A fresh look at Brazil’s public debt problem

Suggestions that Brazil’s government will raise welfare spending – and circumvent the spending cap in doing so – add to the evidence that there’s little appetite for the long-term fiscal squeeze needed to stabilise the public finances. Taken together with slower growth and higher interest rates, we think that the public debt-to-GDP ratio is likely to be on an upwards trajectory from next year. This feeds into our view that government bond yields will climb higher and that the real will weaken further from here.
William Jackson Chief Emerging Markets Economist
Continue reading

More from Latin America

Latin America Data Response

Brazil Industrial Production (Oct.)

The surprise 0.6% m/m fall in Brazilian industrial production in October and weakness in the surveys for last month provide early evidence that the contraction in the economy last quarter may be followed by another q/q drop in GDP in Q4.

3 December 2021

Latin America Data Response

Brazil GDP (Q3 2021)

The 0.1% q/q fall in Brazilian GDP in Q3 confirmed that problems in the agricultural and industrial sectors tipped the economy into a technical recession. And with financial conditions tightening, the terms of trade worsening, and the threat from the new Omicron variant, the risks to our GDP growth forecast for next year of 1.3% are skewed firmly to the downside. Copom may temper its hawkish sentiment a bit at its meeting next week, with a 150bp hike (rather than 175bp) now looking more likely.

2 December 2021

Latin America Economics Update

Red-hot Chile set to cool

Chile’s economy has been operating above potential for several months but there are signs that activity is starting to cool. And policy tightening, falls in copper prices and the possibility of more stringent virus restrictions in light of the Omicron variant mean that growth will slow sharply over the coming quarters.

1 December 2021

More from William Jackson

Middle East Economic Outlook

Gulf to outperform

Economic recoveries in the Gulf will continue to gather pace over the coming year on the back of successful vaccine rollouts and higher oil output, and our GDP growth forecasts lie above the consensus. Outside the Gulf, though, recoveries are likely to be slower, particularly in the more tourism-dependent economies. We think a sovereign default in Tunisia is more likely than not, and we have long-standing worries about public debt in Bahrain and Oman as well as Dubai’s corporate debts.

19 October 2021

Emerging Markets Economics Chart Book

Supply shortages take their toll

The supply shortages that have affected many DMs have also intensified in emerging economies over the past couple of months. The automotive sector has been hit hard by global semiconductor shortages, weighing on recoveries in Mexico, Czechia and Hungary in particular. More broadly, EM manufacturers are struggling to meet new orders, causing backlog of works to increase. Meanwhile, recent power shortages have weighed on recoveries in China, India and Brazil. As shortages continue, they are likely to not just weigh on growth, but also add to upward pressure to core inflation. That will probably keep central banks in Latin America and Central Europe in particular in tightening mode.

18 October 2021

Emerging Markets Economics Update

Car woes to weigh on recoveries in Mexico & CEE

The supply constraints that have hit global vehicle output have probably reduced the level of GDP by a modest 0.1-0.2% in most EM auto producers, but some countries like Czechia, Hungary and Mexico have suffered much bigger blows. And the drag from vehicle production is likely to persist for some time yet.

15 October 2021
↑ Back to top