Market already projects inflation at 7.5% by year end

Patricia Pereira — Foto: Leo Pinheiro/Valor
Patricia Pereira — Foto: Leo Pinheiro/Valor

The Brazilian monetary authority has been sailing in the dark for almost two weeks without the latest editions of the Focus survey, which collects the estimates of economic agents for several key indicators in the management of the country’s monetary policy, such as inflation (IPCA), activity (GDP), and interest rates (Selic). It does not mean, however, that market projections are not moving. Since the last Focus survey, released on March 28 and interrupted by a civil servants strike, the official inflation for March has frightened, the president of the Central Bank has reacted and the statistics agency IBGE has released the performance of the main sectors of the economy in February.

A survey carried out Wednesday by Valor with 74 financial and consulting firms shows a median projection for the variation of the country’s benchmark inflation index IPCA of 7.5% in 2022 and 4% in 2023. The lowest estimates are 6.5% for this year and 3.4% for next year, while the highest are 8.6% and 6%, respectively.

In the latest Central Bank bulletin, whose responses were collected on March 25, the median expectation for the IPCA was 6.9% in 2022 and 3.8% in 2023. The targets are 3.5% and 3.25%, respectively, with a tolerance of up to 5% and 4.75%, in that order. Valor’s survey is not directly comparable to Focus, which registers around 130 to 140 responses, but it helps to give a sense of direction.

“What led many people to revise [the inflation projection] recently was the IPCA of March, the biggest surprise in 20 years,” said João Fernandes, an economist at Quantitas, in reference to the monthly high of 1.62%. The median market expectation was 1.32%, according to Valor Data. “Before that, the revisions were just approaching the median, as some firms that had lower numbers raised their estimates. The data changed this dynamic. They all started to revise projections upwards”, Mr. Fernandes said. Quantitas forecasts inflation of 8.3% in 2022 and 4.3% in 2023.

Goods in general are to blame for current inflation, including the durable ones, like vehicles and electronics, and semi-durables, such as cleaning products, cosmetics and clothing, Mr. Fernandes said. The story, he says, is well known: the global lack of inputs, in the context of the pandemic, was in the process of normalizing, but ended up aggravated again by the war in Ukraine and the outbreak of Covid in China.

“Our biggest concern is basically with the inflation scenario. We experienced last year specific shocks that turned into generalized price hikes, and we had even more shocks on top of this already concerning picture. This is why we think that the IPCA will close the year at 8%, because inflationary pressures are very disseminated,” said Roberto Padovani, the chief economist at Banco BV.

These shocks will be more persistent than predicted, due for example to the secondary effects of inflation on fuels and other commodities, said Gustavo Arruda, head of research for Latin America at BNP Paribas. “When we do the math, we see that those risks are undersized.” He projects the IPCA at 8.5% this year and 4.5% next year.

In Brazil, Mr. Fernandes added, there is still a resilient labor market. “Even though we understand that a higher Selic will ease the pressure at some point, we see now labor costs gaining traction amid higher demand for in-person services. We saw the PMS [Monthly Services Survey] slowing down last month, but I think there will still be strong readings for three or four months.”

IBGE said this week that services fell 0.2% in February compared to January, seasonally adjusted, while the expanded retail market — which includes vehicles and construction materials and is what counts the most for the GDP — advanced 2%. Earlier this month, the institute said that industrial production had grown 0.7% in February.

Based on these indicators, the Central Bank would present Thursday its February Economic Activity Index (IBC-Br), which offers the market a barometer of the month’s activity, but the release is not expected to happen because of the strike. Valor Data’s survey with 27 analysts indicates a median increase of 0.4%.

Valor’s survey captured Wednesday a median projection for the GDP of 0.5% in 2022 and 1.2% in 2023, virtually the same as the Focus of April 28 (0.5% and 1.3%, respectively).

Another problem for inflation, according to economists, is the perception that inflation expectations are unanchored. “That leads to more persistent inflation. Even in sectors of the economy that are not directly affected by the conflict, just the perception that the cost of living is higher allows agents to pass on more price. Although we are a little blind because there has been no Focus survey, the dynamics of the daily price surveys show that inflation is not slowing down,” said Mr. Arruda, with BNP Paribas.

When “the regime in people’s minds” and the economy takes longer to deflate, the Central Bank “must try to ease the pass-through,” said Fernando Fenolio, the chief economist at WHG. The president of the monetary authority, Roberto Campos Neto, drew attention earlier this week when he acknowledged that the result of the IPCA in March was a surprise and said that “our inflation is very high.”

“The Selic rate today is our point of greatest uncertainty. We recently brought it to 12.75%, despite the math showing that it would need 13.5%, because the monetary authority made a point of affirming that 12.75% was enough. After the IPCA of March, Mr. Campos Neto opened the possibility of a stricter conduct, but we are still waiting for a more intense communication,” said Étore Sanchez, the chief economist at Ativa.

The survey for the Selic rate carried out by Valor is directly comparable to another one made by the newspaper in mid-March and showed no change in the projection of a median Selic rate of 13.25% at the end of the high cycle this year.

“The bar was high for the Selic to go above 12.75%, but it was only because of the Central Bank’s signaling, as on the inflation side the dynamics showed that prices were going to continue rising fast,” said Patricia Pereira, the chief fixed income strategist at MAG Investimentos. She revised her forecast for the Selic to 13.75% from 13.25% after Mr. Campos Neto’s remarks.

Some factors can help the Central Bank in its task. If the exchange rate remains below R$5 to the dollar, for example, this may translate into lower industrial prices, and the activity, as it gets weaker, would also contribute to a lower pass-through capacity, points Mr. Fenolio, with WHG.

The median of the exchange rate projections of the last Focus survey was R$5.25 at the end of 2022, while the one collected Wednesday by Valor indicates exactly R$5. Even so, it would be a more depreciated exchange rate than the current levels. “There doesn’t seem to be much more room for an appreciation of the real ahead. The United States will start to tighten interest rates, there is domestic uncertainty and commodities have already risen a lot at the peak,” said Ms. Pereira, with MAG.

Source: Valor International

https://valorinternational.globo.com

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WTO chief wants Brazil to export more to avoid global food crisis

Food crisis grows as spiralling prices spark export bans | Reuters

The director-general of the World Trade Organization, Ngozi Okonjo-Iweala, will arrive this weekend in Brasília on her first visit to Latin America. One of her interests is to find out how much Brazil can help prevent an imminent global food crisis.

If Brazil exports additional food, it could help to slow rising global prices, Ms. Ngozo told Valor. The message she is likely to hear from the Brazilian government is that the country is part of the solution, with a surplus of grains and proteins to supply the world.

The WTO director-general does not hide her concern with the economic repercussions of the double shock of the pandemic and now the war in Ukraine on the world economy and trade. The most immediate effect of the war has been a sharp rise in the prices of food, energy, fertilizers and some important minerals, of which Russia and Ukraine are major suppliers to the international market. The outlook is so uncertain that the WTO projection for trade this year ranges from 0.5% to 5.5%.

Ms. Okonjo-Iweala does not rule out risks of even more geopolitical tensions, nationalism, populism and protectionism. But she makes a strong case for the multilateral trading system for the resilience of economies, including in view of the growing dangers related to climate change.

She will arrive in Brasília on Saturday evening. On Sunday, she will attend a barbecue. She says that her children, in the United States, go to a Brazilian restaurant and consider the all-you-can-eat barbecue “marvelous.” On Monday, she will meet with President Jair Bolsonaro, speak at the Foreign Affairs Ministry and meet with ministers. On Tuesday, the National Confederation of Industry (CNI) and the Federation of Industries of the State of São Paulo (Fiesp) will hold a business event with the WTO director-general, in São Paulo, when they will present her with a document with the sector’s priorities, which includes fighting agricultural and industrial subsidies.

Ngozi Okonjo-Iweala took over in March 2021 and became the first woman and the first African to lead this key entity in global governance. She was previously Nigeria’s finance minister (2003-2006 and 2011-2015) and foreign minister in 2006. She spent 25 years at the World Bank, where she reached the second-highest position. She holds a degree from Harvard University and a PhD from the Massachusetts Institute of Technology (MIT).

At the end of the interview, Ms. Okonjo-Iweala commented on Nigeria’s national soccer team. For her, the team has many good players, but needs more teamwork. Nigeria did not qualify for this year’s Fifa World Cup, to be held in November and December in Qatar.

Read below the main excerpts from the interview.

Valor: This is your first time in Latin America and you are visiting Brazil. What do you expect from Brazil?

Ngozi Okonjo-Iweala: Brazil is a very important member of the WTO, very active and very instrumental in a number of the negotiations that we are doing. It is a big country, we are having a ministerial conference (MC 12) in June, and it will be good to talk to colleagues in Brazil, to let them know what the WTO is doing, to hear their perspectives, and to seek Brazil’s support for a strong MC 12.

Valor: The world is heading toward a global food crisis. Who could do more in this backdrop?

Ms. Okonjo-Iweala: I am certainly concerned about the prospect of an impending global food crisis. Ukraine and Russia represent less than 3% of world trade in goods, but they are very, very important in certain sectors, like food. You see, 30% of the world’s wheat and 73% of sunflower oil come from the two countries, and a lot of barley, corn, so many grains and other foods. Several regions of the world are very dependent on the Black Sea region. In Africa, 35 countries import food from Russia and Ukraine, and you can see that Egypt is having problems now because most of its wheat comes from these two countries. So with war in Ukraine, if we don’t take action, it could result in real stress. I think even in Latin America, [with] inflation in many countries, the high cost of food. We have a crisis situation, and if we don’t take care of it, we may continue with it next year, unless we are able to support humanitarian corridors so that Ukraine can harvest this winter crop in July. Brazil is a food exporting powerhouse. It is one of the most important countries in the world when it comes to agriculture and food. And of course, if Brazil is able to release additional food on the market, it can help bring down the price of food around the world. I am interested in how Brazil sees the situation and what it can do. Of course, I know that Brazil depends on the Black Sea region for fertilizer and that is a big concern for what is going to happen. I know that Brazil is trying to make alternative arrangements to get supplies from other places.

Valor: Concretely, what more can Brazil do in this case?

Ms. Okonjo-Iweala: Brazil has the ability to increase [the supply of] all these things. It is one of the largest producers of soybeans in the world, for example. With a shortage of sunflower oil now because of the Ukraine problems, you can imagine that Brazil could replace with another oil. In the corn market, 15% comes from Ukraine. If Brazil could put more corn on the international market, it could help as well.

Valor: What about domestic inflation? Would it increase?

Ms. Okonjo-Iweala: Not exactly. I wouldn’t encourage any country to export unless they were very comfortable with enough supplies for themselves. The first thing you do is make sure you have enough supplies. What I tell WTO members is that if you have extra stocks, and many countries do, especially of grains and oils, they can help.

Valor: How do you see concerns from agricultural exporters that some countries may try to take advantage of using their stocks built up for food security, with subsidies, to grab shares in the global market?

Ms. Okonjo-Iweala: Right now we have shortages of supply of really important products in the world. Wheat is a staple food for many, many, many countries. So what we are focusing on now is not so much the question of who is going to profit but how to respond to the humanitarian consequences of rising food prices. Taking 30% of wheat off the world market is huge. Even those countries that have extra can’t make up for all that. The big concern now is to have the supplies. We must take care of world hunger.

Valor: For world trade, what worries you more in the short term: the war or the lockdowns again in China?

Ms. Okonjo-Iweala: Both situations impact supply chains. Obviously, the lockdowns in China, Shanghai being one of the most important ports in the world, and when Shanghai is shut down, it has a big impact on the trade of goods. But I think the war in Ukraine right now is having more of an impact, simply because you have the fear of what people will do to feed themselves. Why is that so important? Because poor people are hit the hardest. Food and energy prices are going up a lot. Russia also has 10% of the world’s energy exports. So you have high food prices, high energy prices, and many, many poor households spend a large percentage of their budget on these items. I repeat what Antonio Guterres, the UN secretary-general, said. We need to end the deaths, end the famine, not only in Ukraine but also in other parts of the world, and the rising food prices. Energy prices affect almost everyone through transportation.

Valor: With two shocks in a row, is there a risk of global stagflation?

Ms. Okonjo-Iweala: There is a risk certainly and that is why most central banks are now focusing on fighting inflation and trying to balance how to pursue that goal with employment and economic growth targets. I hope that doesn’t materialize globally. If we can take the right measures to ease the food situation, I think it will help. The energy situation is a little more complicated. The United States is releasing its reserves, at the rate of 1 million barrels of oil per day over the next six months. That will help, but it may not solve all the problems. I think that, without Russia, that’s 2 million or 3 million barrels a day taken off the market. So any country that can release its oil reserves will help. As for food, we have the ability to really try to mitigate the situation, because countries can also change their diet, and try to replace items. But it is not so easy to replace gas and oil in the short term. I hope that in the long term this will drive the movement toward renewable energy. Although a difficult situation, it should be seen as an opportunity to start moving faster toward renewables and net-zero emissions by 2050.

Valor: How do you see risks of fragmentation in trade becoming a reality?

Ms. Okonjo-Iweala: Well, it’s very fashionable now to talk about decoupling, fragmentation, a breakdown into two or three spheres of trade. Conversations about deglobalization started even before the Covid-19 pandemic. But now, because of the war, the world has gone through, as you said, several shocks, the pandemic and now the war shock. We also had the climate change shock. Despite these shocks, trade has been relatively resilient, still able to move goods around the world, even with all the supply chain issues. My point is that the multilateral trading system has provided for the world in the past. It has lifted more than 1 billion people out of poverty. It has helped integrate the world and brought peace. I know people are feeling that this principle has been broken now, but we should not draw the wrong conclusions from this. We should not conclude that decoupling or different trade blocs will now carry weight and is the way to go, because the costs to the global economy, in the long run, will be substantial.

Valor: The WTO is talking about a 5% drop in global GDP…

Ms. Okonjo-Iweala: Our economists’ simulations have shown that even with just a portion of these costs, not even taking into account all [the impacts], it could result in a 5% loss in GDP. This is not trivial. And there are many other costs that would result in even something worse than 5%. The loss to the world has many consequences. What we should seek to demonstrate and do is to rebuild and support the multilateral trading system. I know people are talking about “reshoring,” “nearshoring” etc. The evidence on all of this is not very great yet. I’m sure there will be some reshoring, and we’ve seen some nearshoring, okay, like shifting production from China to Vietnam. We can see some of that and it’s actually not bad. This kind of globalization, where you see production in different countries, can be a good thing. I call it reglobalization, and we should consciously use it to bring those countries, which have been marginalized, into integration into global trade.

Valor: But the reality is that we have increasing talk of economic nationalism, strategic autonomy, and a kind of weaponization of trade with countries using their power instead of following rules. International cooperation is in a very bad situation.

Ms. Okonjo-Iweala: Yes, there is absolutely no doubt that multilateralism has been hit. And what you are saying about weaponization, if you want to use that word, of trade as a tool, using the geopolitical tensions, populism and nationalism, tendency to protectionism, all these things, it is true, are happening. And it has a risk that we might see a little bit more. But that’s not the kind of trend that we want to encourage or see in the WTO. Of course, the circumstances now with the war make everybody want to look at their domestic situation. But in the long run, isolation doesn’t pay off for individual countries or for the world. If tomorrow you have climate change events, floods or droughts, that wipe out all your harvest in the country, if you have no trade, what do you do? Do you starve? But if you have trade, you are resilient and you get supplies from other parts of the world.

Valor: Will the trend toward deforestation-free products be a new normal in international trade?

Ms. Okonjo-Iweala: Look, we need to think in terms of incentives, certainly to maintain our forests, because there are some of the largest carbon reservoirs in the world. And we need to think about how to balance this kind of approach. Brazil has already signed at COP 26 [UN Climate Conference in Glasgow] a global public declaration on forests and land use, to decrease the rate of deforestation, and has set some targets. This is a good thing. I think that this way the Brazilian government is doing the right thing.

Valor: The European Union has plans to ban the entry of commodities coming from deforested areas. Is this the kind of proposal that could be copied by other countries?

Ms. Okonjo-Iweala: What I would say is that the world has set targets for carbon emissions to be low and then to reach net zero by 2050. All the countries of the world have engaged, including Brazil, and they are obviously looking for instruments and mechanisms to do that. In the WTO, what we insist is that these instruments must not become an instrument of discrimination in trade. We will look at all proposals with that lens to make sure that they are WTO-compliant, that they do not discriminate against other comparable products from other countries. That is what I can tell you. It is good to look for an instrument that is good for fighting carbon emissions, but it has to be done in a way that is WTO-compliant.

Valor: How do you see the carbon tax plan at the EU border, targeting competitors who are not subject to the same environmental standards?

Ms. Okonjo-Iweala: As I said, the CBAM [carbon border adjustment mechanism] has to be compatible with WTO rules. We have 70 fragmented carbon pricing and taxation systems in the world today. And it is very difficult for businesses to navigate that fragmentation, especially small and medium-sized businesses. And they are the ones that create the most jobs. What we are saying at the WTO is that we should have a global price on carbon. And that the WTO, the IMF, the OECD and the World Bank should work together to come up with a global methodology for a global price on carbon. In fact, we are talking to each other now, trying to work together to do this. That will be the best way for the world to deal with this. It can be done. The leaders of the world should ask these organizations to put together [this carbon price]. I would argue that there should be a big drive from leaders. We cannot continue with fragmented systems in the world. That simply doesn’t work.

Valor: Is there a possibility that Russia will be kicked out of the WTO?

Ms. Okonjo-Iweala: Right now, the WTO does not have an instrument or methodology to expel its members. Trying to do that is going to be extremely difficult. There are some organizations that have an instrument, but we do not.

Valor: But the WTO also has diplomatic tensions about this…

Ms. Okonjo-Iweala: Right now, there are diplomatic tensions. We will see what happens at the ministerial conference in June. That has not stopped us from working. We still find ways to work around the problem and hold our negotiating sessions in small groups in different settings. The tension is there, but we are trying to work with it.

Source: Valor International

https://valorinternational.globo.com

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Government to raise salaries of federal civil servants

Paulo Guedes — Foto: Washington Costa/ME
Paulo Guedes — Foto: Washington Costa/ME

The federal government has decided to raise salaries of all federal civil servants by 5% from July. According to sources, the decision was made on Wednesday afternoon, during a meeting between Chief of Staff Ciro Nogueira and Economy Minister Paulo Guedes. The decision had the backing of President Jair Bolsonaro.

President Bolsonaro had promised to raise the salaries of federal police officers, federal highway patrol officers and employees of the prison system. But other groups had been threatening to go on strike if they were not also contemplated. In the middle of an election year, Mr. Bolsonaro ended up giving in.

As there is not enough money within the spending cap to an across-the-board salary increase, it will be necessary to reallocate funds from other segments, according to government sources. The 5% increase for all federal civil servants would cost something like R$5 billion to R$6 billion this year, according to information circulating among the technical staff. This is more than the amount set aside in the 2022 budget for this purpose: R$ 1.7 billion.

In order to create conditions to have a higher spending on salaries, the government needs to cut expenses. The preferred target of these cuts are parliamentary amendments to the budget. Officials have been scanning the budget in recent weeks to find expenses that could be cut.

The idea of a 5% adjustment was not the preferred option of Mr. Bolsonaro, who intended to please the police, particularly prison guards. The amount of R$1.7 billion was originally intended for this group, but the president was warned by Mr. Guedes that granting an increase for only part of the servants would be like pulling a grenade pin.

The associations that represent civil servants reacted negatively to the proposal. “This is completely unsatisfactory,” said Rudinei Marques, president of the Permanent National Forum of State Careers (Fonacate), which represents the civil service elite. According to him, the mobilizations “will intensify until mid-May, when we understand that the Provisional Measure will need to be sent to Congress to be converted into law.”

Source: Valor International

https://valorinternational.globo.com

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DMCC plans on expanding business with Brazil

In a mission to Brazil, the CEO of Dubai Multi Commodities Centre has visited Minas Gerais, Espírito Santo and São Paulo. In the headquarters of the Arab Brazilian Chamber, he addressed businesspeople and talked about what he wants from the relation with the country in sectors such as coffee and marbles.

São Paulo – Coffee, cacao, emeralds and marble from Brazil are some of the products that are part of the business expansion plan of the free zone Dubai Multi Commodities Centre (DMCC) with the country. In his fourth visit to Brazil, coffee was the focus of the mission of CEO Ahmed bin Sulayem (pictured above). The visits to companies and farms, he said, have already boosted green coffee shipments from Minas Gerais and Espírito Santo. Until the end of the week, he’ll be in São Paulo for a series of business appointments.

“[The trip to Espírito Santos and Minas Gerais] was fruitful, and companies will ship more green coffee for the DMCC to process and distribute. We’re just beginning with Brazilian coffee, and as I said, it’s not just Dubai’s coffee center, it’s a coffee center to connect with the rest of the world. This is a strong commitment and a great responsibility, but we’re up to the challenge, and our members from Africa and elsewhere that buy from and even supply and ship coffee to Brazil are highly competitive. The market hasn’t stopped; it’s changing and diversifying. We have dip coffee and other innovative products. We’re in a good place regarding coffee,” Sulayem told ANBA.

Last year Sulayem visited cacao farms in the region of Ilhéus, Bahia, and Bahia’s governor Rui Costa visited the DMCC. The CEO plans on opening a cacao center soon, prioritizing the Brazilian product. “I’m learning more about the cacao industry here, from the planting to the processing and products, and hopefully we’ll have a cacao center that fits the Brazilian standards,” Sulayem said.

In Espírito Santo, Sulayem also visited a marble and quartz company, and he said he has sent pictures to his development team and construction companies to use the Brazilian products in DMCC’s property expansion. “We’re expanding, and some projects will feature high-quality marble, and we’ll surely buy some from Brazil. I mean, if China is buying marble from Brazil, it’s a good sign,” he said.

Sulayem told ANBA he was invited to visit an emerald mine of the Belmont Group in Minas Gerais, and that this will be a destination in his next visit to Brazil. He said he knows emeralds from Colombia, which exports them to the DMCC in Dubai.

Seminar

On Tuesday (12), the Arab Brazilian Chamber of Commerce (ABCC) held an event for companies interested in exporting and going international to learn more about the services offered by DMCC. ABCC International Relations vice president Mohamad Mourad opened the seminar “Dubai – Your gateway for global trade.” He talked about the relevance of Brazil-UAE relations and invited the businesspeople to see the 22 Arab countries as a bloc accounting for over 400 million people and potential buyers.

Then DMCC CEO Ahmed bin Sulayem spoke. He talked about different businesses in DMCC, with its diamond, coffee, tea, gold, agricultural and cryptocurrency centers. He believes that when there’s competition, the quality of products goes up.

The event featured Investe SP Communications general manager Julia Saluh, DMCC representative for the Americas and Oceania Mohammed Mohammed, and São Paulo International Relations executive secretary Affonso Massot. DP World senior advisor Ronaldo Souza talked about the World Logistics Passport (WLP).

The UAE general consul in São Paulo, Ibrahim Alalawi, talked remotely about the importance of the Brazilian delegations to Expo 2020 Dubai, which welcome 20 million visitors over six months.

The panel “Meet the Experts – Expand your business in Dubai and beyond” featured ABCC CEO Tamer Mansour, DMCC Commodities and Financial Services executive director Sanjeev Dutta, açaí company Tropicool global head Rafael Prado, and Espírito Santo’s cooperative Cooabriel Exports and Sustainability manager Renata Vaz. Mansour said Dubai was an example of renewal in life and the economy, and that the economic ties between Brazil and the UAE are on the rise.

The DMCC’s roadshow through Brazil included meetings with authorities and businesspeople as well as seminars and visits to companies in Espírito Santo, Minas Gerais and São Paulo. The DMCC’s mission to Brazil is held in partnership with the Industry Federation of the State of Espírito Santo (FINDES), the Industry Federation of the State of Minas Gerais (FIEMG), the government of Espírito Santo, certifier Cdial Halal, and São Paulo’s Agency for the Promotion of Investments and Competitiveness (Investe SP), as well as the ABCC.

Translated by Guilherme Miranda

Source: ArabBrazilian Chamber of Commerce

https://anba.com.br/en/

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Brazilian companies raised record R$105bn in Q1

Qual o tamanho do Brasil no mundo? · Instituto Escolhas

Brazilian companies raised R$105.2 billion in the local capital market in the first quarter of 2022, the association of securities firms Anbima said. This is an all-time-high amount for a first quarter since records began.

Fixed-income issues stood out amid double-digit interest rates. Companies raised R$93.5 billion through bonds and other instruments between January and March. The volume was 32.2% higher than in the same period in 2021. On the other hand, the equity segment saw a strong contraction. Stock issues totaled R$11.7 billion from January to March, down 63.6% year over year.

“The high interest rates and the migration of funds to fixed income hinders variable income,” Anbima’s vice president José Eduardo Laloni said. Bonds stood out among instruments with R$55.9 billion raised in the quarter, up 80.6% year over year.

Rising interest rates over the past year “reflected in the capital markets as a whole,” Mr. Laloni said. While Brazil’s benchmark interest rate Selic reached double-digit levels, fixed-income fundraising prevailed in the first quarter of 2022, he said. “It was a record volume for the first three months of the year.” Mr. Laloni also pointed out that the interest of issuers and investors is gaining steam because the secondary market for bonds is on the rise. “We have a very active secondary market now, with many intermediaries participating in the primary issue and then selling in the secondary market.”

The financial volume in the secondary bond market totaled R$62.7 billion in the first quarter of 2022. It was the second-highest quarterly volume in the last two years – up 58.7% year over year.

The executive also pointed out as a highlight in 2022 the issues of commercial notes. “These bonds started to be issued in 2021, with a volume of R$2.7 billion last year. In the first quarter of this year alone, we already have almost R$10 billion of funding,” he said. Anbima also sees fundraising in the foreign market with lower demand compared to recent years. “The foreign market was also weak [in the first quarter] because first quarters are typically the window of external funding,” he said.

Brazilian companies raised $3.8 billion between January and March 2022. In the same period last year, the figure reached $7.6 billion.

Source: Valor International

https://valorinternational.globo.com

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Airbus launches A220 model in Embraer’s turf

Airbus conversando com o regulador de aviação da China sobre a certificação A220 - exec - Plu7

Airbus ended Tuesday, in São Paulo, the demonstration tour of the A220 model in South America, a market where the new family of aircraft – formerly part of Bombardier’s CSeries program – has not yet won customers.

The European plane maker vows to deliver lower operating cost than large narrow-body jets and offer more seats and longer-range flights than regional jets. The plan is to grab a share of a market currently dominated by Embraer’s E-Jets, especially the E195-E2, and Boeing’s 737 Max 7.

Airbus stands as the global leader in the 100 to 150-seat segment, with a 56% share, followed by Boeing (22%) and Embraer (17%). In South America, however, the new model has yet to take off. “Last year was one of recovery. Brazilian airlines suffered a lot from the pandemic. But we already have two major operators here and expect to receive new orders later on,” said Guillaume Gressin, the company’s vice-president of international, strategy and commercial operations. Azul and Latam are major clients of the European company, with dozens of other Airbus models in operation.

Latin American airlines are taking longer than peers in other regions to recover financially from the crisis triggered by Covid-19, which helps to explain why the A220 has not yet received orders from the region, the executive said.

According to Airbus’s calculations, Latin America will need 2,460 more passenger and cargo aircraft over the next 20 years to meet the additional demand and to replace older and less efficient jets. The fleet in service in the region is expected to double in this period to 2,800 units.

Of the total number of new aircraft, 2,170 will be small, 190 medium, and 100 large, Airbus projected. The growth of the middle class and the need for jets for shorter routes will drive demand, Mr. Gressin said.

Designed to serve the 100 to 150-seat market, the A220 has already drawn more than 740 orders. Today, there are more than 200 jets flying on 600 routes, operated by over 25 clients, including Air France, Delta, JetBlue and Breeze Airways – a new airline owned by David Neeleman.

Antonio da Costa, Airbus’s vice-president of single-aisle marketing, sees room for the A220 in South America. “The A220 is complementary to Embraer’s jets. Air France, for example, operates the A220 and KLM operates the E2. This brings more flexibility to the operation,” he said.

With the A220, he added, it will be possible to cover more distant routes than those operated today by the E2, allowing the expansion of the network. Compared to the Boeing Max 7, the A220’s engines, aerodynamics and systems are more modern and include more advanced technologies, he said.

The A220-300 showed in Brazil today belongs to Swiss Airlines. Before landing in São Paulo, where it was presented to representatives of local airlines, it flew through Mexico, Panama, Chile and Argentina after leaving from Miami.

Source: Valor International

https://valorinternational.globo.com

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Services fall in February for second month in a row

Mirella Hirakawa — Foto: Divulgação
Mirella Hirakawa — Foto: Divulgação

Activity in the services sector fell by 0.2% in February, compared to January, according to the Monthly Services Survey (PMS) released Tuesday by the statistics agency IBGE.

The seasonally adjusted result was well below the median estimate of 20 consulting and financial firms consulted by Valor Data, which estimated a growth of 0.7%. The projections ranged between 0.3% and 1.8%.

The reading was even more negative because a revision pointed out that the fall in the first month of the year was 1.8% instead of 0.1%, as previously reported.

The sector has settled down in recent months after a stronger increase until August 2021, said Rodrigo Lobo, the manager of IBGE’s Monthly Services Survey (PMS). Negative rates dominated the last six months, but the balance stood at 0.1%. “Of the last six rates, four were negative [in August, September, January, and February] and two were positive [in November and December]. Although there is a predominance of negative rates, the balance of those six months was 0.1%, slightly positive and very close to stability,” he said. “This shows a more stationary service sector, an accommodation of the gains until August 2021,” he added.

According to Luca Mercadante, an economist at Rio Bravo Investimentos, the data shows that the services industry is disappointing expectations at the beginning of the year. “The result was very bad, mainly because of the expectations we had, but also because of the result we had previously in January,” he said. For him, the performance is being affected by the population’s loss of purchasing power. “We have seen income fall in recent months and this has an impact.”

When analyzing the year-over-year result – a 7.4% growth in services compared to February last year – the economist explained that it is due to the low base of comparison. “In February last year we were navigating a strong Covid wave. It’s still a recovery from those pandemic waves, and services were quite impacted by that,” he said.

Rafaela Vitória, the chief economist at Banco Inter, says that despite the normalization of circulation after the pandemic was controlled, the reduction in the households purchasing power, impacted by high inflation of food and fuel, and the ongoing monetary tightening will probably hold back the expansion of household demand in the coming months. “We do not expect more significant growth in the sector. It is likely to be between 0.5% and 1% this year,” she said.

On the other hand, Mirela Hirakawa, a senior economist at AZ Quest, says the PMS tends to impose caution on economists who were revising upward their GDP projections. “It brings an information that we started 2022 a little bit worse than we had previously expected. Therefore, these upward revisions to GDP are expected to cease, staying still below 1% and closer to the projection that we have, which is 0.6% for 2022.”

Economists with CM Capital pointed out that the latest IBC-Br – the Central Bank’s activity indicator that serves as a forecast of the GDP – was also below what the market expected. “We can deduce that the Brazilian economic activity, which last year had shown recovery from the pandemic period, is starting to slow down and this has been reflected by the activity indicators,” they wrote in a report.

Banco BV economist Carlos Lopes also classified the February PMS result as “weak” but said he does not see a consolidated weakness that will drag on for the entire year. “On the contrary, we still see this result as a one-off event. Perhaps still an extension of the worsening pandemic in January,” he said.

Mr. Lopes points out that services provided to families, which had a modest rise of 0.1%, were the most disappointing point in February’s data. “It could be a reflection of the pandemic that worried in January. Other than that, the other sectors in great part continue to recover well. We still maintain a positive view for services for the year despite this worse result in February,” he said.

Source: Valor International

https://valorinternational.globo.com

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Inflation spike annuls consumption, income stimuli

Global inflation and Nepal

The inflation surge is expected to virtually annul the government’s attempt to offer support to household income and, consequently, to consumer spending, with fiscal stimulus measures such as the release of money from the Workers’ Severance Fund (FGTS) from this month on, a study by Santander shows.

Economists Gabriel Couto and Ítalo Franca estimate that withdrawals – up to R$1,000 per worker, which add up to R$25 billion to R$30 billion – will add 0.6 percentage point this year to the country’s extended real total wage bill – which includes wages, social security benefits and federal transfers. Even so, the growth projection for total wage bill has practically not changed between the October report and the one to be published Wednesday by the bank: it has gone to 3.2% from 3.3%, after plummeting 8% in 2021.

This occurs because the increase in the inflation projection to 7.9% from 6% annulled the expected growth with the withdrawals, according to Messrs. Souto and Franca. The higher inflation, they explain, reduces the real growth of the average income. At the same time that the employed population grows, the real income from work reached all-time lows, eroded by the persistent inflationary shock, they point out, in addition to lower entry-level wages for those returning to the labor market, Mr. Couto points out.

“We’ve had considerable inflationary surprises in the last few months and this directly impacts real income. The big point we can take from this update is that, even with the release of funds from the FGTS that we now include, the worsening of the inflationary picture has eroded this income,” the economist said.

Although fiscal stimuli play an important role, they say, the impact of inflation on the economy’s total income is greater. For example: the projected growth of 3.2% for the expanded wage bill this year contemplates fiscal stimuli, withdrawals from the FGTS and the IPCA (Brazil’s official inflation index) at 7.9%. In this case, the real gain in average income is 0.4%. “It’s already quite modest, especially when we look at what happened to the average income last year, when it dropped more than 4%,” Mr. Couto recalls.

If only the inflation forecast goes to 9%, the real average income would fall, reducing the growth of the expanded total wage bill to 2.5%. If the IPCA is maintained at 7.9%, but the scenario no longer contemplates withdrawals from the FGTS, there would also be a drop in the advance of the extended wage bill, but the loss would be a little smaller, to a growth of 2.8%.

The growth of the expanded total wage bill this year comes from the recovery of the labor market, the expansion of cash transfers programs Bolsa Família/Auxílio Brasil (to R$89 billion from R$35 billion) and the adjustment of social-security benefits for inflation, points out the report.

Mr. Franca stressed the mismatched effect of higher inflation on the extended total wage bill. “It ends up decreasing the value for the year. The higher [the price index] is, the more you deflate by a higher number, the more it erodes this income that is already given – the minimum wage and the benefit amounts are fixed. It ends up leading to a higher correction value for the minimum wage next year, but this increase will only be observed if inflation meets the target. We ended up losing a little of the gain [in the extended salary mass] this year because we are revising inflation upwards.”

In relation to 2023 and 2024, Santander’s estimates for the growth of the wage bill are lower, with increases of 1% and 1.8%, respectively, considering the inflation measured by the IPCA at 4% next year and 3% in 2023.

In Santander’s high inflation scenario (5% in 2023 and 4% in 2024), the extended total real wage bill would fall 1% next year and grow only 0.4% in 2024.

If Santander’s baseline scenario predictions materialize, the real total wage bill will reach 2019 levels only in 2024. “As the people who are entering the labor market take a while to recover the pre-pandemic wage levels and inflation continues at slightly more uncomfortable levels, we imagine that this recovery in average income will be a little slower, even though we have already recovered the pre-pandemic occupation levels,” Mr. Couto said.

According to economists, the projections for total income are consistent with the outlook for an economic activity in which household consumption advances 0.8% in 2022, remains stable in 2023 and grows 1.5% in 2024.

Santander estimates that the long-term elasticity between the real total wage bill and household consumption is close to 1.05 – that is, each 1% increase in the total wage bill raises consumption by 1.05%. During the pandemic, economists note, this elasticity even jumped to 1.5, which probably helped activity recover in 2021. For the coming periods, however, it is expected to return to levels closer to their pre-pandemic values (around 1), they say.

“Vaccination was crucial in recovering domestic activity and increasing social mobility; now, we believe the focus will be on inflation convergence,” the report points out.

Source: Valor International

https://valorinternational.globo.com

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Private-equity, venture capital funds invest R$11.6bn in Q1

Para quem vou vender" antes de "quanto vou ganhar": primeiro investidor da XP, Chu Kong desvenda os desafios do private equity - InfoMoney

Private-equity funds made investments of R$11.6 billion in Brazilian companies in the first quarter, up 8.4% year over year. The faster pace, this time, appears among the portfolios that invest in more mature companies, with R$5.2 billion, compared to R$1.9 billion in the same period in 2021. The venture capital portfolios, which focus on projects in early stages, allocated R$6.4 billion from January to March, with a drop of 27.3% compared to 12 months ago.

The data are from a quarterly survey held by KPMG and the Brazilian Private Equity and Venture Capital Association (Abvcap) unveiled to Valor.

The seasonal comparison may say little of what is happening in the venture capital segment as a whole, said Roberto Haddad, a partner and leader for private equity and venture capital at KPMG in Brazil. “In the last two years, it has grown enormously, doubled in size. That’s an important indicator, but in the middle of the road there are fluctuations,” he said. “The big indicator, the main one in my view, is the strength of this fund industry within the context of acquisitions and the dynamics of the Brazilian economy.”

Mr. Haddad points out that in the first quarter of 2020 the industry had invested R$5.7 billion in private-equity and venture-capital funds, but it is not possible to link the weaker performance to the Covid-19 pandemic, which entered the radar for real as of March.

The apparent strength shown by private-equity funds in the first quarter may not extend into the year, said Piero Minardi, head of Abvcap. The executive, who also leads Warburg Pincus in Brazil, believes that the segment tends to be more sensitive to issues related to the election and the macroeconomic environment. “The moment the political picture is defined, regardless of who wins [the presidential election], and there is a clear path ahead, volatility disappears. The private-equity segment invests in longer cycles, it is difficult to position today because of the risk of a setback for a certain macro policy.”

In any case, privatizations, businesses in the infrastructure segment and in more basic segments such as chemicals and petrochemicals have attracted funds with large sums of money. For Mr. Minardi, depending on the agenda, sanitation and port projects have a lot of potential. The consumer industry is also usually followed by private-equity managers with attention.

“There is a factor that can be important: the interest rate itself. The companies have to finance themselves again at a cost of 20% a year. This puts pressure on cash flow, it is a problem for those who have long-term debt, it is a factor for companies to consider selling some equity to have a better capital base and avoid the interest rate trap.”

In venture capital, the assessment is that strong activity will prevail, running somewhat independently from the economic cycles. “If innovation is good, it will do well in any situation. Great brands have emerged in crises, like Uber in 2008,” Mr. Haddad points out. “There is a giant movement in fintechs. The financial market has always been very strong and has shown strength in acquisitions. There are new banks, but also the big ones incorporating the smaller ones to get up to speed,” he notes. The insurance, health and logistics segments also tend to continue growing and attracting money.

The higher interest rates, however, may hinder funding by new companies in reais because once again the pension funds have no motivation to migrate from fixed income, that pays 5% or 6% real interest, to a higher risk asset, Mr. Haddad said.

The executive says he is already seeing a return to rationality, especially in growing and in late-stage businesses. “In the ‘A’ and ‘B’ [early] rounds, investors are also more careful. They want to know whether the company has passed the test or not.”

With R$2.5 billion invested in 15 companies, Kinea is completing the raising of its fifth fund, which totaled R$2.4 billion last year. “It was a period in which the sector suffered a lot, but we were a exception,” said Cristiano Lauretti, the company’s private-equity manager, referring to the fact that venture-capital portfolios led the investments in 2021, something unthinkable in his more than 20 years of professional career.

The operation so far was anchored by local investors, who profited from previous funds (average of 20% per year) and were encouraged to participate, despite the interest rate hike and elections in the second half. “In the past, they didn’t understand this class and when they started to understand the importance of having a certain share in variable income and within it, a certain amount in illiquid assets, they started to see the relevance of this in the different cycles that Brazil has experienced whether in recession or in good phases.”

With the new money, he says that the plan is to have eight to 10 more investments, with contributions between R$200 million and R$300 million, by minority shares. Health, education, agribusiness and technology are among the preferred industries, Mr. Lauretti said.

The venture-capital wave in Brazil was fueled by giant competitors such as Softbank, but private equity also advances at an accelerated pace, said Gabriel Felzenszwalb, a partner at Vinci Partners, an asset management company that carried out three deals in the last 12 months.

The executive considers that the cooling down seen abroad with the venture-capital thesis will also materialize here, but he sees a good moment for venture capital ahead. With Brazil well positioned to take advantage of a new commodities cycle, this impulse reaches other sectors of the economy. “With the geopolitical difficulties, global investors may eventually take a bit out of Asia and look more at Latin America and Africa; it’s an old move.”

Source: Valor International

https://valorinternational.globo.com

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Cement sales drop 2.4% in first quarter

Cement sales expected to decline by 20% in FY21 - The Economic Times

The Brazilian cement market, strongly affected by rains in some regions of the country in January and February, closed the first quarter of the year with a decline of 2.4% in sales, said SNIC, a trade association representing companies in the sector.

In March, however, there was some recovery, with a 0.3% increase in sales, to 5.53 million tonnes. This is the average monthly level that the industry seeks to maintain this year, seen as difficult due to the scenario of many uncertainties.

In the period from January to March, 14.8 million tonnes of cement were shipped in Brazil, compared to 15.16 in the same period in 2021. In total, including exports, sales totaled 14.91 million tonnes — a 2.2% contraction compared to 15.25 million tonnes in the same quarter of 2021.

When comparing sales per working day — the best indicator that considers the number of days worked and that has a strong influence in cement consumption —, says the SNIC, the product sales totaled 230,300 tonnes in March, up 2.1% from February and 4.4% year over year. Still, the quarterly result showed a 3.1% decline compared to the three first months of last year.

“The sector’s performance was not worse in March due to the demand from the real estate market,” the trade group said in a note. However, the launching performance tends not to be sustained at these levels, once the increase in real estate inventory, the drop in sales and high interest rates are likely to discourage future developments, the association said.

According to Paulo Camillo Penna, head of SNIC, self-construction, an important inducer of cement consumption, continues to slow down due to the high level of unemployment, smaller income of the population (which saw the lowest value since 2012) and the growing indebtedness of families, which was 51.9%.

“Reflecting this picture are the successive drops in retail sales of construction materials seen since mid-2021, already for the eighth consecutive month, until February,” Mr. Penna said.

According to the executive, the skyrocketing costs of cement inputs, combined with strong instability of the political and economic scenario, do not allow making a forecast of good performance as those seen in the last three years. “The ambition of the industry in 2022 is to maintain the sustainability of the sector in the face of a terribly pressured environment.”

Source: Valor International

https://valorinternational.globo.com

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