Brazilian Government announces measures to boost growth

Today (15), the Brazilian government announced the following ten actions to stimulate economic growth, most of which focus on improving the business environment and lending.

1. Tax compliance: Installment arrangements can be made to pay off tax debts of individuals and legal entities due on or before November 30, 2016.

2. Incentive for real estate loans: Regulation of Covered Real Estate Bonds (LIG), an instrument for raising funds for real estate lending. The objective is to expand the supply of long-term credit for construction.

3. Reduction of bank spreads: (i) Creation of electronic trade acceptance for the registration of financial assets that can serve as security for credit transactions and (ii) enhancement of positive credit reporting by reducing the paperwork needed to adhere to the program and to exclude information from the database.

4. Credit cards: (i) Allowing different prices to be charged for different payment methods (e.g., cash, bank payment forms, debit cards, and credit cards); (ii) reduction of period for payment by acquirer to storekeeper; and (iii) standardization of payment methods at commercial establishments, preventing exclusivity of issuers and merchant acquirers;

 5. Reduction of paperwork: (i) eSocial: simplification of payment of labor, social security, and tax charges in connection with the employer-employee relationship; (ii) Public Digital Tax and Accounting System (SPED): unification of the provision of accounting and tax information for tax administrations and regulatory entities and reduction of the costs of providing the information; (iii) national implementation of electronic tax invoice for services rendered; (iv) simplification of procedures for reimbursement and setoff of taxes administered by the Federal Revenue Service; and (v) implementation of the National Network for Simplification of Registration and Legalization of Companies and Businesses (Redesim).

6. Improvement of management: Implementation of the National System for Management of Territorial Information (Sinter), which contains a national register of real estate and deeds and documents integrated with notarial registers and shared by various entities of public administration. 7. Competitiveness and foreign trade: (i) Expansion of Unified Foreign Trade Portal and (ii) expansion of the Authorized Economic Operator, which facilitates customs procedures in Brazil and abroad and other activities such as agricultural inspection, sanitary compliance, and the army. 8. Access to credit and debt renegotiation: (i) Facilitated access to credit from the Brazilian Development Bank (BNDES) for micro, small, and medium enterprises and (ii) renegotiation of all debts of small and medium enterprises with the BNDES (larger companies can apply for refinancing of overdue installments with funds from the Sustained Investment Program – PSI).

9. Severance Pay Fund (FGTS): (i) Gradual reduction in additional fine of 10% of FGTS balance in cases of dismissal without cause and (ii) distribution to workers of earnings from investment of FGTS amounts: 50% of FGTS earnings ascertained after all fund expenses, including housing subsidy, will be incorporated into the workers’ accounts. 10. Productive microcredit: (i) Expansion of limit for program qualification from BRL120K to BRL200K in revenues per year and (ii) change in operating rules to facilitate concession and monitoring of the credit. The government said that there is no estimate of the impact these measures will have on GDP growth but that most of the impact will likely be felt as of 2018. Although it is not possible to estimate the impact on GDP growth, the set of measures will probably be favorable for Brazil’s long-term growth. The real impact will depend on how fast the government will be able to implement the announced measures. However, we believe that these measures will not be sufficient to reverse the current path of contraction in economic activity in the short term.

IBC-Br contracted -0.5% mom (-5.3% yoy) in October, close to market expectations The Economic Activity Indicator (IBC-Br) posted a contraction of -0.5% mom (-5.3% yoy) in October, close to the median market expectations and our forecast, both of -0.6% mom (-5.5% yoy). October’s IBC-Br figures confirmed the negative dynamics of economic activity in the beginning of 4Q16, as already suggested by the performance of the main economic activity indicators (e.g., industrial production, real retail sales, and monthly services survey) in the period. The stability of the IBC-Br in November and December at the same level of October would represent a contraction of -0.3% qoq (-3.0% yoy) in 4Q16, versus -0.6% qoq (-3.6% yoy) in 3Q16. The coincident indicators already released suggest an increase in industrial production in November, what should contribute to a moderate increase in the economic activity indicator in the month. As a result, we believe the most likely scenario continues to be a milder contraction of GDP in 4Q16 in comparison to the previous quarters. We expect a GDP contraction of -0.4% qoq (-2.2% yoy) in 4Q16, after a decline of -0.8% qoq (-2.9% yoy) in 3Q16.