Emerging markets review: Bleak outlook for Brazil

During June, the World Health Organisation (WHO) warned that the coronavirus pandemic had entered “a new and dangerous phase” as cases continued to surge in Brazil and the US.


  • Imports remained weak in China
  • Still scope for “residual” monetary easing in Brazil
  • The IMF downgraded its GDP growth forecast for India

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During June, the World Health Organisation (WHO) warned that the coronavirus pandemic had entered “a new and dangerous phase” as cases continued to surge in Brazil and the US. The impact of the pandemic and lockdown measures are “devastating” Brazil’s corporate sector, according to credit ratings agency Fitch, which predicts a “deep economic crunch” this year that could stretch into 2021. Fitch revised its outlook on Brazil from “stable” to “negative” in May to reflect the weakening economic, fiscal, and political backdrop.

“Brazil’s key Selic interest rate fell to a new low of 2.25%”

Brazil’s key Selic interest rate fell to a new low of 2.25% during June as policymakers unanimously voted to implement their second cut of 0.75 percentage points in two consecutive months. The central bank’s monetary policy committee – the Copom – said that there was still some room remaining for further “residual” easing. The Bovespa Index rose by 8.8% in June but has still fallen by 17.8% over the year to date.

Although China’s manufacturing sector strengthened in May – output has increased and supply chains have stabilised, according to a report from Caixin/IHS Markit – demand remains weak, particularly from overseas markets. Imports were lacklustre in May, falling at an annualised rate of 16.7%. Exports also declined, albeit by a more muted 3.3% year on year; nevertheless, the sharp drop in imports sends a worrying signal, because a significant proportion of imported products are subsequently used as components in the manufacture of exported goods.

Growth in industrial production gathered pace in China during May, rising at an annualised rate of 4.4%. However, consumer spending remains subdued and retail sales declined at an annualised rate of 2.8% in May, compared with April’s drop of 7.5%. The Shanghai Composite Index rose by 4.6% in June but fell by 2.1% since the start of the year.

The International Monetary Fund (IMF) downgraded its forecast for economic growth in India this year from 1.9% to -4.5%, citing a longer-than-expected COVID-19 lockdown and hence the likelihood of a slower-than-expected recovery from the economic impact of the pandemic. Although the IMF welcomed the fiscal support provided by India’s government, it believes there is scope for further support, not only from government but also from the country’s central bank. The CNX Nifty Index rose by 7.5% over the month but declined by 15.3% since the beginning of the year.


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