The Brazilian macroeconomic situation is undoubtedly poor and the medium-term trend for fiscal sustainability is alarming. However, the numbers don’t support an imminent financial crisis, despite it being ‘a tradition’. It’s still an investment grade credit for now.
Gross borrowing requirements/GDP are relatively high at 16.1%, but its is structured with limited foreign currency exposure and the non-resident share of local currency debt is a modest 18.3%. It has large FX reserves ($368bn) – (short term external debt + maturing LT external debt)/FX reserves = 32%, which is ample cover against external financial shocks. The CA deficit, ~4% GDP, are covered by FDI inflows so that (CA +FDI)/GDP ~ -0.3%.
In addition, the banking system is sound. The level of NPLs is relatively low 2.9% and average baseline credit assessment score is investment grade baa3, despite economic weakness. Capital and liquidity ratios have been consistently high.
This being the case, where do you see this financial crisis coming from?
On Twitter, MarketUrbanism makes a separate point:
Canada. Click the “Prices against rents” tab: http://www.economist.com/blogs/dailychart/2011/11/global-house-prices … Huge exposure to oil and China.