Brazil’s Economic Growth Expected to Slow Down Due to Sovereign Debt Concerns
A recent report by Capital Economics predicts that Brazil’s economic expansion will slow down due to persistent sovereign debt concerns and the likelihood of continued interest rate hikes. The firm argues that the government’s piecemeal approach to fiscal tightening will keep the public debt-to-GDP ratio on an upward trajectory, failing to ease the high risk premium embedded in Brazil’s financial markets.
As a result, Capital Economics expects the Brazilian real to continue to struggle, estimating that it will end the year at 6.00/$, compared to its current level of 6.18/$ and 4.85/$ at the start of 2024. The firm also predicts that this year’s GDP growth will be 2.3%, which is slightly above the central bank’s consensus but marks the weakest annual growth since the pandemic.
Quarter-on-quarter growth is expected to average around 0.4%, a decrease from the more robust average growth experienced last year. While a hard landing is unlikely, the country’s strong growth period is set to conclude, marking the end of Brazil’s recent economic spurt.