Fiscal outlook - VP April 2024 Big Picture Discussion | Research

Investors now view inflation as the “biggest tail risk”, but leading data is telling a different story, aligning more with a “mini inflation scare” scenario. We view fading fiscal stimulus as the actual greatest risk over the next 6-12 months, with upcoming April tax receipts as a key sign post.
History tells us fiscal deficits persist overtime in democratic nations, which raises long-term inflation risks. To combat these risks, the political path of least resistance is likely financial repression pending a major rise in social unrest.
Commodities and real assets are the likely winners in this environment. This creates major structural tailwinds for resource-intensive Latin American economies that remain capital scarce.