Brazil's external debt situation has worsened, but remains manageable

Brazil's external debt is not among the worst in the EM world and is now decreasing in dollar terms -probably in response to worsening investment demand and financial conditions. However, the external debt to GDP ratio could still rise to nearly 45% of GDP in Q4 15 from an estimated 41% in Q3 15 and a much healthier 25% at end-2013 as dollar GDP contracts on BRL depreciation.

When looked at in the context of the low-growth environment back home, the rise in the debt to GDP ratio could present considerable challenges for the banks and the corporate sector in terms of debt servicing. However, the short-term debt servicing requirements - although higher - remain considerably below the country's FX reserves.

"Based on the assumption that dollar GDP will stop contracting next year and the economy will return to growth in the medium term, we believe that the debt situation remains manageable at this point in time",Societe Generale.