Brazil is going into the rest of 2021 well positioned to recover to pre-pandemic levels of economic activity this year. Better-than-expected performance at the beginning of this year, a strong rebound in investments, as well as a positive performance in agriculture and extractives is positioning the country for continued growth. As vaccination accelerates, we expect the main driver of economic recovery to become the service segment, which will profit from easing social distancing and lockdown measures.
However, the presidential election in late 2022 will test the government’s commitment to the country’s main fiscal anchor, and rising polarization within the electoral landscape could create underlining conditions for broad social unrest, denting investment sentiment and economic growth. The outlook for Brazil’s performance over the next year is driven by three key market trends that we are continuously monitoring:
- Quicker vaccination will allow for a service rebound in H2, while political risks will weigh heavily on the 2022 outlook.
- The president’s eroding approval ratings create more governability and political risks
- Brazil’s watered-down reforms should help slow the rise of public debt, but plans to expand social spending pose risks
Business Implications
Companies should expect Brazil’s economic recovery to continue materializing in H2 while making sure they align with local partners on inflation and supply chain issues, as disruptions across the globe are still expected until H1 2022. Furthermore, firms should prepare for high political uncertainty to unfold in 2022 amid a highly polarized electoral landscape. Ensure that your local teams engage with political leaders across the aisle and closely follow the major developments surrounding the 2022 elections.
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