Riots have broken out in Brazil. Notionally they have to do with an increase in bus fares, but they have to do with bigger issues related to inequality, and how much the government is spending on things like hosting the World Cup.
The Brazilian economy is not well.
All you have to do is look at a chart of the Brazilian stock market (the Bovespa) and see what a horrendous year it’s had. It literally had its year peak on the first day of trading, and since then has fallen about 20%.
What’s going wrong in Brazil?
Basically inflation is still sky high, growth is slowing, employment is sputtering, and the country’s’ Balance of Payments is deteriorating, which is eating into its foreign exchange reserves, imperiling the Brazilian Real (the currency) which like other emerging market currencies has done badly.
In a note that came out yesterday, Barclays predicted a Brazilian sovereign downgrade in early 2014.
From the note:
Brazilian policymakers have changed gears again this year. The backdrop is set by an economic recovery that is not taking off and inflation that remains high. The trade-off between inflation and activity has been deteriorating since 2010, but now the problem is that high inflation is beginning to erode real wages and is taking a larger-than-expected toll on consumption. Even if presidential elections are still 16 months away, politics is gradually taking centre stage. And in our view, it is the fear that the erosion of real income will continue to dampen President Dilma’s popularity (between March and May, it fell 8pp, to a still-high 57%, according to Datafolha) ahead of the 2014 presidential elections that elevated controlling inflation to the government’s top priority.
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