Brazil Economic Outlook

Latest data releases show the Brazilian economy displaying tentative signs of improvement, as illustrated by the ongoing decline in inflation, a rise in industrial output for a second straight month in May, and June’s record trade surplus of US$7.2bn. However, the country is still embroiled in political turmoil which risks tipping the economy back into recession. At the centre of the latest scandal is President Temer who is facing corruption allegations. Although the Lower House Constitution Committee recently rejected the corruption charges brought against the president, the attorney general’s request still needs to go to a vote in the lower house to decide whether to bring the case to trial in the Supreme Court. The political uncertainty arising from recent events risks undermining the already-weak political standing of the unpopular president, as well as jeopardizing the government’s much lauded reform programme. Despite this, there was some positive news for the president after the Senate recently passed his controversial labour reform bill. As part of the government’s drive to get the country’s finances back on track, next on the agenda is an overhaul of Brazil’s generous pension system, which is likely to prove a much more difficult hurdle. Consensus GDP growth expectations remain muted for this year.

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