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Brazil is heading for a quasi-depression

José Manuel Silva, Chief Investment Officer at LarrainVial Asset Management, carried out a comprehensive economic analysis of Chile and the world during the seminar “Chile y el mundo: pedaleando por caminos pedregosos” (Chile and the world: pedaling on rocky roads), held October 14 in Viña del Mar.

From the global perspective, he said that “we find ourselves in an environment of relatively high volatility, but much lower than in times of crisis, like the subprime crisis in the United States or the Greek crisis." However, he assured that there is the sensation that emerging markets are being affected "more than in previous crises, particularly in Brazil." In this sense, he believes that the South American giant "is heading towards a quasi-depression, in a spiral of recession. Brazil benefited from the commodity boom, but is being affected by the drops in raw material prices." In his view, to these factors he adds the bribery scandal in Petrobras, which has seriously impacted the credibility of Dilma Rousseff's government.

In the case of Chile, Silva argued that “it continues to be at the head of the class, but its risk premium has been damaged.” A complicated external scenario, in his opinion, makes it difficult for confidence in Chile to recover, since "there is little room for a fiscal and monetary stimulus.”

Nevertheless, he said that the decline in oil prices was good news, “especially for importing economies like Chile.”

China, the world's brake?

In any case, the economist stated that the biggest effect on the recent climate has been the slowdown of the Chinese economy: “They have invested an astronomical sum in recent years, so it's predictable that China will experience an economic adjustment in the next few years.”

“Clearly, the global economy decelerated recently, particularly in emerging markets. A worrying trend is that the leading indicators continue to decline. The United States has had a period of recovery, but it hasn't managed to sustain greater growth than expected,” he argued.

Lastly, José Manuel Silva warned that countries have been increasing their debt, “especially fiscal debt, which is in addition to a demography in decline.”


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