Changes in the international economy and reflections in Brazil

BRAZIL ECONOMICS - Report 26 Nov 2018 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

Until the start of this year, the international economy was favorable to the execution of economic policy in emerging countries. The global economy was marked by “synchronized growth” between mature and emerging countries, and there was a general belief that interest rates in developed countries would remain low for an extended period. That outlook led to low risk aversion and prompted investors to buy assets of emerging countries. This picture has changed. The signs of deceleration of the international economy – for both mature and emerging countries – are mounting, and the rise of the interest rate in the USA is now attracting part of the capital that previously was directed to emerging economies. The tightening of the financial conditions in the USA portends slower growth in the near future, which reduces the risk of further increases in the fed funds rate. However, in this new international scenario Brazil depends more than ever on its own domestic adjustment efforts.

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