Effects of the Favorable External Impulse
In the midst of a political crisis that increases risks and hampers growth recovery, Brazil is benefiting from two favorable movements of the international economy.
The resumption of growth in Europe, Japan and the United States in an environment of abundant international liquidity has reduced fears related to the inexorability of the “global stagnation”. This has been causing a strong decline in risk aversion. When risk aversion is high, capital prefers countries with low risk, like the USA, but when risk aversion is low, capital flows to countries offering higher returns – emerging countries –, including Brazil.
The second movement is a moderate elevation of the dollar value of global exports and international commodity prices, coming from better growth of the advanced countries and China, favoring Brazilian exports and leading to high trade surpluses.
The sum of these effects is one of the reasons, although not the only one, why the current political crisis has been accompanied by a relatively small depreciation of the exchange rate and rise of the CDS quotations. We evaluate these two forces in this report.
The countervailing force to the optimism coming from abroad is the deterioration of the internal political scenario, which has reduced the probability of progress toward the reforms, with negative effects on the exchange rate and CDS quotations.
Additionally, some worrying signs have recently come from the international economy, such as a certain weakening of commodity prices and an increase in the yields of sovereign bonds of European countries, the latter occurring soon after the indications that the ECB is getting ready to reduce the unconventional monetary stimuli.
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