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  • Emerging Markets Debt Daily

    Brazil Politics Cloud Reform Outlook

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    February 18, 2019

    The dismissal of a top cabinet member in Brazil raised questions about the government’s ability to push the pension reform bill through the congress. China hopes its new development initiative, the Greater Bay Area plan, will boost the country’s longer-term growth prospects.

    The pension reform's approval prospects were on everybody's mind following the dismissal of Brazil's top cabinet member
    , Gustavo Bebianno, over campaign funding issues. The government is scheduled to submit the reform bill to the congress later this week, and Bebianno was expected to play a key role in helping to get the required votes in the lower chamber. The cabinet’s economic team is reportedly working on measures to boost political support for the draft (such as delaying some subsidy cuts). However, greater political noise may affect the local price action in the coming days. 

    China’s mega credit expansion in January was swiftly followed by a new development initiative, the Greater Bay Area plan. The plan calls for the creation of a top-tier economic zone linking Hong Kong, Macau, Guangzhou, and Shenzhen, with a special emphasis on innovation (China is already the leader in its per capita income bracket), infrastructure, and finance. The infrastructure bit brings back memories of the old growth model, but we will wait for more details to make the final assessment. 

    The outlook for the emerging markets-developed markets growth differential is brightening up. Germany’s ZEW activity survey1 remained very weak in February, with the current situation assessment well below expectations and trending down. Data points like this explain why the consensus continues to downgrade its growth forecast for developed markets. By contrast, the consensus growth forecast for emerging markets appears to be bottoming out, strengthening fundamental support for several asset classes in that part of the world. 

    1The monthly ZEW survey aggregates the sentiments of approximately 300 economists and analysts and is used as an indicator of economic future for the coming six months.


    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

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