3/14/2014 @ 9:37 am

Brazil’s economy is stuck in “mais ou menos” land. For the bears, it’s more “menos” — as in less — than it is “mais” — as in more.

Retail sales surprised to the upside in January, but most economic data is expected to come in relatively flat to negative for February. Simply put, there is no Brazilian bounce in the works.

“Our preliminary industrial production forecast is flat, which is compatible with a 0.1% monthly rise in the IBC-Br,” said Marcelo Salomon, chief Brazil economist at Barclays BCS -1.34% Capital. The IBC-Br is a monthly economic activities index compiled by the Central Bank.  Salomon said Friday that his first quarter real GDP tracker is now at a 0.5% rise over the fourth quarter of 2013, and seen gradually converging to the investment bank’s 0.3% forecast.

During January, the IBC-Br moved up by 1.26% month over month, or 0.93% on the year.  That’s because both IP and retail sales beat consensus forecasts, rising on a monthly basis by 2.9% and 0.4%, respectively. And due to the fact that this growth improvement came off a low December base. December IBC-Br was -1.35%, for example.

English: Dilma Rousseff on July, 2010 in Porto...

Brazil president Dilma Rousseff, ready for a second term. Investors think it will be better than the first.  (Photo credit: Wikipedia)

Said Salomon in a note to clients today, This is “not a new upward trend.”

The good news is that January’s positive data dampens the risks that the economy was moving into a recession, something Nomura Securities in New York said was a possibility last month.  Still, February data in Brazil won’t be as good as January, Salomon said.

Going forward, investors will be keying in on the presidential campaign. Politics should slip into high gear in the months ahead. While most Brazilians will be paying attention to the FIFA World Cup soccer matches that begin in early June and last a month, politicians will busy bombarding TV screens and billboards with political ads.

Current president Dilma Rousseff of the Workers’ Party remains a favorite, but the market expects some key cabinet shake ups in a second term. In short, Brazil will remain volatile during this political season.

Opinion polls favor Dilma. They now reflect the fact that the leading opposition candidate, Marina Silva, was unable to meet legal requirements to form her own political party. This has led to a surprising alliance with Eduardo Campos of the Brazilian Socialists, and the stated plan is for her to run as his Vice-Presidential candidate. Campos doesn’t stand a chance. He is currently in last place out of the four candidates. With Silva off the ticket, there are now three candidates, putting Social Democrat frontman Aecio Neves at No. 2. His poll numbers are also in decline.

With Silva no longer a headliner, Dilma is clearly running the show. A reading of these polls, and especially polls for possible second round run-offs, suggests an easy victory for her on Oct. 26.

Providing the market has a better handle on Fed tapering, and if the European, U.S. and Chinese economies are at least status quo to improving, Brazil equity investors could begin seeing gains towards the end of the year.

The effects of the May 2013 “tapering shock” plus continued market and rating agency pressures have already pushed policy in a more market friendly direction.

“The incentives will be for Dilma to continue to deliver economic policy improvements in her likely second term,” said Tony Volpon, head of emerging markets Americans at Nomura Securities.