News In Charts: From Bad To Worse For Brazil

The situation in Brazil is continuing to deteriorate. Last Sunday up to one million Brazilians flocked to demonstrations in towns and cities across the country to express their displeasure with the faltering economy, rising prices and an extensive corruption scandal involving energy giant Petrobas. The Thomson Reuters Ipsos survey – which measures eleven key indicators of consumer confidence – saw the reading for Brazil in February 2015 come in at its lowest point since the survey began in 2010.

REFRESH CHART EDIT CHART

The fall from grace for the country once regularly referred to as the ‘powerhouse’ of South America and the B in the BRICS, has been dramatic. The combination of the continued slowdown in China, domestic economic weakness, falling commodity prices and a stronger US dollar have generated a hard landing for Brazil’s formerly buoyant economy. It currently ranks 3rd in our vulnerability table largely due to its high proportion of external debt denominated in dollars.

GDP growth was surprisingly strong in the immediate aftermath of the financial crisis, reaching as much as 7.5% in 2010. However despite a small recovery in late 2012 and early 2013, the trajectory since 2010 has been most definitely downwards. In our previous forecast we said Brazil would grow 0.5%, but that is likely to come down in our upcoming forecast.

REFRESH CHART EDIT CHART

Inflation, by contrast, shows no sign of slowing. CPI inflation reached 7.7% in February 2015 – its highest level in 10 years.

REFRESH CHART EDIT CHART

Investors have taken note, and their money back. Following the onset of the global financial crisis in 2007 – 08, strong and sustained capital inflow prompted new regulation, specifically a tax which it was hoped would slow the rising currency. The current landscape, however, is very different.

REFRESH CHART EDIT CHART

The Brazilian real is at its lowest against the dollar since 2003 and 10 year US dollar bond yields are back above the 5% mark, for the first time since 2010. Brazilian equities have also taken a hit, the Bovespa index is down 62% in US dollar terms compared to three years ago. Finally, the market implied probability of the country defaulting on its sovereign debt – as measured by both bond and CDS spreads – has increased in recent months to nearly 30%.

This research note is provided by Fathom Consulting. All of the charts below and many many more, covering a range of topics and countries on both the macroeconomy and financial markets are available in the Chartbook to Datastream users at www.datastream.com. Alternatively you can access Fathom’s Chartbook at www.fathom-consulting.com/TR.