Post Brexit vote, the outlook for Brazil’s exports for next year has dropped slightly, along with its implications for commodity prices. Brazil’s domestic demand continues to be in a bad shape; however, the consumption outlook for the near-term is a tad better than anticipated, noted Societe Generale in a research report. Therefore, government spending might drop at a more rapid pace after the upside surprise of the first quarter.
“Despite the positive surprises from the latest high-frequency indicators, we are keeping our growth forecasts broadly unchanged (up 0.1pp for 2016 to -4.1 percent and down 0.1pp for 2017 to -0.9 percent),” added Societe Generale.
Meanwhile, deceleration of inflation is quite consistent with expectations in spite of a modest surprise in inflation figures in mid-June. The nation’s average inflation is projected to be 8.6 percent this year and 6.4 percent in 2017. But, the recent appreciation in the Brazilian real, if sustained, might add certain risks on the downside to the medium-term inflation outlook.
The recent rebound in commodity prices and renewed investor optimism regarding the government’s ability to manage public finances has resulted in a sharp rally in the Brazilian real. The resulting slowdown in inflation expectations might lead to an early start to easing cycle, according to Societe Generale. The likelihood of dovish Fed tightening has further increased the case for easing.
“We now expect policy easing to begin in 3Q”, added Societe Generale.
