Brazil’s recent economic expansion momentum is expected to slow as the country faces lingering concerns about sovereign debt and the likelihood of continued interest rate increases, according to a Capital Economics report on Wednesday.
Despite the planned fiscal measures, the political climate does not appear conducive to significant austerity, which could have reassured investors and addressed fiscal issues more firmly, the company said.
The government’s gradual approach to fiscal adjustment is expected to keep the public debt-to-GDP ratio on an upward trajectory.
Capital Economics expects that this approach is unlikely to alleviate the high risk premium currently built into Brazil’s financial markets, suggesting that the Brazilian real will continue to struggle.
“We expect the real to end the year at 6.00/$, compared to its current level of 6.18/$ and 4.85/$ in early 2024,” Capital Economics said in the note.
The firm also suggested that GDP growth for this year is estimated at 2.3%, which, despite being slightly above the central bank consensus, would mark the weakest annual growth since the pandemic.
Overall, Brazil’s economic outlook suggests that while a hard landing is unlikely, the country’s period of strong growth is nearing an end, with quarter-on-quarter growth averaging around 0.4%. This is a decline from the stronger average growth experienced last year.
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