Temer’s pension reforms face stiff opposition

Brazil’s unions have planned a day of struggle to protest Temer’s proposed social security reform bill. The president is already very unpopular in Brazil; polls show voters want him to be accountable for alleged corruption [Xinhua]

Brazilian President Michel Temer is facing a tide of opposition regarding his promise to reform the social security program.

Many among his supporters see the reform initiative as damaging to their relection bids in the general election next October.

But in an interview aired on Brazilian TV on Friday night, Temer said the reform bill had not been defeated.

According to the constitution, Temer’s already watered down proposal requires 308 of 513 votes in congress to pass. His supporters say they have around 270 right now, up by about 40 since October.

Some analysts expect Temer and his Democratic Movement Party to make further concessions in the first few weeks of the year to bridge the deficit in supporting votes.

In the meantime, Brazilian unions have scheduled street protests for February 19 as a “national day of struggle” – the day the lower house of Congress is expected to vote on the reform bill – to voice popular opposition to Temer’s reform package.

Temer has said that he wants to lift the retirement age, for example, well into the 60, easing the burden on the national coffers. Temer’s proposal would have men retiring at 65 and women at 62.

Most Brazilians in the public sector retire in their mid to late 50s.

In the rural industries, women will retire at 55 and men at 60, according to the proposal.

He also wants to reform the public pension regimen.

To be eligible for full pension, employees in the public sector will have to work 25 years; in the private sector, 40 years.

Temer has said that overhauling the pension system is necessary to cap government spending, which some economists say was overblown and a factor in the recession since 2014.

But most social activists are angry that Brazilian politicians are insisting on the need for cuts in benefits and public services even as evidence grows that they benefited personally from illegal kickbacks on overinflated contracts. President Temer is also facing charges of taking multimillion-dollar bribes.

The proposal to modernize Brazil’s labor laws, some of which date back to the 1940s, is backed by Brazilian businesses so they can lower labor costs that allegedly undercut their ability to compete in foreign markets.

By Firas Al-Atraqchi with inputs from Agencies

Rapid urbanization a challenge for BRICS countries

Major cities in Brazil, China and India are witnessing rapid urbanization [Xinhua]

The Malaysian capital of Kuala Lumpur will next week host the Ninth Session of the World Urban Forum to discuss the challenges societies as more people move to the cities.

The forum titled, Cities 2030, Cities for All: Implementing the New Urban Agenda, will focus on the efforts of major countries, such as China, India, and Brazil to overcome the challenges posed by rapid urbanization.

Some of these challenges include the ever-growing income gaps, smog and pollution, and crumbling infrastructure which can no longer support such population growth.

In 2018, about 50 per cent of the global population is living in cities. But the World Bank says that by 2050, 70 per cent of the global population will be living in cities.

In Delhi, for example, the number of residents living in the capital has grown from 9.7 million in 1990 to 25.7 million in 2015.

In fellow BRICS member, China, cities such as Beijing and Shanghai have seen their populations grow from 6.8 million to 20.4 million, and 7.8 million to 23.7 million, respectively, in the same period.

For Brazil, Sao Paulo has witnessed 14.8 to 21.1 million residents in the 25-year period.

For Africa, the greatest urbanization has happened in Cairo, from 9.9 million in 1990 to 18.8 million in 2015.

The rapidly changing climate and regional conflicts which have lately produced tens of millions of refugees further exacerbate the pressures these cities and others face, the World Bank says.

Read more: BRICS tackles urbanization

The BRICS Post

Economists are playing catch-up with economic reality

Economic growth forecasts for 2018 have been ratcheted higher as data exceeds expectations

Growth rates in BRICS nations such as China and India have exceed expectations of the IMF and other forecasts [Xinhua]

The news that China’s GDP growth in 2017 was 6.9 per cent as opposed to the government target of 6.5 per cent and the January 2017 international Monetary Fund (IMF) projection of 6.5 per cent is merely the latest in a sequence of economic data releases that has pushed economists to play catch-up with economic reality.

China is also not the only BRICS member county to see economic data exceed expectations.

Brazil has surprised by how robust its economy has performed despite the ongoing corruption allegations and the stalled political reform agenda.

Russia has exceeded expectations both in terms of growth and low inflation, while India has started to recover from the high-denomination rupee withdrawal of November 2016. South Africa has recently seen accelerating growth after a slow first half.

The IMF in January 2017 forecast that Brazil would only grow by 0.2 per cent in 2017. Full year figures have not yet been published, but the Brazilian economy expanded by 1.4 per cent y/y in the third quarter of 2017, following a 0.4 per cent y/y gain in the second quarter and better than the consensus forecast of 1.3 per cent.

It is the fastest growth rate since the first quarter of 2014, boosted by a jump in household consumption spending and exports.

The IMF in January 2017 forecast that Russia would only grow by 1.1 per cent in 2017. Full year figures have not yet been published, but the Russian economy expanded by 1.8 per cent y/y in the third quarter of 2017, following a 2.5 per cent y/y gain in the second quarter and better than the consensus forecast of 1.6 per cent.

The economy was boosted by a jump in household consumption spending and exports on the expenditure side and by farming and manufacturing on the production side.

Agriculture advanced by 3.8 per cent y/y in the third quarter after a small 0.1 per cent y/y rise in the second quarter.

The export performance was particularly robust as the oil price recovered from the January 2016 lows. That meant Russia’s trade surplus widened by 28.4 per cent y/y to US$ 11.52 billion in November, which was above market expectations of a US$ 11 billion surplus.

In the first eleven months of 2017, the trade surplus widened sharply to US$101.63 billion from US$ 78.5 billion in the same period of 2016.

The IMF in January 2017 forecast that India would grow by 7.2 per cent in 2017, but full year growth in 2017 is unlikely to exceed 6.5 per cent as the structural reforms have had a larger than expected impact.

Full year figures have not yet been published, but the Indian economy expanded by 6.3 per cent y/y in the third quarter of 2017, following a 5.7 per cent y/y gain in the second quarter, which was the lowest growth rate in nearly three years. A rebound in investment and inventories offset a slowdown in both private and public spending.

Fourth quarter growth should exceed expectations as the November 2016 disruption falls out of the comparison period. India’s industrial production surged by 8.4 per cent y/y in November 2017 easily beating market expectations of 4.4 per cent.

It was the steepest increase in industrial production since June 2016, boosted by strong growth in manufacturing, which soared by 10.2 per cent y/y.

The IMF in January 2017 forecast that South Africa would grow by 0.8 per cent in 2017. Full year figures have not yet been published, but the South Africa economy expanded by 1.3 per cent y/y in the third quarter of 2017, following a 0.9 per cent y/y gain in the second quarter.

The third quarter growth was the fastest since the first quarter 2015 and was boosted by exports and household consumption expenditure.

Fourth quarter growth is likely to exceed 2 per cent y/y as South African bulk export volumes rose by 4.9 per cent in 2017 to a new record of 171.3 million tons, while real retail sales surged by 8.2 per cent y/y in November for the highest y/y growth rate since June 2012.

The higher than expected growth in 2017 therefore sets up these BRICS economies for an even higher growth rate in 2018.

This is especially so as economists are having to do the same catch-up in their forecasts for developed economies as shown by the consensus forecasts from UK-based Consensus Economics.

The US for instance has had its 2018 GDP growth forecast increased from 2.4 per cent in January 2017 to 2.7 per cent, while Germany has moved from 1.8 per cent to 2.3 per cent over the same period.

France has been upgraded to 1.9 per cent from 1.6 per cent, while Japan’s GDP growth forecast has improved from 1.1 per cent to 1.4 per cent. Only the UK has remained stagnant at 1.4 per cent.

The stronger developed countries’ growth bodes well for BRICS growth as most economies need improved exports to boost their economies in 2018.

Helmo Preuss in Grahamstown, South Africa for The BRICS Post

Emerging markets to be hot commodity in 2018?

Workers make bicycle parts at a factory at Ludhina in the Indian state of Punjab. India remains one of the strongest emerging market performers, analysts agree [Xinhua]

Investments in emerging markets have been on the rebound in the past 18 months soaring to new levels despite the dollar and oil prices fluctuation, and look likely to continue their upward climb in the coming year.

From Chile to Turkey, Peru to Russia, Egypt to India, and China, emerging markets have become sharply lucrative again due to economic policy in these countries not only becoming adaptive to US market shifts – namely, Fed policy – but also becoming proactive by drawing up scenarios which include the prospects of US interest rate hikes.

This has largely helped stabilize commodity markets – also seen in strengthening currency stability, ultimately leading to stronger confidence in the economy.

These countries have also learned how to weather political crises that once debilitated confidence in the economy and pulled markets into recession.

The MSCI Emerging Markets Index, which measures equity market performance in some 26 emerging countries and accounts for 10 per cent of the world market capitalization, is up 29.37 per cent year-to-date.

Just three months ago, the Index was up 23.4 per cent – the steady increase is noticeable, as is the outperformance when compared with European and US indices.

And most of these outperformers are located in Latin America and Asia.

Take Brazil, for example, which is now emerging from a three-year recession. It’s benchmark Bovespa stock exchange is up 24.20 per cent year-to-date.

In Chile, that figure is 35.52 per cent while Argentina, which is still waiting to be shifted from the riskier “frontier” market status to “emerging”, the Merval stock exchange is up 62.13 per cent.

UK-based financial services group bfinance said in a quarterly report that there is “a surge in emerging market appetite”. It said that as of June 20, 2017, 24 per cent of new equity engagements were focused in emerging markets or “emerging Asia”.

It revealed that emerging market equity performance grew 18.4 per cent over a period of a year to end of June 2017, outerperforming Europe (15.5 per cent) and US equity (9.3 per cent).

And this trend is likely to continue as Emerging Markets appear to welcome US President Donald Trump’s decision to nominate Federal Reserve Governor Jerome Powell to replace current chief Janet Yellen. The expectation is that while Powell will not halt interest rate increases, he may choose to delay such action for a while.

Powell has voiced his opinions that it may be time to slowly roll back some of the policies – without rocking the boat – which Yellen green-lighted in a bid to get the US economy back on track.

Powerhouse China, Powerhouse India

These markets, as in Asia, have moved from being commodity-focused (suffering from the commodity market crisis of the past two years) to services and technology-based markets.

Leading this transformation are China and India, two of the world’s biggest emerging markets and key growth prospects in BRICS.

According to Reuters and the MSCI Emerging Markets country indices, China’s markets are up 45.2 per cent year-to-date, while India’s markets are up 31.5 per cent in the same period.

India’s growth was briefly stunted due to the demonetization drive launched by the government last year – with GDP growth falling to just 5.7 per cent in the second quarter, a three-year low.

However, the government has been pushing for bank reforms and streamlining regulations for foreign investment. In May, it terminated a government body which was tasked with approving foreign direct investment (FDI) – and seen by some as being restrictive – and let the approval of such ventures up to individual ministries.

This is part of Prime Minister Narendra Modi’s Make in India policy, to woo foreign investors and boost the country’s productivity and competitiveness.

According to government statistics, FDI rose 8 per cent between March 2016 and 2017.

On Tuesday, a World Bank report lauded India for boosting access to credit system and making it easier to secure to procure construction permits. India moved up 30 places in the Bank’s ease of doing business ranking.

The World Bank has also forecast a revival of demand in the commodity markets, which will be a boon to India, China and others.

The Bank says that falling supply and increased demand will largely contribute to a rise in gains for energy and metal commodities in 2017.

Boosting the presence and viability of emerging markets is a necessary policy, says Chinese President Xi Jinping.

“We need to amplify voice of emerging markets and developing countries,” he added.

“We need to seek practical results in our (BRICS) economic cooperation, we have not fully tapped potential of BRICS yet,” Xi said at the BRICS Summit in Xiamen in September.

In its latest economic outlook, the International Monetary Fund (IMF) said in August that China can expect sustained strong growth of 6.7 per cent this year and a likely average of 6.4 – revised up from 6 – per cent up to 2021.

But the report said that China must quickly move to curb “household, corporate and government debt—is expected to continue to rise strongly”.

Nevertheless, the manufacturing sector has continued sustained growth since last year in China. The China’s Manufacturing Purchasing Manager’s Index (PMI) was 51.0 in October.

The government survey tracks the health of some 3,000 large and state-owned companies.

The reading is above the neutral 50-point level, signalling an expansion in the manufacturing sector, according to the National Bureau of Statistics.

A reading below 50 represents contraction.

By Firas Al-Atraqchi for The BRICS Post with inputs from Agencies

Emerging markets grow best in three years

Analysts agree that 2017 was a good year so far for emerging markets. But can growth last? [Xinhua]

A mix of a weaker-than-expected US dollar in recent weeks and positive industrial data from China has boosted emerging markets to peak levels not seen in nearly three years.

The MSCI Emerging Markets Index – which measures equity market performance in some 26 emerging countries – rose 1 per cent Thursday, beating its record last year and registering the highest level since September 2014.

The MSCI Emerging Markets index comprises 10 per cent of world market capitalization.

In China, industrial profits are up 19 per cent at the same time that the country’s Q1 and Q2 GDP growth beat forecasts coming in at 6.9 per cent. The Chinese government had set a growth range of 6.5 to 6.9 per cent for 2017.

The benchmark Shanghai Composite Index continued its strong gains this month by rising 0.06 per cent to 3,249.78. Year to date it has grown 8.62 per cent.

The Hong Kong Hang Seng index reached its best performance in two years on Thursday, rising 0.7 per cent to 27,131.17.

Chinese market performance helped boost the rest of Asia with growth in South Korea, Japan, India and Australia.

In Brazil, the benchmark Ibovespa stock exchange was up 0.77 per cent at press time, buoyed by the Central Bank’s decision to cut the Selic interest rate down to 9.25 per cent – a significant move which indicates that inflation is being brought under control.

This is the lowest interest rate since November 2013 when Brazil’s economy began to show signs of slumping into recession.

While the Brazilian currency, real, dipped slightly, it was still 3.23 per cent up against the dollar year to date.

The Russian ruble has also done well against the dollar this year, having gained 12 per cent in strength since the same time last year.

The Russian economy has steadily rebalanced itself in the wake of US and EU sanctions over the Ukraine crisis.

“The Russian economy is projected to recover gradually in 2017 and 2018, in line with the April forecast,” the IMF said earlier this week. It is projecting real GDP growth of 1.4 per cent this year.

Emerging markets were also affected by remarks from the Federal Reserve on Wednesday, which stated that it would not raise interest rates but would begin to roll back its balance sheet in the months ahead.

The Fed also remarked that inflation rates in the US were “persistently” low and not edging toward its target rate of two per cent. This may mean that there will be pressure not to raise interest rates any time soon.

The BRICS Post with input from Agencies