Synthesis of the Brazilian economy

BRAZIL ECONOMICS - Report 05 Mar 2018 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

The federal intervention in public security in Rio de Janeiro through the Army has brought a wave of uncertainties. Besides virtually burying the chances for approval of the pension reform proposal this year, leaving to the next government the most important of all the reforms (by creating conditions to change the trajectory of the debt/GDP ratio), it casts doubt on the approval of other reforms that are important to put the country back on the path to sustained growth. Despite the increasingly clear signs that the interest rate in the USA will rise a bit more than envisioned by the financial market until recently, there has been no change in international investors’ avid pursuit of emerging market assets. This international leniency continues to sustain the low quotations of the CDS of the great majority of emerging countries, along with the stability of their currencies, bringing the feeling of a respite, which at least in the Brazilian case does not reflect the real situation of the fiscal accounts and the risks to execution of monetary policy by the next government.

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