Brazil: Outlook for 2019/20 a bit brighter – ABN AMRO

Marijke Zewuster, head of emerging markets at ABN AMRO, suggests that in Brazil, with the election uncertainty behind us and capital providers and investors evidently satisfied with the outcome, a stronger recovery of investments seems on the cards.

Key Quotes

“Other factors stimulating investments are the subdued inflation outlook and, hence, continuing relatively low domestic interest rates. Together with the gradual decline in unemployment, this will also spur private consumption growth. The fragile state of the public finances remains the main inhibitor.”

“On balance, we foresee growth of 2.5% per year in 2019/20 - just enough to make up the 7% contraction sustained in the 2015/16 period by the end of 2020. The biggest uncertainty is whether the hard-right conservative government of president Jair Bolsonaro, which is due to take office on 1 January 2019, will manage to steer the promised economic reforms through congress.”

“The chance of failure is very real given the deep divisions in Congress. An added difficulty is the upcoming municipal elections in 2020. As this date draws nearer, fewer and fewer members of parliament will be prepared to back unpopular measures such as pension reform.”