“Brazil Just Getting Worse and Worse”
The “B” in the falling BRICS…
Brazil is in a tough spot. Led by weak investment and plummeting confidence, growth, after slowing markedly since mid-2013, came to a virtual halt in 2014. This largely reflects the impact of diminished competitiveness, the erosion of policy credibility, owing to a persistent deterioration of fiscal outcomes and above-target inflation, and a worsening of external conditions for the country.
Risks to the outlook are significantly to the downside, and include adverse ramifications from the ongoing corruption probe concerning Petrobras, the possibility that fiscal policy goals may not be fully met, and energy and water rationing.
External downside risks emanate from a tightening of global financial conditions, geo-political tensions, and contagion from adverse developments in other emerging economies.
These risks could conflate if they were to combine with domestic policy shortfalls, and would threaten macro and financial stability.
The phrase, “threaten macro and financial stability,” is official-speak and central-banker jargon for a resounding economic and financial crash. It’s Brazil’s doomsday scenario.
This was written not by some doom-and-gloomer, but by the IMF. It how its report on Brazil starts out.
The report never mentioned “austerity,” the classic IMF prescription to make sure the teetering country’s sacred bondholders – mostly financial institutions – don’t end up holding the bag. But “austerity” has become object of derision. So the report bandies about the exact synonym, “fiscal consolidation,” after initiating it promisingly:
Fiscal consolidation should proceed without delay along the announced lines, while monetary policy should remain tight to bring inflation to target.
State-owned Petrobras, the country’s largest company, the once shining knight and in the once most promising industry, has been torn apart by corruption allegations that go all the way up the political ladder. And things have essentially ground to a halt.
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