Emerging Markets | Fiscal Policy | FX | LATAM
Brazil Reaches the Fiscal Crossroads
- By John H. Welch
- 9 min read
Summary
– Brazil’s fiscal recovery has outpaced the most optimistic expectations, let alone consensus.
– The recent increase in COVID-19 transfer payments may however cause an effective spending ceiling breach.
– Consequently, maintaining fiscal performance will be increasingly difficult in the 2022 election year.
Market Implications
– Brazilian assets continue to overcompensate investors for fiscal and external risk.
– BRL weakness makes local assets especially undervalued.
Summary
– Brazil’s fiscal recovery has outpaced the most optimistic expectations, let alone consensus.
– The recent increase in COVID-19 transfer payments may however cause an effective spending ceiling breach.
– Consequently, maintaining fiscal performance will be increasingly difficult in the 2022 election year.
Market Implications
– Brazilian assets continue to overcompensate investors for fiscal and external risk.
– BRL weakness makes local assets especially undervalued.
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