The market confirms the end of the honeymoon period and pessimism regarding Bolsonaro's policies.

Sputnik – For the first time this year, economists from financial institutions have lowered their GDP growth estimate to below 2%. The drop in the growth forecast follows a trend observed in the latest Focus bulletins, published weekly by the Central Bank. Experts explain what may be behind this pessimism.

According to Marcel Balassiano, an economist at the Brazilian Institute of Economics of the Getúlio Vargas Foundation (IBRE FGV), the worsening market sentiment can be explained by the macroeconomic results of the last quarter of 2018 and the first quarter of 2019, which showed indicators below expectations. He also believes that the possibility of the pension reform being watered down in Congress has a direct impact on pessimism.

"After the election period, confidence indices showed an upward trend, and financial market variables attempted a growth trajectory. FGV considers the current situation and expectations for the future. This improvement in confidence is linked to expectations and not to an actual change in the established scenario. However, the government's problems—such as the dispute between the president and Rodrigo Maia—lead to greater uncertainty and a decrease in confidence," the economist points out. In March, the Business Confidence Index (ICE) measured by FGV fell to its lowest level since October 2018.

Marcel emphasizes that, until the reform is approved, fluctuations in expectations and the stock market will be common. He believes the market reacts much faster to political movements than the economy because it tries to price in gains and losses. Thus, "the timing of how the reform vote will happen, the changes that will or will not occur, all of this will dictate the course of events in the coming months, especially in relation to the financial market and the confidence and projections of the business community."

"Ultimately, the big question for 2019 may not be economic, but rather political. Stronger growth in the future depends on pension reform," he assesses.

José Penna, chief economist at Porto Seguro Investimentos, agrees, highlighting that "although there is conviction that the reform will be approved, two questions remain: the timeframe and the level of fiscal savings after the process, since there is an expectation of dilution of the savings originally intended" by the team of the Minister of Economy, Paulo Guedes.

"The president himself left open the possibility of reconsidering the minimum retirement age for women, and there is an apparent consensus in Congress against changes to the Continuous Benefit Payment (BPC)," he mentions, referring to the payment granted to low-income elderly people, which is currently one minimum wage and, according to the text, would be fixed at R$400 until they reach 70 years of age.

Penna also highlights the global slowdown agenda. According to him, the development of trade tensions between China and the United States has produced global ripple effects, impacting Europe above all. "There are specific issues, such as the Chinese government's decision to slow down the national economy since 2016, which has produced a delayed decline in global indicators. Brexit and productivity indicators in Europe also play a role."

The economist points out that the market will be watching the results of negotiations between the Presidential Palace and Congress. At the end of his trip to Israel this Wednesday, Bolsonaro spoke to the press about "playing hardball on the pension reform issue." He is expected to meet with party leaders later this week in an attempt to repair the strained relationship with parliamentarians.