Brazil: prospects for recovery remain limited - Wells Fargo

According to analysts from Wells Fargo, the Brazilian economic prospects improved a bit but recovery expectations remain limited, as the export growth and commodity boom spearheaded by Chinese economic growth gives way to a more muted global economy and amid the lack of structural changes.

Key Quotes:

“Although the recent impeachment of President Dilma Rousseff will give the Brazilian economy some impetus, the prospects for a recovery remain limited as the export growth and commodity boom spearheaded by Chinese economic growth gives way to a more muted global economy. Furthermore, while many argue that the new Temer administration will be able to turn around the economy, our interpretation of these prospects is less positive than what most have been arguing, especially because the Temer administration is still mired in serious fraud investigations, which include an investigation against the new president himself.”

“Furthermore, the Brazilian political system remains as fractured as ever, if not more, after a contentious impeachment process—that for some, lacked legitimacy. This political environment will limit the ability of the Temer administration to produce the fiscal about-face the country was able to produce after the 1999 economic and fiscal crisis. Although we see the economy slowly improving, we do not see much in the sense of a structural reform that could help the Brazilian economy achieve growth rates in the mid-single digits. Particularly, not until a new presidential election chooses a new president at the end of 2018 and the Brazilian presidency regains some legitimacy to conduct structural reforms. This means that the Temer administration will remain a transition administration that will continue to govern the current Brazilian crisis.”