Brazilian stocks and related exchange traded funds have been stuck in a rut and things could get worse before turning around.

The iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), the largest Brazil-related ETF, has declined 12.5% year-to-date, while the Market Vectors Brazil Small-Cap ETF (NYSEArca: BRF) is down 12.4%.

Brazil’s benchmark BOVESPA Index has declined 12.3% for the year, reports Charley Blaine for 24/7 Wall St.

Inflation at almost 6% a year is weighing down the economy as one of the worst droughts in 40 years decimate crops and push food prices higher. In response, the central bank has hiked rates up to 10.75%. [Brazil ETFs: Close to Attractive, But…]

Brazil will host the World Cup in June and the 2016 Summer Olympic games, but many believe the country has not adequately expanded the infrastructure needed to support the events.

“Another significant constraint to economic growth is underinvestment in infrastructure–Brazil’s capital investment as a percentage of GDP is 19%, which is below the emerging-markets average of 25%,” according to Morningstar analyst Patricia Oey.

Petróleo Brasileiro S.A. (NYSE: PBR), or Petrobras, the country’s largest oil company, has declined 24.8% this year. Investors have balked at the artificially low oil prices, high labor costs and government regulation on prices. Two Petrobras securities combine for 9.3% of EWZ’s weight.

“Petrobras faces a number of operational challenges as a result of government mandates,” Oey added. “Its refining division operates at a loss as it is required to sell fuel at below market prices–a populist measure that also helps damp inflation. Its development projects face delays because of local sourcing requirements for rigs and other large capital equipment. The profitability of these capital-intensive projects is also uncertain as the government may institute new rules to capture more economic rents from natural resource assets.” [Emerging ETFs’ Holdings Shed Size, Prestige]