The possibility of achieving a credible and sustainable fiscal path looks increasingly uncertain despite the austerity pledge and efforts to cut spending. Austerity will have very limited success in improving fiscal outcomes without other structural reforms.
In the near term, it will also hurt growth making the path to austerity increasingly less credible. In so far as investor sentiment is linked to the success of fiscal austerity, each bad fiscal print will hurt sentiment further.
According to Societe Generale, fragile investor sentiment could delay investment and growth revival in the medium term. In the near term, this could add pressure to BRL and BRL denominated assets.
