(Bloomberg) -- One of Brazil’s hottest new hedge funds is making a bullish bet that its home country will soon go from lackluster growth to beating the most optimistic forecasts.Legacy Capital Gestora de Recursos Ltda, which oversees almost 10 billion reais ($2.4 billion) a little over a year after launching, expects
Brazil to “grow as much as 2.5% with a chance of reaching 3%” in 2020, said Pedro Jobim, the firm’s chief economist. That compares with a median forecast of 2% compiled by Bloomberg, which has been successively declining since May.Jobim’s optimism is even more surprising as economists -- including himself -- have often overestimated Brazil’s growth in previous years. He had predicted an expansion of up to 3% for 2018, which was derailed by a series of shocks from a truckers strike to turbulent
elections, leaving the
economy to emerge from the worst recession in its history much more slowly.Now, however, he’s basing his views on something different to account for what he says is a change in the economy: lending to individuals, which is at an all-time high, and a labor market that doesn’t look quite as bad as it seems.“For the first time, we’re not expecting growth to come from a mechanism based in business confidence, which was what we were hoping for between 2017 and 2019,” Jobim, who wrote an article on the thesis, said. “Now our vision is more closely tied to the real economy, to consumption.”Brazil’s government and state-owned firms have cut back on investments as the nation looks to shore up fiscal accounts, and the private sector has been slow to step in, Jobim said.“There’s been a lot of frustration and multinational firms are tired of explaining to headquarters why they are losing money in Brazil.”All-time low rates, meanwhile, have already had an effect on credit, as new loans to households gained steam in 2019, according to Jobim. Those loans stand at a record 1.5 trillion reais through August, according to central bank data, providing a boost to consumption.The labor market may also be in better shape than it looks, he argues, as some of the data used to calculate GDP figures may not be capturing the rise in self-employed or informally-employed workers seen in other surveys. Since credit and labor make up the two most important determinants of household consumption, Jobim decided to take a more bullish stance.“Over time, the income coming from the labor market and loans will permeate the economy,” he said.The biggest threat to Jobim’s predictions comes from the global environment, as data on business confidence and on the manufacturing industry are getting worse across the board, he said, while trade tensions are starting to produce irreversible effects.There’s a lot hinging on Brazil’s economy picking up steam, he says, including the government’s reform agenda, which kicked off with the now nearly done pension overhaul but is expected to extend to tax reform and other changes. While the rumblings about the government’s ability to push through the changes are constant, it’s the lack of growth that could end up derailing the plans, while making the nation’s fiscal targets tougher to reach.“If growth doesn’t come, politically things will become much more difficult,” he said.To contact the reporters on this story: Felipe Marques in Sao Paulo at fmarques10@bloomberg.net;Rachel Gamarski in in Brasilia at rgamarski@bloomberg.netTo contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, ;Daniel Cancel at dcancel@bloomberg.net, Julia Leite, Bruce DouglasFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.