Brazil Country Risk Report Q1 2020

Brazil Country Risk Report Q1 2020

Brazilian President Jair Bolsonaro's administration will continue to be undermined his weak coalition, infighting and public opposition. Bolsonaro's policymaking will become increasingly reactive, as core constituencies use threats of withdrawing support to advance their priorities.

Congress's increasing assertiveness over economic policy suggests that pension reform will be enacted and other reforms will advance over the coming quarters. Pension reform appears likely to deliver on market expectations for fiscal savings. As a result, we at Fitch Solutions see fewer risks to economic policy direction.

We have modestly revised our real GDP growth forecasts for Brazil to 0.8% in 2019, from 1.0% previously, and 2.0% in 2020, from 2.3%. A weak external environ-ment will continue to weigh on export demand and investment over the coming quarters, likely feeding through to relatively sluggish consumption growth. Improving investor confidence on the back of progress on pension reform and other liberalising policy efforts will support a pickup in investment in 2020.

Risks to growth remain weighted to the downside, given the potential for policy missteps and/or a substantial new rout in EM assets.

The Banco Central do Brasil will cut its benchmark interest rate to a new historic low of 5.00% by end-2019. Progress on pension reform, below-target inflation and a persistent output gap will allow the bank to pursue additional easing. However, we remain above-consensus on interest rates in Brazil given our expecta-tion that the US will not pursue additional easing, which will create downside pressure on Brazilian assets.

While fiscal consolidation will continue over the coming quarters, we believe a lack of progress on structural reforms will raise risks to long-term fiscal sustainability.

Over the coming decade, Brazil will only experience modest levels of growth as structural headwinds limit any quick economic solutions to the challenges faced from falling global commodity prices.


Executive Summary
Core Views
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Brazilian Economy Likely To Pick Up Modestly In 2020
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
External Trade And Investment Outlook
Brazilian Trade Slowing Amid Global Tensions
Outlook On External Position
TABLE: BRAZIL FINANCIAL ACCOUNT INDICATORS
TABLE: TOP 5 GOODS IMPORTS (2018)
TABLE: TOP 5 GOODS EXPORTS (2018)
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy
Brazil's Easing Cycle Has More Room To Go
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Brazil's Pension Reform Increasingly Likely To Outperform Expectation
Structural Fiscal Position
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
TABLE: MAIN AREAS OF REVENUE AND EXPENDITURE (2015)
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.Brazil Country Risk Q1 2020ContentsCurrency Forecast
BRL: Risk Aversion Poses Rising Risk
TABLE: FITCH SOLUTIONS CURRENCY FORECAST
10-Year Forecast
The Brazilian Economy To 2028
Days Of Easy Growth Are Gone
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Amazon Deforestation Concerns Pose Economic Risks For Brazil
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Economy To Dominate Policymaking
Operational Risk
TABLE: OPERATIONAL RISK
Economic Openness
TABLE: FREE TRADE AGREEMENTS
TABLE: TARIFF AND NON-TARIFF TRADE BARRIERS
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES
TABLE: BARRIERS TO FDI
Utilities Network
TABLE: ELECTRICITY RISKS
TABLE: FUEL RISKS
TABLE: TELECOMMUNICATIONS RISKS
TABLE: WATER RISKS
Global Macro Outlook
Downside Revisions To Stabilise Somewhat, But Policy Risks Remain
TABLE: GLOBAL MACROECONOMIC FORECASTS (2018-2023)
TABLE: DEVELOPED MARKETS – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: BRAZIL – MACROECONOMIC DATA AND FORECASTS

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