Brazil: notes from the ground

Concerns about the deepening political crisis understandably dominated our conversations during a trip to Brazil this week, with a growing number of local market participants now warning of complete dysfunction within government and a crisis of leadership that has engulfed the entire political class. This reinforces our concerns about what might follow if, as seems likely, the current government collapses under the weight of allegations that have been levelled against it. However, the focus on political developments also seems to be distracting attention from more encouraging signs from the real economy – including a fall in inflation and a dramatic improvement in the trade balance.