Brazil

Brazil’s bleak macro outlook persists – rising debt, weak productivity, and political inertia. With 2026 elections looming, genuine reform seems unlikely, though Argentina’s bold turnaround could pressure Brasília to rethink its cycle of governability over growth.

Despite widespread investor optimism Brazil’s currency outlook is challenged by a toxic mix of poor external, fiscal, and macro fundamentals. Expect BRL to underperform most EM peers. 

A potential right-wing government in 2027 will not stabilize the trajectory of the public debt-to-GDP ratio. Unsustainable public debt, a large current account deficit, and a sharp growth slowdown will lead Brazilian markets to underperform EM. Yet, to benefit from a quickly decelerating economy, we recommend receiving 2-year swap rates.

In this chartbook, we look at the balance of payments across DM and EM countries. The US does not fare well, but neither do a few other countries.