Stronger Expansion of GDP in Brazil and External Risks
Our estimate is that Brazil’s GDP in the first quarter grew by almost 1.3% (1.5% is the estimate of the GDP Monitor of FGV). With this, the chances are greater that the economy will expand by more than 1% in 2022. The objective of this Report is to analyze the external risks facing Brazil in the second half of 2022 and start of 2023. The deepest analysis is devoted to monetary policy in the United States.
We believe that the current behavior of inflation will prompt the Fed to tighten monetary policy even more, decreasing the probability of a soft landing. The gradual recognition of this fact has already broken the bubble of high-tech stocks and accentuated the decline of the S&P 500. We evaluate how the behavior of stock prices in the USA is propagating to equity prices in Brazil, which by analogy allows us to explain the probable behavior of stock prices elsewhere in the world.
In other words, we evaluate to what extent the lower risk appetite, coming from the adjustment with high costs in the USA and the world, leading to a sell-off of risky assets around the world, with investors shifting their focus to assets with less risk, or no risk, like Treasuries. In this case, what will happen is attenuation of the upward movement of the yield of Treasuries (or even some decline), giving the false impression that inflation expectations are falling, along with a more accentuated strengthening of the dollar, which will propagate to emerging countries, forcing them to raise their interest rates, contributing to deceleration of global growth. The Report closes with an analysis of Europe and China, focusing on the forces that can produce a reduction of commodity prices (economic slowdown in China), and the forces acting in the opposite direction (lower production of food commodities due to the war in Ukraine).
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