23 February 2021
VanEck Blogs | Emerging Markets Debt Daily
Brazil – Lingering Policy Concerns

Brazilian markets are still on edge, expecting the approval of the emergency aid bill. South Africa’s unemployment rate surged to 32.5%.

Brazilian markets are in a calmer mode today, but policy concerns refuse to go away―especially on the fiscal front. The emergency aid bill should be voted on Thursday, and drafts that were circulated in the past few days suggest that the government aims to set a formal rule for future emergency spending, which is good from the structural point of view. The trade-off, however, is that this might not affect this year’s spending, and this can potentially push the government debt-to-GDP level to as high as 95-96%.

South Africa’s unemployment rate jumped to mind-blowing 32.5% in Q4―way above the pre-lockdown level. We’ve seen a lot of improvement in the country’s high-frequency data lately, but such a high number of unemployed―and unemployable―casts a big shadow on the country’s medium-term outlook.

Rising global commodity prices add to concerns about the near-term inflation outlook in emerging markets (EM). Most central banks continue to treat these price pressures as transitory―the chart below indeed suggests that the base effect in commodity prices might turn more disinflationary in the second half of the year. A big risk here is that the pandemic-related distortions and asymmetric price shocks might prove more persistent, which explains why the market continues to price in more policy tightening across EM in the next twelve months.

Charts at a Glance: More Inflation Pressures from Commodity and Shipping Prices?


Source: Bloomberg LP


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Natalia Gurushina
Chief Economist, Emerging Markets Fixed Income Strategy