Santander moves to defensive stance on global assets amid U.S. tariffs

Economist sees unprecedented shock increasing global uncertainties with repercussions in Brazil

04/07/2025

Santander Asset Management has adopted a defensive stance on global assets and is taking a tactical approach to domestic markets amid heightened uncertainty prompted by the “unprecedented shock” from the sweeping tariff hike announced by the United States, said Chief Economist and Strategist Eduardo Jarra. In an interview with Valor, Mr. Jarra expressed concerns about the potential impact of the tariffs on global economic activity and noted that repercussions could be felt in Brazil—possibly leading the Central Bank to end its interest rate tightening cycle earlier than expected.

The following are key excerpts from the interview:

Valor: What’s your assessment of the global outlook now that the Trump administration has announced new tariffs?

Eduardo Jarra: We’re dealing with a situation that has no recent historical precedent. Typically, in our analysis, we rely on past events as a reference to understand how markets and economies might react. This time, there’s no roadmap; we’re operating on assumptions. We had marked April 2 as a key date to get more clarity, but the announcement surprised markets with its scale and timing.

Valor: What kind of tariff levels had you anticipated?

Mr. Jarra: Like most of the market, we were expecting something in the 10% to 15% range. Therefore, the announcement was surprising not just in terms of size but also in terms of the rationale behind it. By April 2, the picture was very different from what we had imagined. At least we now have clarity on what the tariffs look like. The uncertainties now revolve around how other countries will respond and whether there’s any room left for negotiation. That has left us in a highly uncertain environment, and we’ve adopted a more defensive management stance. We’ve shifted to a defensive management mode.

Valor: Has Santander Asset shifted to more defensive assets?

Mr. Jarra: I’d say we’ve moved toward more defensive positioning rather than specific defensive assets. Given that we saw this as a significant event, we had already begun reducing risk across portfolios. After the announcement, we still believe that de-risking was the right move. We’re now navigating more uncharted territory. China responded with a 34% tariff on U.S. goods—a strong reaction that immediately impacted markets. We’ll have to wait and see how the U.S. responds. Is this the end of the escalation or just the beginning? Given the magnitude of the U.S. tariffs, is there still room to negotiate? In an environment with this much uncertainty, we believe the prudent approach is to wait, digest the information, and observe how key players act. It’s too early to take positions based on hypotheticals.

Valor: Can we already assess any concrete economic impact from the tariffs?

Mr. Jarra: We knew that a tariff shock would likely lead to slower growth and higher inflation. Now, we’ll try to gauge the magnitude of those effects. The problem is that we still don’t have a full picture—retaliatory measures from other countries are still unfolding. U.S. inflation will rise as import prices climb. However, the spike in uncertainty is also likely to make companies pause investment decisions, possibly leading to reduced capital expenditures. Consumer purchasing power will also be hit. On top of that, we need to consider the impact on financial markets since a significant portion of Americans’ savings are in equities. And don’t forget supply chains. What does this disruption mean for corporate production structures? That concerns me more than inflation.

Valor: Could the U.S. be heading for a recession?

Mr. Jarra: The probability has increased. We need more data to know how much more likely it is now, but yes, the risk has risen. The real question now is how severe the U.S. slowdown will be. If conditions remain roughly as they are, I believe the focus will shift more toward growth concerns, which will eventually lead to rate-cut discussions.

Valor: Have you changed your outlook for Federal Reserve rate cuts?

Mr. Jarra: We were projecting two 25-basis-point cuts this year and two more in 2026. I’m still comfortable with that forecast for this year. From here, the question is whether there’s room for additional cuts in 2025—perhaps bringing forward some of the easing we expected next year.

Valor: How is your global portfolio positioned now?

Mr. Jarra: We started the year optimistic about the U.S., driven by strong economic data and the tech sector. Even with elevated valuations, there was a compelling case for U.S. “exceptionalism.” However, with rising uncertainty around the U.S., and with fiscal stimulus in Europe and promising developments in Chinese tech, we began diversifying our global equity exposure geographically. Even before the tariff announcement, we were already becoming more defensive. Today, our global exposure is significantly lower—neutral or close to it, depending on the portfolio. As we continue to assess the post-announcement landscape, we’re maintaining that defensive posture and plan to revisit our strategy once things settle.

Valor: Given the weaker U.S. growth outlook, are you allocating to U.S. fixed income?

Mr. Jarra: Not through a directional bet. That said, we’ve been combining U.S. fixed income with our global equity risk bucket. We like U.S. fixed income as a complementary asset within our risk allocation framework, though not as a standalone opportunity. Our current stance is neutral.

Valor: Does this defensive stance also apply to Brazilian markets?

Mr. Jarra: We’re also holding neutral positions across all asset classes in Brazil. However, we’re actively managing the portfolios with a more tactical eye, looking for short-term opportunities. It’s a tactical allocation strategy that remains close to neutral overall.

Valor: The market had been concerned about a sharper slowdown in Brazil. Has that changed?

Mr. Jarra: We still project 2% GDP growth for this year and 1.5% for next. The economy is generally unfolding as expected. The first quarter was strong, largely due to agribusiness, and the labor market remains tight, providing a tailwind. That momentum should moderate in Q2 as the agribusiness’s impact fades. For the second half of the year, the restrictive monetary policy should lead to a more noticeable deceleration.

Valor: Are any of the government’s stimulus policies likely to offset this slowdown?

Mr. Jarra: We’ve already factored in measures like expanded payroll-deductible credit and the proposed income tax exemption. Based on current information, we believe the Central Bank is nearing the end of its tightening cycle. The economy appears to be entering a gradual slowdown. If new data changes the picture, we’ll reassess.

Valor: Is there any bias in your GDP outlook?

Mr. Jarra: Given the current strength in the labor market and agribusiness—and some uncertainty around fiscal stimulus—the bias is to the upside. Two downside risks remain: first, the lagged impact of restrictive monetary policy; second, the global backdrop, which has become more concerning and could influence the Central Bank’s decisions moving forward.

Valor: Could that lead to an earlier start to a rate-cutting cycle?

Mr. Jarra: Right now, we’re more focused on the current cycle coming to an end. Given the global developments, the probability of ending the cycle with the Selic policy interest rate at 14.75% has increased—this is our base case. If the global economy slows but avoids a more serious disruption, the external environment could help ease Brazil’s economic deceleration. That would provide room for the monetary authority to hold rates steady at 14.75% or 15.25% and monitor the effects. In that scenario, the global factor could tilt the odds in favor of rate cuts starting in 2026. But as things stand today, Brazil still seems far from any discussion of an early start to easing this year.

*By Arthur Cagliari and Victor Rezende — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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OPEC+ output boost erodes competitiveness of Brazilian oil

If prices remain low, country will earn less from top export while Petrobras gets room to lower fuel prices

04/07/2025

The decision by the Organization of the Petroleum Exporting Countries and its allies (OPEC+) to increase oil production starting in May by a larger-than-expected volume has surprised the market, worrying oil companies and adding further uncertainty to an already challenging global short- and medium-term outlook.

The cartel’s announcement came on April 3, a day after President Donald Trump’s announcement of broad tariffs on the rest of the world. Analysts and industry executives believe the combination of these two factors has heightened uncertainties. The American trade tariffs are expected to slow down the global economy, which could reduce growth in countries and decrease demand for oil. Yet, despite this already complex scenario, OPEC+ opted to triple the volume of additional supply compared to the previous plan for 2024, causing oil prices to plummet.

On Friday (4), global benchmark Brent crude closed at $64.95 per barrel, a drop of 6.44% from the previous day and 10.73% for the week.

A scenario with lower Brent prices could help Petrobras in reducing diesel and gasoline prices in the domestic market. On April 1st, the company cut diesel prices by R$0.17 per liter, a decrease of 4.6%. It was the first time the oil company reduced fuel prices since December 2023. Gasoline, which saw an increase in July 2024, remains unchanged.

However, if the Brent price reduction persists in the long run, Brazil is likely to earn less from oil exports. In 2024, oil was Brazil’s main export item, surpassing soybeans, with sales of $44.9 billion, a 5.23% increase over 2023.

Daniel Osorio, head of energy for Hedgepoint in the U.S. and Latin America, states that Brazil is in a difficult position: “The increase in production by OPEC members could make it more challenging for Petrobras and other Brazilian players to compete in Europe and Asia.”

On Thursday, OPEC+, which accounts for about 40% of global oil production, decided to raise the commodity’s supply by 411,000 barrels per day starting next month. This volume equates to three months of the supply ramp-up plan announced in December. At that time, the idea was to add 140,000 barrels per day to the cartel’s production from April 2025, including May and June. Until then, it could be said that this week’s supply announcement was anticipated since the end of last year. But what surprised many was the addition of a significantly larger number of barrels all at once.

Given the circumstances, Goldman Sachs revised its oil price estimate to $66 per barrel by the end of 2025, a reduction of $5 per barrel from the previous forecast. According to the bank, in addition to the cartel’s decision, the tariffs announced by Donald Trump also increase the risk, which is expected to bring more volatility through the end of the year.

Mr. Osorio from Hedgepoint says that the OPEC+ announcement is related to the group’s internal policies. “Although the timing might seem strange, it’s important to consider that Russia has been expressing concerns about Kazakhstan’s production growth for some time, especially after the expansion of the massive Tengiz oil field operated by Chevron. The decision reflects ongoing regional tensions rather than a direct response to Trump’s tariffs,” he states.

The Hedgepoint analyst evaluates that while it was expected for OPEC+ to resume production levels in 2025, this decision combined with Mr. Trump’s tariffs could have uncertain effects: “What is certain is that many countries will be forced to negotiate with the United States. Companies are already seeking ways to mitigate the effects of these new tariffs.” The drop in oil prices, he adds, could lead oil producers to reduce supply levels in more expensive fields, prompting oil companies to reevaluate investment plans.

Citi describes the combination of American tariffs and OPEC’s decision as a “double whammy” for the oil and gas sector, increasing risks to global economic growth and demand for the commodity. In a report, the bank states that OPEC’s choice to triple the production increase compared to previous expectations accelerated the oil price decline: “The group of producers’ policy change appears to stem from a period of tensions over certain members exceeding production limits.”

Felipe Perez, an analyst at S&P, says that despite the uncertainties brought by OPEC there is a notion that Trump’s tariffs are short-lived and negotiating tools that might be used in discussions with Saudi Arabia, an OPEC+ member: “OPEC faces challenges in bringing consensus among members. If the price drop trend continues, the American producer will consider production plans and counter with the American campaign for more drilling, ‘drill, baby, drill.’” For Mr. Perez, a lower price could help OPEC+ rein in some members who, due to high foreign private capital in production, were exceeding quotas.

*By Kariny Leal, Valor — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Brazil concerned by threat to multilateral trade system

Despite lower U.S. tariffs, Lula administration warns of global risks

04/07/2025

Members of the Lula administration say there is no reason to celebrate Brazil’s inclusion in the lowest tariff tier under the sweeping measures announced last Wednesday (2) by U.S. President Donald Trump. While Brazil secured a “comparative advantage” with lower rates, officials warn the move could signal a breakdown of the multilateral trade system, with unpredictable and potentially harmful consequences for all countries.

This concern is shared by sources at the Planalto Palace and the Foreign Ministry, including Celso Amorim, special advisor to President Lula.

Mr. Amorim said that weeks of talks between Brazilian diplomats and representatives of the Office of the United States Trade Representative (USTR) helped secure Brazil a place among the few countries facing a 10% tariff—alongside Argentina, the United Kingdom, Australia, Singapore, Chile, and Colombia—nations with which the U.S. runs a trade surplus. By comparison, the new tariffs are 20% for the European Union, 24% for Japan, 25% for South Korea, and 32% for Indonesia.

“The Foreign Ministry did an excellent job of clarifying that the U.S. has a consistent surplus with Brazil,” Mr. Amorim told Valor. “It’s much better to start bilateral negotiations from that position than from one where the situation could be much worse [with higher tariffs]. I just don’t think we should be thanking the U.S. This is incompatible with the multilateral system. There’s nothing to celebrate.”

Defending the multilateral system, Mr. Amorim cited Brazil’s past victories, such as the 2014 resolution of the cotton dispute with the U.S. at the World Trade Organization (WTO), and the country’s success in overriding patents for HIV treatment drugs in the 1990s, backed by international bodies.

The full impact of the U.S. tariff package is still being assessed by the Brazilian government and business associations. At the presidential palace, officials believe this will be a long-term effort, as the final assessment depends on developments such as retaliatory measures from other countries and broader effects on global trade.

On Thursday (3), President Lula said Brazil would take “all appropriate measures to defend our companies and Brazilian workers.”

He said Brazil’s response would be guided by WTO rules and the reciprocity law passed by Congress on the same day as the U.S. tariff announcement.

One source said the Reciprocity Bill puts “all cards on the table” for Brazil. However, any retaliatory move will take time. For now, the focus is on negotiation.

Next week, a new round of talks will be held by Ambassador Mauricio Lyrio, the Foreign Ministry’s secretary for Economic and Financial Affairs, with the USTR. Officials in Brasília believe the negotiations could take months or even years. Brazil has already requested a return to tariff-free quotas for its steel exports to the U.S.—a demand that remains on the table.

The government is also coordinating with the private sector through industry groups like the National Confederation of Industry (CNI), the National Confederation of Agriculture (CNA), and the Brazil Steel Institute.

Milei’s U.S. tariff pledge

While Brazil continues to advocate for multilateralism, the current trade context could push the country to impose additional tariffs to prevent a flood of Chinese and other Asian goods—a scenario also being considered in the European Union.

There is growing concern in Brasília over the future of Mercosur. During a visit to the U.S. on Friday, Argentine President Javier Milei said he would align Argentina’s tariffs with a U.S. basket of 50 products.

This poses a challenge, as Mercosur is based on a Common External Tariff (CET) and joint trade negotiations with outside partners. If Mr. Milei follows through—something few expect—it could spell the end of the South American bloc, or at least Argentina’s exit from it.

Next Wednesday, President Lula will travel to Honduras for the summit of the Community of Latin American and Caribbean States (CELAC). Gisela Padovan, the Foreign Ministry’s secretary for Latin America and the Caribbean, said Thursday that while the U.S. tariff hike is not officially on the agenda, it may be mentioned in the summit’s final declaration.

Other sources expect the declaration to include a general “defense of multilateralism.” The issue may also be raised during Mr. Lula’s bilateral meetings with other leaders, which have yet to be confirmed.

  • By Fabio Murakawa – Brasília
  • Source: Valor International
https://valorinternational.globo.com/
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Minister says Lula’s low approval is shared cabinet burden

After pushback on poor poll numbers, communications minister defends strategy and insists all ministers must take responsibility

04/04/2025

Brazil’s minister of Social Communication, Sidônio Palmeira, said on Thursday that all cabinet ministers bear responsibility for President Lula’s low approval ratings, as indicated by recent opinion polls.

He was asked about the matter following an event organized by the communications ministry (Secom) to promote the government’s achievements. Mr. Palmeira showed frustration with journalists, who focused more on the president’s declining approval rates than on the event itself.

“I find it a bit amusing—we just held an event here, which is an important moment to talk about the government’s accomplishments. I think we should focus on that, and yet you’re all asking about polls. We can talk about the polls,” he said. “I’m not trying to wash my hands of the issue—at all. I believe approval rating is a shared responsibility among all ministers and areas: political, administrative, communication—everyone.”

Mr. Palmeira was appointed after President Lula publicly expressed dissatisfaction with his predecessor, Congressman Paulo Pimenta. Many had blamed the government’s weak approval ratings on communication failures, a point Mr. Lula made at a party event in December when he criticized the administration’s messaging.

A political strategist behind Mr. Lula’s 2022 campaign, Mr. Palmeira introduced changes to Secom’s team and the tone used on social media. It was also his idea for Mr. Lula to read from a prepared speech during Thursday’s event—departing from the president’s usual improvisational style.

Still, despite the shake-up in the communications office, President Lula’s approval ratings have continued to plummet in every major poll in recent months.

“My job isn’t to debate the president’s or the government’s approval ratings. My job is to inform the public about government initiatives and how they can benefit from them,” Mr. Palmeira said. “If the public is well informed, then I believe I’ve done my job. Whether they approve or disapprove of the government—that’s not for us to define.”

Mr. Palmeira also pushed back against claims that Thursday’s event—which showcased the administration’s achievements over the past two years—was a campaign-style move.

“That’s a mistaken interpretation. The event’s main purpose was to communicate what the government has done,” he said. “As a minister, I’m not thinking about political campaigns. I’m thinking about government actions.”

The latest poll, released Wednesday by Genial/Quaest, showed a seven-point rise in disapproval of the Lula administration since January, reaching 56%—the highest level recorded by the institute since it began tracking Mr. Lula’s performance in April 2023. Approval ratings dropped to 41% from 47%.

The sharp decline surprised officials at the presidential palace, who had seen signs of stabilization in recent internal tracking polls commissioned by Secom.

Despite that, sources in the administration remain optimistic about a rebound in President Lula’s popularity. The Planalto Palace is betting that recent changes at Secom, improved communication of government programs, and initiatives such as the Public Security constitutional amendment and a proposal to exempt Brazilians earning up to R$5,000 from income tax will help reverse the negative trend.

Officials also believe that many Brazilians are unaware of government initiatives and are therefore not taking advantage of them. Thursday’s event, which drew around 3,000 people to the Ulysses Guimarães Convention Center auditorium, was part of an effort to close that gap.

Privately, and despite the poor poll numbers, presidential aides still see Mr. Lula as the front-runner for reelection in 2026. They argue that dissatisfaction in some regions—such as the Northeast—and among certain voter groups reflects “very high expectations” placed on the president. In the words of one government insider, “you don’t fall out of love overnight.”

That belief was reinforced on Thursday when new data showed President Lula would still win the election in every simulated matchup.

*By Fabio Murakawa, Estevão Taiar and Ruan Amorim — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Retailers brace for fallout from U.S. tariffs on Chinese goods

Industry fears an influx of low-cost imports and pressure on local jobs and production as Chinese sellers seek new markets

04/04/2025

Brazilian retailers and consumer goods manufacturers are expressing concerns about the potential impact of the U.S. government’s recent decision to impose higher tariffs on certain Chinese products, according to industry representatives. As of May 2, items shipped from China and Hong Kong to the United States that cost up to $800—previously exempt from import duties—will now be taxed at a 30% rate.

There is growing apprehension that some of these goods, which are often cheaper than those produced locally, could be redirected to Brazil. Industry leaders also fear that the Chinese government might increase export subsidies to support businesses hit by the new U.S. tariffs—measures that could further distort global trade.

The Brazilian Textile and Apparel Industry Association (ABIT) warned of a potential “avalanche of Asian imports,” which could overwhelm domestic producers in what has been dubbed the “blouse war”—a metaphor for the fierce competition between foreign and local brands in Brazil’s retail market originated from the flood of cheap clothes from China.

As Asian products become more expensive for U.S. buyers, online marketplaces and merchants selling through those platforms may look for alternative markets to offset revenue losses. They could also attempt to absorb part of the new 30% duty, potentially with government backing from Beijing.

According to Jorge Gonçalves Filho, president of the Retail Development Institute (IDV), foreign companies selling in Brazil already pay a combined 44.6% in taxes, factoring in import duties and the standard 17% state-level sales tax (ICMS). In states where ICMS reaches 20%, the total tax burden rises to about 50%. For domestic retailers, the effective tax rate can be as high as 80% to 100%, depending on the sector.

“They [Asian companies] pay half of what we do,” Mr. Gonçalves said. “That imbalance makes the country more vulnerable to imports. It’s only natural they would look for alternatives after Trump’s tariffs. This could harm us, and we’re waiting to gather data to assess the impact,” he added. “If countries with more protectionist policies begin subsidizing prices here in Brazil, we’ll quickly feel the consequences, especially in terms of job losses.”

Mr. Gonçalves cited data from Brazil’s General Register of Employed and Unemployed Persons (CAGED), which shows an uptick in retail job creation since August, when the country began taxing shipments under $50 at a rate of 20%, ending the previous tax exemption.

Although many of these platforms depend on consumer demand, some produce and sell their brands. They often use subsidies to boost sales—such as covering part of the taxes paid by customers—or adopting aggressive pricing strategies in certain countries through incentives offered to third-party sellers.

These e-commerce websites have the autonomy to define their pricing and tax strategies on a country-by-country basis. In 2023, Shein partially covered ICMS taxes for buyers in Brazil.

According to two sources familiar with the lobbying efforts of Chinese platforms in Brasília, foreign marketplaces have been developing contingency plans since the beginning of the year. Until the announcement by former U.S. President Donald Trump earlier this week, the expected tariff increase was 10%, not 30%—a rate that could also be applied as a flat $25 per item, rising to $50 after June 1.

While more mature markets such as Japan and the United Kingdom—both with lower import duties—are natural targets for redirected shipments, Brazil’s significance as a fast-growing consumer market means that some of the redirected goods are likely to land there too, according to industry insiders.

On social media, ABIT president Fernando Pimentel warned that several major exporters of textiles and garments to the U.S. are likely to be severely impacted by the new American tariffs. Even with the new duties, taxes in the U.S. remain lower than in Brazil.

“We don’t yet know how they’ll respond to this tax tsunami,” Mr. Pimentel wrote on LinkedIn. “But given how vital these exports are to their economies, they will seek new markets—and here lies the danger: that Brazil becomes a prime destination, putting pressure on local production, investment, and employment.”

He called for immediate “legitimate trade defense measures” to avoid being overwhelmed by a flood of low-cost Asian imports. “We were already actively working on this front, and now we must double down,” he said.

The largest Asian consumer goods platforms operating in Brazil include Shopee, Temu, Shein, and AliExpress.

Shein declined to answer questions about potential impacts in Brazil and said it would respond via AMOBITEC, a trade group representing mobility and technology companies. AMOBITEC said that it is too early to evaluate the consequences of the U.S. decision, and emphasized that Brazil’s high taxes—among the highest in the world—remain a barrier to large-scale market shifts.

“We cannot lose sight of the fact that taxes on purchases in Brazil remain the highest globally,” the group said, noting that the announcement alone is unlikely to significantly alter current trade flows.

AliExpress, Shopee, and Temu did not respond to requests for comment.

According to the director of a textile manufacturer in Minas Gerais state, Brazil could soon face a “torrent” of Chinese imports due to the U.S. tariff changes.

When asked whether Brazil’s relatively closed economy might shield it from such a wave, he said that even with the 20% import tax and ICMS, Asian platforms continue to grow rapidly in Brazil—often outpacing domestic retailers—making the country an attractive alternative.

To illustrate the scale of the potential impact, the U.S. Customs and Border Protection processes over 4 million shipments of up to $800 per day. In Brazil, the Federal Revenue Service reported about 187 million international parcels in 2024 so far—an average of 520,000 per day.

*By Adriana Mattos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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U.S. tariff hike could ease Brazil’s inflation outlook for 2025

Economists see inflation closer to 5% than 5.5%; Treasury yields fall

04/04/2025

The sweeping global tariffs announced on Wednesday (2) by U.S. President Donald Trump—on what he dubbed “Liberation Day”—may create downward pressure on Brazil’s inflation outlook for this year. Economists now see inflation numbers hovering around 5%, rather than above 5.5%. The median projection in the Central Bank’s Focus survey currently points to an IPCA official inflation rate of 5.65% in 2025 and 4.5% in 2026.

Inflation expectations embedded in NTN-B bonds (Brazilian Treasury notes indexed to the IPCA) due in May 2025 fell to 5.64% on Thursday, from 5.96% the day before, 6.48% five days ago, and 9.83% a month ago, according to Warren Rena. For NTN-Bs maturing in August 2026, implied inflation fell to 4.95%, down from 5.27%, 5.42%, and 6.26% over the same periods.

Despite the downward bias, projections remain above the upper limit of the inflation target, set at 4.5%. Brazil was less affected by the newly announced tariffs, as its products will face a 10% surcharge—the minimum rate imposed by the Trump administration.

If the situation remains as it is, the measure could result in higher inflation in the U.S., slower growth there, and a broader global economic slowdown, said Andréa Angelo, chief inflation strategist at Warren. These effects, she noted, could weaken the U.S. dollar, easing inflationary pressure on goods in Brazil.

Ms. Angelo pointed out that when the real strengthens against the dollar, the pass-through to consumer prices tends to be smaller than when the Brazilian currency depreciates. Still, an exchange rate of R$5.50 to the dollar, for example, could reduce Brazil’s goods inflation and lead to a 0.27 percentage point drop in the IPCA, bringing the projection to 5.2%. On Thursday, the dollar’s exchange rate closed at R$5.62. “There’s also the possibility that Asia will face a glut of goods, since it won’t be exporting as much to the U.S.,” she added.

Inflation risks

Mirella Hirakawa, head of research at Buysidebrazil, said that inflation risks for 2025, which had been tilted to the upside, now appear more evenly balanced. The consultancy had already projected a lower inflation rate for 2025 than the market consensus, with a year-end IPCA of 5.2%. Last week, the forecast was revised upward to 5.4%, and the 2026 projection increased from 4.4% to 4.6%.

“I think that for 2025, we and the market will likely meet halfway—somewhere between 5.4% and 5.5%. But for 2026, the projections shouldn’t change much,” Ms. Hirakawa said. She noted that the estimates do not yet factor in the impact of private payroll-deductible credit in 2025 or the income tax reform scheduled for 2026.

She said Thursday’s drop in Brazil’s exchange and interest rate markets reflects the relatively limited impact of the U.S. tariffs on Brazil, combined with a higher risk of recession in the U.S. than of global price pressure. “But we’re talking about a potential new world order, with a high degree of uncertainty around the new map of trade agreements.”

She sees two possible scenarios: one where all countries reduce tariffs and economies become more open—including the U.S.; and another where nations retaliate against the U.S. and forge new trade deals among themselves, with the U.S. left out.

“In my view, regardless of the scenario, the U.S. will feel the inflationary effects before any hard data on activity. Initially, uncertainty will play a larger role in the slowdown, but the most significant impact would come in the second half of the year, possibly reinforcing fears of a recession—which could become a self-fulfilling prophecy,” she said.

The Trump administration’s tariff hike could trigger responses from other trade partners, potentially sparking a trade war that would hurt the global economy. Still, Brazil stands to lose less than other countries, said Iana Ferrão, economist at BTG Pactual. The extent of that loss, however, will depend on how much the global economy deteriorates, she noted.

‘Impoverishment Day’

Sergio Vale, chief economist at MB Associados, called “Liberation Day” an “Impoverishment Day,” saying it would “shackle the American population to much higher prices.” For Brazil, he said, the announcement strengthened the country’s growing alignment with China and bolstered commodity trade chains. The relatively mild tariff rate imposed on Brazil helped strengthen the real through expectations of an improved trade balance, he added.

“The idea of a stronger trade balance with China and other countries, combined with accelerated progress on trade deals with Europe, for example, should help keep the exchange rate lower in the coming months. As a result, the real is likely to remain around R$5.70 throughout 2025,” Mr. Vale said.

This stronger exchange rate supports MB’s IPCA estimate of 5.1% for 2025 and helps push inflation away—for now—from levels above 5.5%, he said. “Still, both this year and next, when we expect 4.5%, inflation is likely to end President Lula’s term near the upper limit of the target range.”

The combination of a stronger real, moderate global slowdown risk, and a possible increase in oil supply in May, as announced by OPEC+, led Banco Pine to lower its 2025 IPCA forecast from 5.25% to 5.1%. “Given our outlook for the domestic and global economy, we feel relatively comfortable with this projection,” said Cristiano Oliveira, head of economic research.

XP expects some recovery in commodity prices and the U.S. Dollar Index (DXY) in the coming weeks, despite the high level of uncertainty. It also does not anticipate a near-term interest rate cut from the Federal Reserve. As a result, XP maintained its exchange rate forecast at R$6 to the dollar at the end of 2025 and R$6.20 in 2026. Still, the brokerage acknowledged that the probability of stronger Latin American currencies—beneficial for inflation and monetary policy—has increased.

XP also lowered its 2024 goods inflation forecast from 4.7% to 4.3%, driven by first-quarter currency gains. However, it now assumes a yellow flag for electricity tariffs in December, with an additional surcharge. This kept its 2025 IPCA forecast at 6%. For 2026, the forecast rose from 4.5% to 4.7% due to the expected impact of income tax reform.

  • By Anaïs Fernandes — São Paulo
  • Source: Valor International
  • https://valorinternational.globo.com/
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High interest rates weigh on business confidence in Brazil

Business Confidence Index falls 0.6 points in March to 94 points, lowest level since November

04/02/2025

The impact of rising interest rates drove the decline of the Business Confidence Index (ICE) in March. The index fell by 0.6 points last month to 94 points, its lowest level since November 2023, due to a sharp drop in the retail sector, where the cost of installment payments significantly affected sales.

Compiled from the confidence levels of the four sectors covered by the business surveys conducted by the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV), the ICE was dragged down by a 2.4-point fall in retail confidence, which dropped to 83.1 points. The other sectors—industry, construction, and services—all posted gains in March. Industry confidence increased by 0.1 points to 98.4 points; services rose 1.2 points to 92.9 points, and construction increased 0.7 points to 95.0 points.

“I see a sharper decline in retail goods that hinge on credit. Interest rates are likely starting to take effect,” said Aloisio Campelo, a researcher at Ibre-FGV overseeing the ICE survey.

The economist added that high interest rates are also making consumers more cautious, especially amid high household debt. Mr. Campelo noted that sales of durable and semi-durable goods posted the weakest performances in March. “Food wasn’t behind the weak retail performance in March,” he claimed.

Mr. Campelo said that despite the March drop and the steep decline in retail, the overall ICE reading for the month “is not all bad.” He acknowledged negative aspects, such as the index’s third consecutive monthly decline, but pointed out that recent ICE downturns have largely concentrated in retail and services. On the positive side, he highlighted the resilience of the industrial and construction sectors.

“Short-term indicators show that industrial activity remains resilient. Confidence in construction declined, but there’s a limit to how far it can fall given government programs targeting the sector,” Mr. Campelo argued.

Among the components of the overall index, the ICE decline in March was driven by worsening expectations. The Expectations Index (IE) fell 1.4 points from February to 91.5 points, while the Current Situation Index (ISA) edged up 0.3 points to 96.5 points.

It was the fifth straight decline for the IE. The sharpest drop was in expected demand over the next three months, which fell 1.9 points to 91.4 points. Expectations for business conditions six months ahead declined 0.9 points to 91.8 points.

*By Rafael Rosas — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Amaggi partners to generate carbon credits in Rondônia

Agribusiness company teams up with NaturAll Carbon on regenerative agriculture project spanning 25,000 hectares

04/02/2025

Amaggi, Brazil’s largest domestically owned agricultural trading company, has partnered with Anglo-Brazilian climate-tech firm NaturAll Carbon to launch a carbon credit project based on regenerative agriculture.

The initiative will be carried out at Fazenda Carolinas, a 25,000-hectare farm located in Corumbiara, Rondônia. The farm comprises both degraded pastureland and areas under conventional farming, which will be restored using regenerative techniques.

Juliana Lopes, Amaggi’s director of ESG, communications, and compliance, said the practices to be implemented include no-till farming, crop rotation (soy, corn, and cotton), the use of cover crops, and replacing chemical pesticides with biological alternatives. These strategies support atmospheric carbon capture and soil sequestration.

“Amaggi has already been implementing regenerative agriculture for some time. It is a core part of our decarbonization plan,” Ms. Lopes said. In addition to capturing carbon, regenerative agriculture improves soil quality and fertility, she added.

Carbon sequestration will be measured through physical sampling, computer modeling, continuous soil monitoring using geoprocessing tools, and remote sensing technologies.

Alexandre Leite, co-founder and CEO of NaturAll Carbon, estimates that Amaggi could achieve an average carbon capture rate of 2 tonnes per hectare per year—totaling 50,000 tonnes across the 25,000-hectare area. This would enable the issuance of two carbon credits per hectare annually, or 50,000 credits in total. The exact number of credits will be calculated each year following an audit that certifies the captured carbon.

The project will be certified by Verra, the world’s leading certifier of voluntary carbon credits. It will use methodology VM0042 (ALM – Agricultural Land Management), a global standard for soil carbon sequestration.

NaturAll Carbon will also be responsible for securing buyers for the carbon credits. Issuance and sales are expected to begin in 2026, following third-party verification of the additional carbon captured through regenerative practices.

The credits will be sold in the voluntary carbon market, where companies opt to reduce emissions and trade credits independently of regulatory requirements.

According to Mr. Leite, demand for carbon credits in the voluntary market is rising, and Brazil is well-positioned to meet this demand. “Brazil has 40 million hectares of degraded pastureland that could be converted to regenerative agriculture. That represents huge potential for carbon credit generation,” he said.

Amaggi aims to expand the project to other company-owned farms and to its partner producers. The company currently cultivates grains and cotton on 400,000 hectares. In 2023, it launched the Amaggi Regenera program to encourage its 5,600 partner producers to adopt regenerative practices. According to Ms. Lopes, ten producers have already joined the program.

Amaggi is also investing in renewable energy sources, including small hydroelectric power plants, and preserving legal reserve surpluses. The company is evaluating the possibility of generating carbon credits from these efforts as well.

*By Cibelle Bouças, Globo Rural — Belo Horizonte

Source: Valor International

https://valorinternational.globo.com/
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Congress advances bill enabling Brazil to fight foreign trade barriers

Proposal inspired by U.S. law clears Senate and moves to Lower House amid Donald Trump’s tariff war

04/02/2025

The Senate approved a bill establishing legal mechanisms for the Brazilian government to retaliate against potential trade barriers or protectionist measures affecting the competitiveness of Brazilian products in international trade. Known as the Reciprocity Bill, the proposal passed on Tuesday (1) by the upper house now moves to the Chamber of Deputies for analysis.

The initiative gained traction in Congress amid the tariff war promoted by U.S. President Donald Trump. In addition to the previously announced 25% tariffs on Brazilian steel and aluminum imports, Mr. Trump is expected to unveil this Wednesday reciprocal trade tariffs targeting all countries. The U.S. president has dubbed the date “Liberation Day.”

The bill was approved by the Senate’s Economic Affairs Committee (CAE) Tuesday morning and later cleared the full Senate in an expedited process. The plenary vote became possible after the Senate president, Davi Alcolumbre (Brazil Union Party), accepted a request from Senator Randolfe Rodrigues (Workers’ Party), the government’s leader in Congress. This allowed the proposal to be immediately sent to the Lower House. If the bill had been forwarded directly from the CAE, it would have faced a five-day waiting period, as established by the internal rules.

After the vote, Lower House Speaker Hugo Motta (Republicans Party) said lawmakers could vote on the bill in the plenary session later this week. The rapporteur in the house will be Congressman Arnaldo Jardim (Citizenship Party). In the Senate plenary, the rapporteur, Senator Tereza Cristina (Progressive Party), said she hoped the Lower House would vote on the bill as soon as this Wednesday.

“As this is an exceptional matter, we are already in talks with leaders to bring it to a plenary vote this week,” Speaker Motta told reporters.

The proposal was drafted in consultation with the Ministry of Foreign Affairs, the Ministry of Industry and Trade (MDIC), and the private sector. It was inspired by U.S. legislation and grants powers to the Foreign Trade Chamber (CAMEX) to suspend trade and investment concessions, as well as obligations related to intellectual property rights, in response to unilateral policies or practices by countries or economic blocs that negatively affect the international competitiveness of Brazilian products.

The bill also aims to shield Brazil from what Senator Tereza Cristina described as “disguised protectionism,” such as the European Union Deforestation Regulation (EUDR), which will come into effect at the end of the year. The European regulation introduces unilateral measures with environmental requirements that go beyond Brazilian legislation.

The bill establishes criteria for CAMEX’s intervention in response to three types of actions by other countries: “Those that interfere with Brazil’s legitimate and sovereign choices through threats or the application of trade and investment measures; those that violate or undermine benefits granted to Brazil under any trade agreement; and those that impose unilateral measures based on environmental requirements that are more stringent than the environmental protection standards, rules, and parameters adopted by Brazil”—a clear reference to the EUDR.

The proposal also authorizes CAMEX’s Strategic Council (CEC) to adopt countermeasures, such as restricting imports of certain products or suspending concessions, either separately or cumulatively. The text indicates that these countermeasures should be “proportional to the economic impact” caused to Brazil by the initial actions of the targeted countries.

Another provision requires the Ministry of Foreign Affairs to conduct diplomatic consultations to “mitigate or nullify the effects of the measures and countermeasures.” CAMEX will also be responsible for establishing mechanisms to periodically monitor the effects of the adopted countermeasures and the progress of negotiations.

Despite the tariff dispute with the U.S. government, Senator Tereza Cristina argued during the CAE session that the bill does not encourage tariff retaliation and was drafted to apply to all countries, without targeting specific nations or blocs such as the United States or the European Union. “This bill is not a retaliation. It is a protection when Brazilian products are retaliated against,” the senator emphasized when casting her vote.

The CAE president, Renan Calheiros (Brazilian Democratic Movement), also rejected the idea that the approval of the bill constituted an attack on the U.S. but defended the tools it provides to the federal government. “It is undoubtedly a legitimate response to the American tariff hike,” Mr. Calheiros said. “We are equipping Brazilian legislation with reciprocity mechanisms. If the government chooses to adopt reciprocity measures, it will no longer lack the legal framework to do so.”

As previously reported by Valor, the senator’s bill aims to protect all Brazilian goods and products—not just agribusiness—in both economic and environmental terms. The proposal stresses the need for a “clear reaction” by the government and the adoption of a “credible mechanism” to fight barriers and protectionism.

The inclusion of room for negotiation was a new element introduced in Senator Tereza Cristina’s report and differed from the original text authored by Senator Zequinha Marinho (We Can Party). The initial proposal included the concept of environmental reciprocity and sought to create barriers for products from countries with lower environmental protection standards than Brazil’s.

*By Caetano Tonet and Gabriela Guido — Brasília

Source: Valor International

https://valorinternational.globo.com/
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