According to Capital Economics, Brazil and India are increasingly vulnerable to another crisis or to the eventual end of the ultra-loose monetary policies in developed economies.

Weak demand for Brazil’s exports and the voracious appetite of local consumers for imported goods widened the country’s current account deficit to 2.93 percent of GDP in the 12 months through March, the widest gap in nearly eleven years. In dollar terms, that amounts to $67 billion.

To help fund this gap, Brazil could at first loosen the currency controls adopted in the past few years and let more dollars in. But if the dollar flows change too swiftly, Brazil would find itself with three other options: curb spending by growing less, allow a decline in the foreign exchange rate at the risk of fueling inflation, or burn part of its international reserves – which are large, at $377 billion, but not infinite.

Such an outlook could get even more challenging if commodities prices drop further – and last week’s tumble in many products sent a reminder of how volatile these markets can be, hurting not only Brazil but many other Latin American exporters.

”Whereas the region entered the 2008-09 global financial crisis from a position of relative strength, it is now much more vulnerable to another external shock,” said David Rees, emerging markets economist at Capital Economics, in London.

Source: Reuters

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4 Responses to Capital Economics: “Brazil more vulnerable now to another crisis”

  1. Rodrigo Rodrigues says:

    Asset inflation often produces something called wealth illusion, the belief that pricier asset holdings necessarily make one permanently richer. Illusions are dangerous. Eventually, painful reality intervenes.
    The balance of Lula and Dilma Rousseff government indicates the disengagement in general of the PT ( Partido dos trambiqueiros ) and their leaders with the great struggles of the Brazilian people carried on in the last 50 years, a historical inconsistency traitor. By continuing the economic and financial policy of the government of FHC of sad memory, the PT governments of Lula and Dilma Rousseff practiced a true act of treason against those who voted for them in the expectation that would be promoted economicand social changes required for the country .
    Dilma will take Brazil back to the 70s- 80s economy and the last 10 yrs of growth under steroids will be long gone.

  2. Enki Ea says:

    Banco Paulista and its dealer/broker SOCOPA are about to get busted for money laundering + billions of forged forex contracts. Its the new BCCI with links to terror money + drugs + arms, etc.

  3. frank stein says:

    It is already back to the 70s. Importation of gasoline, diesel and LNG will repeat the oil crises. Foreign reserves will be depleted gradually. No money left for productive investments. Corruption, incompetence, propping up failed enterprises like Boavista, Silvio Santos, Panamericano, Marfrig, Eike Batista, and others of such ilk will continue. Wasteful squandering like World Cup, Olympics will continue. Talk and marketing will continue to distort reality and the stupid Brazilians will continue to vote for the same crappy politicians they always vote for.

  4. Enki Ea says:

    We shall take actions against those in power oppressing and robbing the people. Its as simple as that. No fear because at the end of the day they are the ones really scared : )

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