Colombia’s government recently outlined plans for more moderate fiscal austerity, but this still looks implausible given the current political backdrop. Lingering fiscal risks will probably keep local financial markets under pressure, and may lead to further sovereign ratings downgrades. Elsewhere, Brazil’s drought has raised the prospect of electricity rationing which, based on the country's experience in 2001, would present a major headwind to output. It would also raise costs for consumers, and may prompt the central bank to pursue an even steeper tightening cycle to curb inflationary pressures.
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