Brazil’s unemployment rate ends 2017 at 14-month low

Brazil’s jobless rate continued to fall at the end of 2017 due to growing off-the-books employment, ending the year at a 14-month low.

 The unemployment rate slipped 0.6 percentage points in the three-months through December to 11.8 percent, government statistics agency IBGE said.

That is a tad below the 11.9 percent median estimate in a Reuters poll of economists and should bring some relief to workers emerging from the nation’s deepest recession in decades.

But under-the-table jobs, which offer fewer benefits and do not entitle people to automatic wage hikes, accounted for nearly all gains in the year, highlighting the labor market’s slow recovery.

Brazil shed nearly 21,000 payroll jobs in 2017 even as the economy likely expanded at the fastest pace in four years.

A sweeping labor reform cutting worker benefits, which came into effect in November, seems as yet to be having little effect on job creation.

 That should keep a lid on inflation, which ended last year below the bottom-end of the official target range for the first time ever. Wages when adjusted for inflation were flat in the last three months of 2017, IBGE said.

Brazil’s unemployment rate fell gradually from an all-time high seen in March as Latin America’s largest economy gradually picked up steam.

Source: Reuters

Investment Cuts and Extra Incomes Reduce Brazil’s Government Deficit

The Federal Government announced on Monday (the 29th) a primary deficit (excluding interest payments) of R$ 124.4 billion (US$ 39.5 billion) in federal spending and incomes, equivalent to 1.9% of GDP (Gross Domestic Product).

The resulting final deficit is actually lower than the shortfall which had been projected for 2017, of R$ 159 billion (US$ 50.5 billion), but followed a script widely expected during times of fiscal shortage: it was fed by a massive cut in investment and a flash flood of exceptional income- such as government concessions and debt refinancing programs, variables that might not repeat themselves during the next fiscal year cycle.

Better than expected economic growth also helped to increase tax revenues and incomes.

“Although the final result turned out better than expected, its quality wasn’t good, [as it] was based on atypical events and low levels of investment”, said Vilma da Conceição Pinto, a researcher from Ibre/FGV.

According to the numbers, it is clear that a real fiscal, budgetary adjustment still hasn’t been made. Beyond the significant amount of atypical income and the fall in investments, personnel and payroll expenses increased by 6.5% in 2017, in line with the increase given to the public servant treadmill.

“In the short-run the results appear better than what had been expected, but the challenge of carrying out a real structural adjustment continues”, said Gabriel Leal de Barros, from IFI (Independent Fiscal Institution), an entity connected to the Senate.

Folha de São Paulo

Brazil believes its growth rate will be double the IMF’s forecast

Brazil expects to see upwards of 3 percent gross domestic product (GDP) growth in 2018, Brazilian Finance Minister Henrique Meirelles told CNBC Tuesday, a figure that flies in the face of the International Monetary Fund’s (IMF) forecast of 1.5 percent.

Speaking at the World Economic Forum in Davos, the head policymaker for Latin America’s largest economy explained why he thought the IMF’s forecast was wrong.

“The numbers have been revised every day, or every week, or every month by the IMF in general,” the finance minister said. “The market has moved steadily up, around 2.85 today. In our case we have been leading the market last year, we have this forecast that is going to happen, which is about 1.1 percent for 2017, and we think this year it’s going be around 3 percent or higher.”

Meirelles cited future pension reform, GDP growth and the country’s upcoming elections as cause for optimism. Brazilians will head to the polls in October 2018, with many hoping to bring an end to years of corruption-plagued administrations.

Meirelles took the position in 2016 amid the global commodities downturn and during the impeachment of former president Dilma Rousseff, previously serving as central bank governor from 2003 to 2011.

Brazil’s GDP did show signs of recovery in the fourth quarter of 2017 for the first time after suffering the longest recession in its history, though further confidence in the country remains sensitive to political developments, according to the Organization of Economic Cooperation and Development (OECD).

Meirelles would not confirm whether he will make a presidential bid for October, though he told CNBC he is thinking about it, and will make his decision in “late March or early April.”

“If the decision in October proves to be the right one and the country embarks on a higher growth rate next year which I think is possible, I think the story could be a reasonable one, or even a very good one,” he said.

Brazil’s government has pledged a raft of reforms, but regional watchers warn that continued reform is not guaranteed, particularly given the country’s upcoming presidential election in October 2018 which will pit unpopular incumbent Michel Temer against the scandal-ridden former president Lula da Silva. Investors are already warning of volatility.

Dogged by political corruption scandals and high-profile arrests, the country of 208 million continues to miss out on stronger growth thanks to a combination of red tape, protectionist measures, low export levels, high import tariffs and inadequate infrastructure.

Credit Suisse in 2017 named Brazil the most closed emerging market economy, and Standard & Poor’s recently downgraded Brazil’s credit rating, citing slow political progress.

 

Source: CNBC

Brazil inflation rises to targeted range in mid-January

Brazil’s inflation rate accelerated in mid-January back to within the official targeted range for the first time in six months, supporting expectations of a final interest rate cut next month.

Consumer prices tracked by the benchmark IPCA index rose 3.02 percent in the 12 months through mid-January, state statistics agency IBGE said on Tuesday.

The reading undershot the median 3.07 percent estimate of economists in a Reuters survey, largely due to lower power rates as heavier-than-expected rains boosted hydropower generation.

Still, a strong rise in food prices suggested that a months-long period of food deflation would not stretch into 2018.

Higher food prices accounted for nearly half of the 0.39 percent monthly increase in the IPCA index, IBGE said. Economists expected a 0.44 percent rise.

For the first time ever, inflation ended 2017 below the bottom end of the central bank’s target range, which is 4.5 percent plus or minus 1.5 percentage points, as a record harvest pushed down food prices.

The January upswing in food inflation should bolster expectations that inflation will edge back toward the mid-point of the official target in coming months.

But the resurgence of inflation is likely to be gradual amid double-digit unemployment rates and ample idle capacity in much of the economy. A central bank survey of economists put the 2018 inflation rate at 4.25 percent, below the middle of the target.

That should keep the bank on track to cut its benchmark Selic interest rate by a final 25 basis points in February to an all-time low of 6.75 percent.

The bank has cut rates by 725 basis points since October. Interest rate futures indicate investors expect a 25 basis-point reduction in February, with a minority of traders banking on an additional cut in March.

Source: Reuters

Brazilian prosecutors ask BNY Mellon unit to return $2.5 billion to local fund

Brazilian prosecutors asked on Thursday that the local unit of Bank of New York Mellon Corp (BK.N) return 8.2 billion reais ($2.56 billion) to local pension fund Postalis, according to a statement.

 Prosecutors said the Brazilian unit of BNY Mellon, which managed part of the assets held by the pension fund Postalis, caused losses to the fund.

According to prosecutors, BNY has failed to monitor the risks Postalis was subject to as a result of investments and did not comply with local rules for asset allocation.

A Sao Paulo court now will decide if the bank will face charges. In a statement, Bank of New York Mellon said has not yet received formal communication about the federal prosecutors’ action involving the bank.

“We believe the federal prosecutors’ accusations repeat unfounded accusations in those lawsuits,” the Brazilian unit of BNY Mellon said in a statement.

“Federal prosecutors suggest fiduciary administrators are responsible for investment decisions, which is not true,” the statement added.

Source: Reuters

China investment in Brazil hit seven-year high in 2017

China invested $20.9 billion in Brazil in 2017, the most since 2010 as a recession helped push down asset prices and attracted investors, according to Brazil’s planning ministry.

The energy, logistics and agriculture sectors drew the most Chinese capital, including investments in Brazil’s rich pre-salt oil fields and China’s State Power Investment Corp $2.25 billion deal to operate the São Simão hydropower plant.

The 2017 investment figure considers confirmed and announced investments, but does not include marquee deals like Chinese ride-hailing heavyweight Didi Chuxing’s purchase of a controlling stake in Brazilian competitor 99, as the private companies did not disclose the size of the deal.

Chinese investment has poured into Brazil in recent years as the world’s most populous country looks to secure food for its citizens and other natural resources.

 The Brazilian government expects Chinese investment to continue increasing this year as asset prices remain low after the recession that ended last year but economic growth picks up.

“Brazil has much less investment than we need … we need foreign investors,” Jorge Arbache, vice planning minister for international affairs, said in an interview.

This year’s most wide open elections in decades are unlikely to slow Chinese investment, he said.

“When we talk to the Chinese about it being an election year, a year with a strong political component, the Chinese show each time that they have a longer-term vision for Brazil,” Arbache said. “It’s unlikely they’ll reduce their presence.”

A bilateral fund launched in 2017 to direct $20 billion in financing from state-owned Chinese and Brazilian banks will consider backing for the first batch of project applications at the end of January, an initiative aimed at pushing up Chinese investment in Brazil.

The fund focuses on railways and infrastructure to help bring grains to port as China is the dominant buyer of Brazilian soy, but also considers manufacturing, technology and agricultural pitches.

 The first batch of four pitches will be considered at a meeting at the end of January, with the fund having already received 29 proposals, said Arbache, who is executive secretary of the fund. Those approved will be fast-tracked for evaluation by the banks.

”If at the end of 2018, five projects have been approved, I think it will be very good for the first year,“ Arbache said. ”With the learning process, it’s possible that next year there will be even more approvals.

Brazil lenders working to change overdraft credit – central bank

Brazil’s top lenders are committed to changing overdraft credit rules aiming to lower interest rates for consumers, the central bank said on Wednesday.

Last year, Brazil’s central bank regulated credit card debt, capping the usage period for revolving credit lines to one month. Credit card debt and overdraft protection are among Brazil’s most expensive credit lines.

The head of banking lobbying group Febraban, Murilo Portugal, has a meeting later on Wednesday in the Finance Ministry.

Reuters reported last June that the central bank and private lenders were discussing changes in overdraft protection.

 Source: Reuters

Brazil elections unlikely to derail M&A recovery, regulator says

Uncertainty surrounding Brazil’s presidential elections will not derail a recovery of mergers and acquisitions as Latin America’s largest economy shifts into higher gear, an antitrust official told Reuters in an interview.

Meetings with private-sector lawyers paint a “very good” outlook for corporate transactions in 2018, said Alexandre Cordeiro, the head of the antitrust agency Cade’s technical staff.

 “Lawyers are seeing plenty of demand due to the prospects for the economic recovery, despite this being an election year,” he said in a phone interview on Monday.

Brazil’s gross domestic product (GDP) is expected to grow the most in five years in 2018, potentially lifting corporate revenues following a two-year recession.

That could pour additional fuel into a recovery in buyout activity after a 33 percent jump in the value of Brazilian M&A in 2017, when conglomerates under pressure from corruption probes and heavy debt were forced to sell major assets.

Cordeiro said the applied technology and farm sectors could see strong buyer interest, following major transactions in Brazil’s financial sector in recent years.

His comments highlight optimism in corporate Brazil despite uncertainty over whether the winner of this year’s presidential elections will stick to President Michel Temer’s pledges to open up markets, cut red tape and rein in government spending.

Cordeiro joined Cade as a board member in 2015 and took over its technical body last year.

Source: Reuters

Brazil considers lifting tariff on U.S. ethanol

Brazil is studying the removal of a 20-percent tariff on ethanol imports from the United States, Agriculture Minister Blairo Maggi said on Wednesday, in a decision that could depend on Washington lifting a ban on fresh beef exports from Brazil.

Last year, Brazil imposed a 20-percent tax on ethanol imported from the U.S. that exceeds a 600 million liter annual quota to protect local producers as imports spiked.

Also in 2017, the U.S. banned shipments of fresh beef from Brazil following on a food safety scandal involving bribes paid to inspectors that led to heightened inspections by the U.S. and in turn uncovered potential health risks.

Speaking to reporters on Tuesday, Maggi implied that a decision on removing the ethanol import tariff could depend on resolving the dispute on beef exports.

“There is on the part of the United States a big demand to withdraw this (ethanol tariff) and we also have this problem with beef,” Maggi said. “Obviously one thing influences and contaminates the other.”

The ban on fresh beef exports could be lifted by April, Maggi said, when he is expected to step down in order to meet a deadline to run for elected office in October.

Brazil has already submitted all of the material requested by the United States to address concerns over beef exports and is awaiting for the United States to decide whether the issue is resolved, he said.

Source: Reuters

Brazil economic activity expands for third month in November

Economic activity in Brazil expanded for a third straight month in November, the longest stretch of gains since 2014, suggesting strong momentum at the end of the year.

The central bank’s economic activity index rose 0.49 percent from October after seasonal adjustments, in line with the median 0.50 percent forecast in a Reuters poll of economists. BRIBC=ECI

The figures are the latest indication that Latin America’s largest economy may have shifted up a gear at the end of 2017 after a much-awaited investments revival in the third quarter.

Brazil’s gross domestic product likely grew around 1 percent last year, snapping a two-year period of contraction as slow inflation and record low interest rates propped up consumer spending.

Economists forecast 2.8 percent growth in 2018, according to a weekly central bank survey, which would be the fastest since 2013.

Analysts nevertheless say uncertainty around this year’s presidential elections, the most wide-open in decades, could keep a lid on investments.

Source: Reuters