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Brazil moves out of recession

June 2017

Having languished in recession for two years, Brazil’s economy finally moved out of recession during the first quarter of 2017. Nevertheless, the outlook for Brazil’s economy remains clouded: unemployment remains a problem for the country’s leaders and government is mired in fresh political scandal.

  • China posted stronger-than-expected trade data in May
  • South Africa slipped into recession during Q1, having last experienced recession in 2008/2009
  • India announced a major revamp to its tax system

Having remained in recession for two years, Brazil’s economy finally moved out of recession during the first quarter of 2017, posting quarterly growth of 1%. Nevertheless, the outlook for Brazil’s economy remains unclear; unemployment remains a headache for ministers and policymakers, and the government has become embroiled in allegations of fresh political scandal. Over June as a whole, the Bovespa Index rose by 0.3%.

“Chinese A-shares will enter MSCI’s global emerging market equity index from June 2018”

Amid ongoing worries that China’s economic growth is losing momentum, investors were cheered by better-than-expected trade data in May. Exports rose at an annualised rate of 8.7% in US dollar terms, while imports rose by 14.8%. The Shanghai Composite Index rose by 2.4% during June.

Index provider MSCI announced that Chinese A-shares will enter MSCI’s global emerging market equity index from June 2018. The decision will compel tracker funds to gain exposure to those securities. However, Argentina did not requalify for a position in the index; MSCI cited ongoing concerns that recent improvements to market accessibility have not yet been in place for sufficient time.

South Africa slipped into recession during the first quarter of 2017. Although agriculture and mining provided a positive contribution to gross domestic product, it was not enough to offset weakness in manufacturing and trade. The country’s economy contracted at a rate of 0.7% during the period, following a 0.3% decline in the final three months of 2016. South Africa last experienced recession in 2008/2009.

India undertook a major revamp of its tax system, exchanging a raft of different taxes with a single Goods and Services Tax (GST) . The move is designed to simplify procedures and increase tax receipts. Under the new GST, most goods and services will be taxed at one of four basic rates – 5%, 12%, 18% and 28% - although some staple goods will be exempt. The CNX Nifty Index fell by 1% during June.

India’s new GST is not expected to have a material effect on inflation. The Reserve Bank of India (RBI) held its key interest rate at 6.25% in June, despite a backdrop of relatively subdued economic growth and low inflation. Policymakers remain committed to keeping consumer price inflation close to the target rate of 4%. The RBI pledged to “revive private investment, restore banking sector health and remove infrastructural bottlenecks”, noting that monetary policy will be more effective when these objectives have been achieved.


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