Worse Global Scenario and Contagion to Brazil

BRAZIL ECONOMICS - Report 10 Jun 2019 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

Since the second half of 2018, the global PMI has been repeatedly reduced, accompanied by a decline of industrial production growth rates, indicating continuing deceleration of world growth. The IMF and World Bank have also frequently revised the expectations for world growth downward for this year and next, and recently did so again. Although Brazil has a relatively closed economy, it suffers contagion from this behavior, and at the end of this note we show the quantitative importance of some of the transmission channels through which this contagion operates. The warning sign is that the global economy is clearly decelerating, causing a reaction of some central banks, which have already decided to undertake a new easing period, while others have indicated they will probably follow suit. This poses another challenge to the recovery of the Brazilian economy.

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