Brazil’s presidential race is still very open, but the scale of the challenge the victor will face means that even a market-friendly president won’t be able to stabilise the public finances and boost potential growth significantly. Markets don’t appear to be pricing in this risk in full, and we think the real has further to fall and bond yields have further to rise. This won’t be a disaster for the economy. But the recovery is likely to be more fitful than we previously envisaged and we have revised down our growth forecasts.
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