Over the past two years, Brazil has overcome two major challenges. Not only has the country rebalanced its economy, the Latin American giant pulled itself out of a recession. Thanks to a countercyclical monetary policy, the country has managed to slow its inflation down. In 2017, experts report projections of 5.1 percent inflation (down from 10.7 percent in 2015).
Meanwhile, Brazil’s current account deficit decreased drastically to -1.1% of GDP in 2016 (-3.3% of GDP in 2015). This decrease followed a slight recovery in the price of raw materials. These necessary rebalances negatively affected growth (-3.5% in 2016). But for the first time in four years, the fall in inflation has allowed the Central Bank of Brazil to lower its key rate by 200 basis points to 12.25. This is also a strong sign of recovery for the Brazilian economy.
Back on track
“Brazil’s inflation is comfortably back on track. The Central Bank of Brazil could benefit from further supporting the national economy, which should help both households and businesses. We estimate that household consumption will increase by + 0.9% in 2017 (-5% in 2016) and investment by + 1.9% (-11% in 2016). The growth in Brazil is expected to peak at 0.6% in 2017. The recession will end this year, but it is too early to discuss a sustainable return to growth,” explains Ludovic Subran, the chief of economics research at Euler Hermes, a globally leading provider of trade credit insurance and risk management services.
These improvements in the economy have prompted Euler Hermes to improve Brazil’s country risk rating classification. From C3 to B3, however, its risk assessment still remains significant for the next 12 months.