The corruption scandal at state-owned oil company, Petrobras, has developed over the past week or so into a full-blown national political crisis that, in our view, is now the biggest headwind facing Brazil’s economy. The immediate casualty has been the real, which has fallen to an eleven-year low against the dollar and looks set to force the central bank to raise interest rates further over the coming months. But perhaps more importantly, the crisis looks likely to be the final nail in the coffin of much-needed economic reform.
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