Business confidence boost unlikely if Brazil’s Rousseff impeached: poll

Thomson ReutersBrazil’s President Rousseff looks on during signing of federal land transfer agreement for the government of the state of Amapa at Planalto Palace in Brasilia

By Silvio Cascione

BRASILIA (Reuters) – The probable impeachment of Brazil’s President Dilma Rousseff is unlikely to be followed by an immediate rebound in business confidence or currency gains, a Reuters poll showed on Monday.

Vice-President Michel Temer, set to serve out Rousseff’s term until 2018 if the president is ousted, will probably rule over a period of chronically high unemployment and budget deficits, the poll projected.

He will probably lack political support to approve major reforms in Congress but has alternative measures to reinvigorate Brazil’s depressed economy, economists said in a survey taken a day after Rousseff lost a crucial impeachment vote in the lower house of Congress.

“Things in Brazil are much more problematic than it seems,” said Pedro Tuesta, senior Latin America economist at 4Cast. “A change of government is a necessary condition but it is not enough, by a large margin.”

Twenty economists at major banks and research firms participated in the poll.

Half of them expect business confidence to lift off record lows only in the fourth quarter of the year. Unemployment, which has risen sharply as Brazil sank into a deep recession, will start to drop only in 2018 or beyond, according to 11 of them.

“There won’t be a V-shaped recovery in confidence,” said Rodrigo Melo, chief economist at Icatu Vanguarda.

Temer will probably be unable to plug Brazil’s budget deficit over the next couple of years, the poll added. Eleven expect a surplus only in 2018, but seven of the economists polled see deficits until 2019 or even after that.

The poll results contrast with market optimism as the impeachment process gained momentum earlier this year. Brazil’s currency, the real, is set to weaken to 3.73 per dollar by year-end after gaining about 10 percent this year.

“The big structural reforms needed will not be approved. But there are other measures outside Congress that would already be positive,” said Barclays analyst Bruno Rovai.

“He could muddle through if inflation falls. With inflation declining, debt trends are not explosive.”

Economists said Temer will probably start his administration by cutting spending and downsizing subsidized credit by public banks. Tax hikes are also likely, but may take longer as Temer tries to secure popularity.

A recent survey from polling group Datafolha showed just 1 percent would vote for him.

“His strategy will likely be to show some commitment to cut deep first before discussing raising taxes,” said Luciano Rostagno, chief Latin America strategist at Mizuho.

(Reporting by Silvio Cascione; Editing by Andrew Hay)

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