Economies by the Match: Argentina and Brazil

I'm Eilen Seniors, Senior Global Macro Strategist with the Investment Advisor Group. As the FIFA World Cup twenty twenty six unfolds, we're taking you beyond the pitch into economic and political stories shaping the nations competing for the trophy. This is Economies by the Match.

Argentina is coming into this tournament as the previous champion to chase another championship. And since nineteen sixty two, no team managed to win World Cup back to back. Last time it was Brazil, and before that it was Italy in nineteen thirty eight, and Italy is not even in this tournament. Argentina is genuinely one of the most remarkable economic stories in the world right now When the current president Javier Melay took the office at the end of twenty twenty three, Argentina had the highest inflation rate on the planet. It was well over two hundred percent annually.

By the end of last year, that number had fallen to around thirty percent and the market expects that the inflation will be drifting down towards twenty to twenty five percent through twenty twenty six.

The government has run a budget surplus for the first time, and I would say well over a decade, achieved through what Milet famously calls his chainsaw approach to public spending.

Both twenty twenty four and last year were surplus years and the government budget expected to be in surplus this year and the next year as well. What an amazing achievement.

Not only the government spending is in good shape, the economic growth is back on track as well. The economy expanded over four percent in twenty twenty five and the consensus forecast for twenty twenty six sits in the three to four percent range area. The energy and mining sectors are booming in Argentina, led by the Vaca Muerte shale formation, but the labor intensive manufacturing in big cities is struggling with the currency finding a stable footing.

There are still be cautious for two thousand twenty six. You know, can the central bank rebuild its reserves or can Argentina get back into international debt markets? And can the economic growth finally reach to ordinary households? In terms of index coverage for the Argentinian stocks, the Argentinian stocks are in no man's land currently, meaning they are not in frontier market index nor in emerging market index. Index inclusion could help the sentiment and offer liquidity for the country that is in need for fresh capital for new projects that they're working on.

And in terms of politics, what Javier Millet did last year in October two thousand twenty five was something very unique.

He ran a a brutal austerity program, and then he won the midterm elections in a landslide. This was unheard of in Argentina or in any other major economy. His political party more than doubled its seats in the Argentinian Congress, though it still lacks an upright majority, so coalition building remains the name of the game.

Argentina's watchers are still split. Some see a genuine stabilization miracle, and I have to admit that I'm a member of that group, and others warn that the gains have come at a steep cost to wages, labor market, and of course, the domestic market. Either way, Malay entered two thousand twenty six with the real political capital.

Argentina is an energy and agriculture rich country and the supply shortages related to the conflict in the Middle East. Also the continuation of the Ukraine Russia conflict offers some support for Argentinian energy and agriculture produce.

The most important Argentinian soccer player is Lionel Messi. He turns thirty nine years old during the tournament, and this is his record sixth World Cup tournament, a feat no other man had ever achieved. He is chasing back to back titles for his country, and this World Cup by every indication will be his last dance.

And then they have Lautaro Martinez. He's a striker for the Italian team in Tamilan and in Italy and a co leader of Argentinians qualifying scoring charts. He's definitely fun to watch. You know, if Messi is the orchestra conductor, Lautaro is the player who finishes the symphony.

And then they have Julian Alvarez. You know, he plays in Spain at Athletico Madrid. He scored ten goals during the victorious two thousand twenty two run-in Qatar. He's a modern center forward playing side by side, you know, with Messi. And also watch for Nico Paz. You know, he's a, you know, young player, breakout player, twenty one year old, who just led Como in Italy into Champions League.

And the future of this team is definitely him, an excited player, a talented player to watch. So I wish Argentina the best in the tournament, and they have extraordinary players. And I hope they become the first team since nineteen sixty two to win back to back World Cups.

Brazil.

Brazil won the World Cup five times, but not since two thousand two. And the two thousand fourteen World Cup that was hosted in Brazil was disastrous for the country.

In semi finals against Germany, they lost seven to one in their home country.

They haven't recovered from that ordeal yet. Brazil is the largest economy in South America, but its growth is cooling down. After solid growth years in recent years, well above three percent growth rates, GDP is expected to expand only around one point eight percent this year.

Brazil is paying one of the highest real interest rates in the world at around fifteen percent, highest since two thousand and six, as the central bank fights to keep inflation now around four percent inside its target band.

The labour market is the bright spot in Brazil with unemployment near historic lows around five point five percent and agriculture and energy remained the engine of the economy, though both are exposed to climate shocks, especially this year with El Nino, and also global commodity swings. And for businesses, Brazil remains the indispensable Latin American market, but twenty twenty six carries a real political risk. So let's talk about politics in Brazil.

Two thousand twenty six is an election year in Brazil, and it's going to be a big one.

Brazilians will go to the polls on October fourth, and the current president Lula is seeking a fourth term. His accrual rating has slipped to around forty percent and nearly half of the Brazilians feel the economy has worsened on his watch according to those polls.

The opposition picture is not fully clear yet. And their president Bolsonaro is barred from running. So the opposition against Lula is still to be decided among figures like Sao Paulo governor Firitas and members of the Bolsonaro family like Flavio Bolsonaro could be running as proxies. Expect markets to be sensitive to every poll between now and October in in Brazil.

And as I expected, they have amazing players. The first one I would say, Muni junior, he plays in Spain for Real Madrid. He is the forward face of the team and arguably one of the two or the three most dangerous attackers on the planet.

And then Raffinha plays for Barcelona as winger, he transformed himself from a useful squad player to a genuine world class soccer player.

Then the last one, now of course they have Neymar.

This could be the player everyone will be talking about. Brazil's all time leading scorer was a late somewhat controversial co op by the coach Carlo Ancelotti. Neymar plays an impact role in what is almost certain that that is his final World Cup. The coach Ancelotti is Italian and one of the most successful managers in European Champion Leagues, you know, history.

And also keep an eye on to the young player, Endrick. He placed for Leon in France. He could become a new Brazilian superstar player.

Again, this is Eilen Senios covering global markets for Truist Wealth. For more information about our research, please visit w w w dot truist dot com forward slash wealth slash insights. Enjoy the World Cup twenty twenty six.