Oh dear Brazil; Brazil’s economic outlook – BBH

By FXStreet Analysts at Brown Brothers Harriman explained that after having a terrible 2015, 2016 does not look to be much better for Brazil.

Key Quotes:

“It’s gotten a bit of a breather lately, but a toxic mix of heightened political risk, ongoing recession, and institutional paralysis is likely to continue taking a toll on Brazilian assets.”

Economic outlook

The economy remains in terrible shape. GDP is forecast by the IMF to contract -3.5% in 2016 and then remain flat in 2017 vs. an estimated -4% in 2015. GDP fell -4.5% y/y in Q3, which was worse than expected. The net impact on the economy of the upcoming Olympic Games is unknown, as the tourism outlook has been hurt by the spread of the Zika virus. Overall, we think the risks to the growth forecasts are to the downside.

Price pressures are picking up, with IPCA consumer inflation rising 10.84% y/y in mid-February. This is the highest rate since November 2003, and further above the 2.5-6.5% target range. With most measures of wholesale and consumer inflation still accelerating, this suggests that the next move in rates should be up. Yet the central bank has been on hold …read more

Source:: FX Street