Despondent Outlook for the World Economy and the Reflections in Brazil

BRAZIL ECONOMICS - Report 20 Oct 2014 by Affonso Pastore, Cristina Pinotti and Marcelo Gazzano

There is a climate of despondency in the global economy. Political disturbances have been heightening investors’ risk aversion, triggering a decline in the quotations of 10-year Treasuries. Along with this, concerns have been growing over the risks of deceleration of the international economy. This worry is particularly strong in Europe, including Germany, and there is fear that the European slowdown will affect the American economy. Because of this, influential directors of the Federal Reserve and BOE with a hawkish bent have been stating that it might be necessary to maintain the monetary stimuli for a longer period. This global risk aversion combined with slowing European growth is reflected in the sovereign yields of several European countries, which (with the exception of German debt) rose sharply last week. The perspectives have also been worsening for countries on the European periphery, such as Italy and Greece. In the latter case, the government recently announced its desire to leave the IMF rescue program early, in the midst of an election campaign where the opinion surveys indicate a slight advantage to the far-left party.

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