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Brazil: Economy facing both internal and external risks – ABN AMRO

According to analysts at ABN AMRO, Brazilian economy is facing both internal and external risks and the main external downward risk is the short term concern of a stronger cooling of the global economy than currently assumed, resulting in lower commodities prices.

Key Quotes

“Another risk is a more aggressive increase in the key rate by the Fed than the single 25 bp rise that we currently foresee.”

“The most important domestic risks lie in the speed of reform and also in the extent to which a coherent economic policy will be achieved.”

“The pace of reform is in our view more likely to disappoint than surprise on the positive side. If the latter does happen, however, business and consumer confidence would receive an enormous boost, leading to stronger domestic spending growth than currently expected.”

“Finally, alongside, the fragile state of the public finances, Brazil continues to be scourged by structural weaknesses. Notable examples are the poor infrastructure, extremely low domestic savings, wide income differences and rudimentary education. The new mix of social conservatism and economic neo-liberalism is unlikely to remedy these deep-seated flaws any time soon.”

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