Economists Predict Impeachment Rally Likely to be Short-Lived

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – The day after Brazil’s Chamber of Deputies authorized the continuation of the impeachment process of President Dilma Rousseff, by the country’s Senate, economic analysts try to forecast how the country’s economy will react to a possible impeachment.

For Neil Shearing, Chief Emerging Markets Economist, at Capital Economics consultancy group, markets are still in a ‘what’s bad for Dilma is good for asset prices’ mindset. The economist says that although markets will rally in the coming days and the Brazilian real is likely to appreciate in relation to the U.S. dollar, the favorable outlook is likely to be temporary.

“For one thing, we suspect that a Temer-led government would still have problems agreeing the unpopular measures needed to stabilize Brazil’s economy and public finances.”

Shearing believes financial markets are underestimating the likely backlash from President Rousseff’s Workers’ Party and her support base. “A pro-market government could emerge from the ashes of this political crisis but, as things stand, it seems just as plausible that Brazil could lurch further towards economic populism,” he adds.

Meanwhile, Sunday’s authorization of the impeachment process was applauded by two of the country’s largest industry organizations. According to FIRJAN (Rio de Janeiro Industry Federation) the outcome ‘reflects the sturdiness of our institutions and strengthens our democracy’. The entity released a note stating that the conclusion of the process will allow Brazil to look forward with hope and ‘leave a period marked by a lack of dialogue, a division of the country and the failure of economic policies’.

FIESP (Federation of Industries of the state of São Paulo) President Paulo Skaff was quoted by Agencia Brasil as stating that Sunday’s vote would have a positive impact on Brazil’s economy. “The expectation of a favorable result led the stock market to increase significantly and the U.S. dollar [foreign exchanger rate] to devaluate,” he was quoted as saying.