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JPMorgan On Fiscal Policy, Downgrades Brazil Primary Deficit Forecast

LATAM
  • JPMorgan have noted that with Mexico having maintained tight fiscal policy throughout the administration, AMLO’s government has allowed itself the fiscal room to run a large primary deficit next year in a bid to bolster an already-strong economy.
    • Spending that benefits lower-income households such as pensions and subsidies were key drivers of the shift in the primary balance, whereas a jump in interest expenses made for an even bulkier, headline-grabbing overall deficit.
    • JPM believe that one year should not derail fiscal accounts, but they believe the need for a meaningful correction from 2025 onward becomes more of a pressing issue.
  • They note that this story echoes Brazil’s fiscal trajectory, albeit not what is happening in the margin. The debate in Brazil has been less about the proposed budget, and more about the changes it may face in the very near term—e.g., turning from a balanced target to one of a moderate deficit.
    • While the country will not hold a general election in 2024, there will be regional ones, and the administration is not keen on constraining expenses.
    • To JPMorgan, the decision to anticipate such discussion is a bad omen, enough so that they have downgraded their primary deficit forecast by 0.3%-pt to 0.9% of GDP next year.
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