The economic and political situation in Brazil has deteriorated since last June. The economy has entered into recession with a sharp contraction in GDP of 1.9% q/q in Q2 and a downward revision of the Q1 GDP figure. The unexpected sharp contraction of GDP in Q2 has led to revise lower the growth expectations for 2015 and 2016 to -2.5% and 0.1%, respectively, says Nordea Bank.
Higher interest rates, the commodity price slump and broad-based low confidence have pulled the break on growth. Private consumption and investment growth have been hurt in particular and are likely to remain subdued also next year.
"Exports remained the only positive driver of growth in Q2 and this is expected to remain the only source of growth this year as the weak BRL will support external demand. A stabilisation in commodity prices, the weaker BRL and monetary policy easing will help the economy to stabilise in 2016 and pick up somewhat in 2017, albeit not to the levels seen during the commodity boom years", argues Nordea Bank.
