gross Domestic Product (GDP) in 2020, compared to a 5.1% decrease of the previous estimate. For next year, the forecast is for expansion of 3.6%, compared to 3.2% before.

Morgan Stanley’s scenarios are more optimistic than those pointed out by the Central Bank’s Focus survey. In the most recent edition of the document, released last Monday, the market predicted a retraction of 5.05% of GDP in 2020 and growth of 3.50% in 2021.

US bank analysts reported the change in estimates in a report on Friday in which they made comparisons with prospects for Mexico – and concluded that the Brazilian economy is “well ahead” of the Latin American rival in the race to exit rock bottom.

“And we expect this to continue to be the case in the coming months, based on the relative sizes of the fiscal stimulus packages, improvement in sentiment and less consequence of the initial impacts caused by Covid-19,” said Morgan Stanley analysts in the report.

“We believe that the most relevant factor to be observed from now on is the dynamics of the labor market and the migration from emergency income to income via employment (which may affect the recovery)”, they added.

Morgan Stanley analysts, however, weighed the fiscal issue. They estimate that there may be a “limited (in size and time) fiscal slippage” in Brazil, but not a “total derailment” of the spending ceiling, with the expectation that a “temporary” easing in this mechanism may come with some progress ” “on the reform agenda aimed at resolving barriers to long-term growth.

“If Brazil avoids loosening its fiscal anchor, we see the resumption of the reform agenda and expansionary monetary policy as drivers of consumption and investment,” they said.

(By José de Castro)

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