The Brazil is a time of high risk in relation to its present and near future. Volatilities were not
brought by election time the political hegemony party of the last 12 years is not as present and guaranteed, are already feeling the economic and social effects resulting from actions and / or economic decisions, and / or omissions these last 12 years, basically pushing inflation reducing consumption, dropping economic activity and transforming the current time, even if incipient, a stagflation, that is economic stagnation with inflation upward.

The index of economic growth represented by Product Gross Domestic Product (GDP) in 2014, expected to close in order 0.8%, appears much smaller than the average for the last four years which was 1.68%, which is less than half of 4% of eight years of Lula (2003/2010). For the next four years, according to forecasts already published indicate average growth in the range of 2.6%, almost same index of the FHC era which was 2.3% average. The effects of management actions or omissions of the Government in these Recent years have brought substantial decline in industrial activity, with -6.9% in June, -3.3% in May and 5.9% in April / 14, which
already characterized industrial recession. One of the factors this fall is the sharp slowdown in the auto industry, which influences substantially in other supply chains support.

Now if economic activity fell in the industry, but retail continues to grow 3% in 2014 x 2013, this means that
products not produced were replaced by imports, which brings other imbalances. Some industries abismal drop had such as industrial goods capital, which fell about $ 51 billion compared to 2013, consumer goods with approximately $ 6.0 billion, with oil -24.0 bi. The end result of these declines were offset growth of roughly $ 81.0 billion agribusiness. Despite these problems still with the parents’ full employment “within the criteria for measuring the IBGE, but no longer generating many new jobs. While in June / 2014 creating
net of vacancies, ie new hires were only 0.8mm, compared to December 2010 which was 25mm new jobs. In the coming months the weather will be the sharp drop in the level of jobs available, but not in time to affect the election.

Another perverse effect is in financial costs to the extent that economic problems forced the resumption of growth the benchmark interest rate, currently at 11% pa against average 7.7% pa in 2012, and that should also take further increases. All these imbalances directly affect the price level, pressure on inflation, which is already at 6.5% for the last 12 months, so exactly on target ceiling. The expectation is that the inflation rate close just above 2014 the target ceiling, so a new psychological level, and no expected improvement, quite the contrary, since there important misaligned prices, such as electricity, gasoline and other derivatives and foreign exchange volatilities still, souring the outlook of economic agents. The big question is: Because everything slowed? We may have some justification, among others:

1) One of the actions of the last four years has been strongly encourage consumption. With the increased level of indebtedness households and firms, consumption fell again and must continue to fall.

2) political and economic uncertainties, drastically reducing investments, and especially by the expectation of reducing consumption.

3) Public expenditure on edge. As there is no room for tax increases and new recipes, these factors will be
permanent pressure.

4) Low competitiveness of our industry with products expensive, which inhibits exports still generating increased of imports.

All these factors lead to the expectation that in the next four years we will have lower growth than the average of the last decade with inflation above the target of 4.5% per year, reaching or even surpassing the target ceiling of 6.5% pa and interest above the house 2 digits.

For 2014 the growth expected by the market is in the range of 0.8% in 2015 and around 1.2%, while India this year grow by 4.5% and 6.8% China, slightly less than 2013 to was 7.7%. This loss of growth in China this year not substantially affect Brazil, however, if it is below 6.5% will bring in other imbalances, affecting especially the area of commodities and agribusiness.

Problems passing by Argentina to drop economic, falling imports, activity impoverishment population, and the technical default they are getting will Compounding the commercial outcome with Brazil, and consequently
bring other problems. Imports by Argentina reaches 12% of our exports of automobiles, for example, industry
industry that affects a vast network of other industrial activities we have.

Another important factor of instability is the current political situation we live, and that will be exacerbated by the tragic death of candidate Eduardo Campos this morning. Whatever progress of campaigns, with replacement of the former candidate Eduardo Campos by Marina Silva or another candidate, or withdrawing party dispute, strengthen the expectation that a runoff election will occur. And whoever the winner of these elections, will have to make economic adjustments. And what are the necessary actions to put the parents on the route of growth? Surely several, among them the restoration the credibility of economic agents in government, more infrastructure investments, and so it will be possible with privatization or concessions, balance of public accounts, correction of the structure of relative prices and still ensure social assistance programs already in place, ie, correct internal factors and protect themselves from external factors that generate instability, seriously applying programs and actions that certainly be the bitter medicine we all must take.

Elizeu Lima
(Board of Recommendation fCN- Brazil)