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We do not expect that the defeat of Pres. Bolsonaro will precipitate any constitutional crisis even if he refuses to concede and calls for demonstrations on the streets. We expect Brazil’s institutions, including the military, to safeguard and oversee a relatively peaceful transfer of power.

Regardless of who wins the election, next year will likely be a “reality check” on Brazil’s macroeconomic shortcomings, particularly its structural outlook for growth and fiscal accounts. Our fundamental view of the country will largely hinge on the policy agenda the new government puts forward to: a) alleviate the economy’s growth-stunting hurdles; and b) improve fiscal accounts on a structural basis, preferably equipping it with institutional anchors to bolster the credibility of fiscal policy.

On the other hand, Brazil is in a relatively favorable position to weather the challenges stemming from the tightening of global financial conditions on the back of its manageable external macroeconomic imbalances and ample stock of FX reserves.”