BRL likely to remain on downward trend over medium-term

Brazil's third quarter GDP release and political-legislative developments recently impacted its growth forecasts. Given the current brutal circle, there is no recovery path seen. Brazil's economy needs a big push to come out of this circle. 

The outlook can be improved from commodity demand, price revival and road map in politics and policies. None of these factors are moving in a favorable direction. There is very less possibility of macro indicators bottoming in short-medium term.

The sentiment looks like it wont improve before 2018. Considering the political stand-off, there are downside risks seen to macro indicators rising.

BRL has downside risks which are considerably high compared to upside risks from current levels. If the economy bottoms, the recovery would also be quite difficult.

"Sudden accidents and resulting volatility apart (also in part due to the impending Fed tightening and its impact on capital flows to EM), the BRL is likely to remain on a downward trend over the medium term as there is considerable uncertainty over the timing of the macroeconomic bottoming", says Societe Generale in a research note.