Brazil March fiscal release suggests that after posting fiscal deficits of -9.6% and -8.3% of GDP in Q3 and Q4 last year (-6.2% in 2014), Brazil likely posted a deficit of -9.0% in Q1. The bulk of the recent deterioration is attributable to the significant rise in interest payments.
Moreover, even under the most optimistic scenario, the government would likely fail to produce a primary surplus this year, let alone meet the target at +1.2% of GDP. The possibility of achieving a credible and sustainable fiscal path looks increasingly uncertain despite the austerity pledge and efforts to cut spending.
This is bound to keep investor sentiment fragile and underpin a low probability of medium term recovery. In the near term, this could add pressure to Brazilian assets.
"Our calculations currently put the fiscal balance at -6.8% of GDP for 2015 (vs -6.2% in 2014) based on the assumption of primary surplus at -0.1% (we estimate these figures at -5.3% and -0.2% respectively for 2016). Moreover, while we are reasonably comfortable with our revenue growth forecast of nearly 2%, the spending forecast of 2.7% (vs 12.8% last year) entirely depends on the government's ability to contain spending." - says Societe Generale
