Skip directly to Accessibility Notice
  • Emerging Markets Debt Daily

    Brazil Still Struggling to Rebound

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    April 15, 2019

    We see limited room for rate cuts in Brazil despite soft domestic activity. Turkey’s fiscal performance remains very concerning.

    Brazil’s domestic activity disappointed again in February, contracting by more than expected on a monthly basis (-0.73%) and raising the possibility of a negative sequential gross domestic product growth in Q1. Many commentators suggested this morning that the central bank may find itself under increasing pressure to cut rates if activity remains soft. However, the recent pickup in inflation and uncertainty about the social reform timeline should argue against near-term policy easing.

    Turkey’s fiscal newsflow remains concerning. The central government deficit widened to TRY24.5B deficit in March, reflecting a combination of lower revenue collection (a result of weaker growth and the pre-election tax cuts) and higher spending in the run-up to the municipal polls. It remains to be seen how much of the stimulus can be rolled back in the coming months—some tax cuts, for example, were extended until July. Meanwhile, the outcome of the mayoral elections in Istanbul remains unresolved, and this will continue to weigh on sentiment and economic activity going forward.

    The past month brought more signs of a turnaround in Indonesia’s trade balance. The country posted the second trade surplus in a row (USD540M), contrary to the consensus expectation of a deficit. The result was mostly due to weaker imports (down by 6.76% year-on-year), albeit the exports also showed some marginal improvement. This is a good signal as regard the current accountdynamics, which should give the central bank more confidence to cut rates in the coming months.


    1Current account is a record of a country’s transactions with the rest of the world, based on its net trade in goods and services, net earnings on cross-border investments, and net transfer payments.


    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.

    The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Certain information may be provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as the date of this communication and are subject to change.

    Investing in international markets carries risks such as currency fluctuation, regulatory risks, economic and political instability. Emerging markets involve heightened risks related to the same factors as well as increased volatility, lower trading volume, and less liquidity. Emerging markets can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.

    All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.