Brazil’s Economic Outlook
Brazil’s recent economic expansion is predicted to slow due to persistent sovereign debt concerns and potential interest rate hikes, as reported by Capital Economics on Wednesday.
Despite expected fiscal measures, the political climate is not favorable for significant austerity that could reassure investors and more effectively address fiscal issues. Consequently, this piecemeal approach to fiscal tightening is likely to cause the public debt-to-GDP ratio to rise.
Capital Economics anticipates that this approach will not reduce the high risk premium in Brazil’s financial markets, suggesting continued struggles for the Brazilian real. They expect the real to end the year at 6.00/$, worsening from its current level of 6.18/$ and 4.85/$ at the start of 2024.
The firm estimates GDP growth for this year at 2.3%, slightly above the central bank’s consensus but marking the weakest annual growth since the pandemic. Overall, while a hard landing appears unlikely, Brazil’s strong growth period is concluding, with quarter-on-quarter growth averaging around 0.4%, down from last year’s more robust averages.
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