Analysis: Inflation projected for 2023 poses challenge to Central Bank

inflation expected by the market was 4%, well above the target set for the year, of 3.25% — Foto: Brenno Carvalho/Agência O Globo
inflation expected by the market was 4%, well above the target set for the year, of 3.25% — Foto: Brenno Carvalho/Agência O Globo

Central Bank’s Focus survey of market expectations, which was released Tuesday morning, was more or less within the expectations, but the high inflation projected for 2023 poses a challenge for the Monetary Policy Committee (Copom).

The inflation expected by the market was 4%, well above the target set for the year, of 3.25%, on a horizon that is the main target of monetary policy.

The Focus Survey is not surprising because informal surveys carried out by the market during the Central Bank civil servant’s strike, when these statistics ceased to be released, also pointed to inflation around 4% in 2023.

But the distance of the projections from the target, 0.75 percentage points, is very large. The additional dose of interest to bring this projected inflation to the target is significant. Each 0.26 percentage point drop in inflation requires an additional 100 basis points of interest rate tightening.

These inflation projections take into account the policy interest rate Selic rate of 13.25% per year at the end of the monetary tightening cycle. Therefore, to bring inflation to the target in 2023, it would be necessary to raise interest rates to a little more than 16% a year. Nobody thinks that the Central Bank will do this. The highest Selic rate projected by the market is 14.25% per year.

When calibrating monetary policy, the Central Bank does not need to follow market projections exactly. What counts is the Copom’s own projection, made with its own models. In the March meeting, the Copom reached an expected inflation close to the 2023 target, of 3.25%, while the market was already projecting 3.7%.

However, with the new rise in market inflation expectations, it is more difficult for the Central Bank to maintain its inflation projection around the target. Economic analysts are increasingly questioning the Central Bank’s forecasts, which have rarely strayed so far from the expectations contained in the Focus survey.

There are some factors that could make the Central Bank’s projection fall short of Focus expectations, but not that much. One is the exchange rate. The monetary authority works with the prospect that the rate will remain basically stable at current levels (it was over R$4.9 to the dollar on Tuesday), while the market considers a median rate of R$5 for the end of this year.

The good news for the Central Bank is that, despite the worsening of inflation expectations for 2023, market projections for the following year remained stable at 3.2%. The percentage is above the target of 3%, but the fact that it has not worsened (keeping it somewhat immune from the more general deterioration in the inflationary scenario in the short term) is still positive.

The market has also not increased much its projection for the interest rate at the end of the tightening cycle. Tuesday’s Focus survey shows it at 13.25%. What has increased the most is the interest rate forecast for the end of 2023. In March, it was 8.25%, and now it is 9%.

In other words, the overall Focus projections say that the market does not really believe that the Central Bank will pursue the 2023 target. Because of this, the inflation projected for next year is well above the target, and the final breath of this monetary tightening cycle is relatively restricted.

But, on the other hand, analysts think that the Central Bank will manage to have good control of inflation in 2024, if it postpones the monetary easing cycle planned for next year.

Source: Valor International

https://valorinternational.globo.com

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Pension funds to receive R$8.8bn in court-ordered debts

Cool Vector Pension Fund Concept Illustration: vetor stock (livre de direitos) 340407536 | Shutterstock

After more than 30 years of disputes in courts, the Brazilian government has reached an agreement with pension funds to pay in installments R$8.8 billion in court-ordered debts — the so-called “precatórios” — starting in 2023. This debt refers to a judicial battle started in 1991, when pension organizations disputed the way bonds of the extinct National Development Fund (FND) were adjusted by inflation. The pension funds were forced to buy those securities in 1987.

Recently, the Federal Attorney General’s Office (AGU) and Abrapp, an association of pension funds, reached an agreement to put an end to this discussion, which despite being of a substantial amount, still represents a saving of almost R$5 billion for the federal government. Without the agreement, the government could have to pay R$14 billion.

In total, 88 pension funds will benefit. Among the main ones are Previ (R$3.1 billion), Petros (R$941 million), Funcef (R$379 million) and Refer (R$336 million). The pension funds expect to start receiving the “precatórios” starting next year.

David Rabelo Athayde, deputy secretary for Strategic Planning of Fiscal Policy at the National Treasury, said that the deadline to register the “precatórios” for payment in 2023 ended on April 2. “We don’t know yet if they were included [for payment to begin next year],” he said.

The list will only be known on April 30. He pointed out, however, that agreements like this contribute to the reduction of future government spending, which is positive.

With the end of the dispute, the pension funds want to fully record in their financial statements the amounts that will be received in court-ordered debts. Currently, according to representatives of the sector, there is no specific rule for this. According to the head of Abrapp, Luís Ricardo Martins, the organization is pleading with the National Superintendence of Complementary Pension Funds (Previc) to prepare a rule so that pension funds can, with legal certainty, immediately compute the total value of the debts in the earnings reports of the funds, which would help some, for example, to even eliminate deficits.

In a note, Previc said that it has not yet been notified of the agreement. According to it, without knowing the content, it is not possible to give a conclusive answer as it will depend on a technical analysis.

Previ, the pension fund of the Banco do Brasil employees, which has R$3.1 billion in court-ordered debt securities to be received from the government, said that it concluded the registration process in time to start receiving the payments in 2023.

According to the pension fund, the agreement is not about a benefit for the entities, but the mere accounting recognition of a net and certain right, claimed for more than 30 years, and that should have entered the funds’ assets at that time.

Petros, the pension fund of Petrobras employees, said in a note that the agreement was fundamental to receive the funds, generating positive impacts in the management of the plans. “Those funds are key to increase the equity of the plans, allowing management to seek investment strategies that achieve profitability above the actuarial goals of the plans.”

Gilson Costa de Santana, CEO of Funcef, the pension fund of Caixa employees, told Valor that the request of Abrapp to Previc gives more security to pension funds in the registration of the amount receivable in the financial statements. In his view, the measure can help some funds to reduce deficits.

The amount of R$379 million to be received in court-ordered debts does not solve the accumulated deficit of around R$20 billion, but it does provide a little relief.

Source: Valor International

https://valorinternational.globo.com

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Even with war, oil sustains trade surplus

Oil market outlook: Expectations and realities - Crystol Energy

In the first quarter of the year, Brazil saw a trade surplus of $3.7 billion in oil and oil products, 31% of the total trade balance of the period, even though, under pressure resulting from the war between Russia and Ukraine, the prices and import volumes of this group of products have grown at a faster pace than exports. The picture, according to specialists, shows that the commodity and its products are still expected to play an influential role for a few more years in the country’s foreign trade, even with the expected transition to other energy sources.

The figures of the Indicator of Foreign Trade (Icomex), organized by Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre/FGV) from government data, show that Brazil has seen a surplus in the balance of oil and oil products since 2016, and for four years the balance of this group has contributed at least one-fifth of the country’s total trade balance.

In 2018, the trade of these products resulted in 20.8% of the total Brazilian trade surplus, advancing to 27.8% in 2019. Last year, the trade surplus in exports and imports of oil and oil products was the highest since Icomex records began, in 1997, with a balance of $14.31 billion, equivalent to 23.3% of the total surplus, of $61.4 billion.

In the first three months of this year, the weight of oil and oil products in the balance was a little less representative compared to the same period last year. From January to March 2021, net exports totaled $3.24 billion, or 40% of the total trade surplus for the same period. In the first quarter of 2020, oil and oil products totaled $3.62 billion, above the total trade surplus for the period, of $2.8 billion. From January to March 2019, oil and oil products totaled $2.1 billion, equivalent to 46.2% of the trade surplus for the period.

Lia Valls, an economist and researcher at Ibre, points out, however, that there is no marked trend in the first months of the year. The values of oil exports and imports may oscillate throughout the year and several factors influence both volumes and prices, from domestic demand, which impacts the amount of fuel imported, to the policy of foreign purchases by Petrobras and oil prices, which more recently have also been under greater impact from the war between Russia and Ukraine. What can be said, she says, is that the energy transition to less polluting sources is likely to change the impact of the oil and oil products group on the trade balance as a whole, but this is a process likely to take time.

For now, says Ms. Valls, the prices and volumes of imported oil and oil products started the year faster than those of exports. From January to March this year, the quantity imported in this group rose 25% against the same period of 2021, with a 71.1% rise in prices. In exports, the volume increased 10.2%, and prices, 53%. The different composition for shipments and foreign purchases in this group of commodities helps explain the difference in pace at both ends.

Data by the National Petroleum Agency (ANP), which publishes import and export data for oil and oil products under other criteria, show that this group closed 2021 with a surplus of $19.03 billion. Of the $38.43 billion exported, 80% were oil and only 20% were oil products. In imports, the ratio is almost reversed. Of the $19.4 billion in imports, 79% were oil products. Also according to ANP data, the export of oil and oil products totaled $7.34 billion in the first two months of 2022 while imports were $3.31 billion.

Welber Barral, a former foreign trade secretary and a partner at BMJ Consultores, says Brazil could be taking much more advantage of the impact of high oil prices with more intense effects on the balance as a whole, if there were not structurally a still large dependence on imports of oil products.

Besides the difference in the composition of imports and exports, the type of oil sold and bought by Brazil is also different, said José Augusto de Castro, head of the Brazilian Foreign Trade Association (AEB). Oil is still one of the three most important items on Brazil’s export list, along with iron ore and soybeans, he said. But, although we have increased our production of oil and also exports in recent years, the ability of Brazilians to negotiate prices is limited, he said.

The three big world oil producers today are the United States, Saudi Arabia and Russia, said Caio Carvalhal, a partner at Atmosphere Capital, specialized in investments abroad. He explains that the Russia-Ukraine war and, more recently, the new lockdowns in China due to Covid-19 have interrupted oil price adjustments. For him, even if there is a disruption in oil supply from Russia – something that seems to be starting to happen now – there are pockets that can normalize supply. He exemplifies with production from Saudi Arabia and the UAE, already-stocked oil from Iran, and U.S. shale production. This can happen in a period of six to nine months after an eventual rupture, he points out. With this, the expectation, he says, is that prices will remain around $100 even if momentary price spikes occur.

Source: Valor International

https://valorinternational.globo.com

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Public spending watchdog hampers maneuver on Eletrobras

Aroldo Cedraz — Foto: Jorge William/Agência O Globo
Aroldo Cedraz — Foto: Jorge William/Agência O Globo

The Federal Court of Accounts (TCU) confirmed Tuesday the May 18 date for the resumption of the Eletrobras privatization trial. Contaminated by political polarization, the operation gained a curious chapter last week, when TCU member Aroldo Cedraz surprised his colleagues by suggesting that an eventual attempt to retake control of the company by the government would be eased.

Rapporteur of the matter in the public spending watchdog, Mr. Cedraz delivered his opinion to his colleagues less than two hours before the beginning of the session. Among the proposals was a change in the mechanism that aims to protect minority shareholders against the takeover by means of a hostile bid, known as the “poison pill.”

A week earlier, Twitter’s board had triggered the poison pill against the onslaught of businessman Elon Musk. Not even this strategy, however, was enough to stop the billionaire, who now owns the social media.

In Brazil, the tool has also been dubbed the “anti-Lula clause.” Leader in the polls for this year’s election, the former president has already spoken out against the privatization of Eletrobras, and his allies said he would reverse the operation if elected.

To make such a maneuver more difficult, the Brazilian Development Bank (BNDES) has included a poison bill in the privatization model. Anyone interested in taking control of Eletrobras — whether the federal government or a private-sector organization — would have to pay a high amount to the other shareholders and then convince them to change the company’s bylaws.

Under the rules in force in the model delivered to the TCU, the person interested in taking control must make a public offer to buy the stakes of the other shareholders at a price three times the highest stock price recorded for the asset. Even so, even with a share of more than 50% of the voting capital, the voting power would be restricted to 10%.

To break this second barrier, a shareholders’ meeting would have to be called to approve the change in the bylaws. Mr. Cedraz considered those conditions “unfair” for an eventual strategic need for the retaking of the company by the federal government. He then proposed a kind of antidote to the poison.

“In order to protect the prerogative of the federal government to, at any time, reverse the privatization process of Eletrobras, by paying fair — but not exorbitant — amounts to the other shareholders, this TCU member proposes the revision of the poison pill clause suggested by BNDES,” he said.

His central argument is based on the strategic importance of freshwater reservoirs, which has led some governments to meddle to prevent market abuses by private-sector hydroelectric generation companies.

“This kind of intervention has proven necessary, mainly because of the ongoing global power crisis and transition. While France resumes studies to nationalize a large company in the electricity sector, Spain and Portugal present to the European Union a plan for state intervention in the sector through measures aimed at lowering power prices in the Iberian Peninsula,” the rapporteur argued.

The proposal surprised the market, and even more the other TCU members. President Jair Bolsonaro’s main ally in the court, Jorge Oliveira, was warned by technicians in his office about the antidote and called member Benjamin Zymler, considered a technical reference in the electricity sector.

The two acted quickly and, a few minutes before the beginning of the trial, convinced Mr. Cedraz to back off. The rapporteur announced the withdrawal of the idea in the middle of the reading of his vote, which caused another surprise in the room, the second in a few hours. “Shame on you,” said one member during the session.

With Mr. Cedraz’s change, the “anti-Lula clause” was preserved. According to Valor, the rapporteur was convinced that it would not be necessary to privatize in order to avoid abuses by a private partner. In such a situation, the federal government could simply cancel the Eletrobras concessions and take over the contracts through a new state-owned company.

Source: Valor International

https://valorinternational.globo.com

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Global risk perception worsens, weighs on markets

Benchmark stock index Ibovespa saw a seventh straight day of losses on Tuesday — Foto: Divulgação
Benchmark stock index Ibovespa saw a seventh straight day of losses on Tuesday — Foto: Divulgação

Investors once again showed risk aversion in the trading session on Tuesday, triggering a rush to protection. As a result, the dollar gained ground, the stock markets went south around the world and, in Brazil, interest rates faced a new day of stress. In the local market, the foreign exchange rate reached the R$5 threshold again, while benchmark stock index Ibovespa saw a seventh straight day of losses, a situation seen for the last time in May 2016, at the height of the crisis that led to the impeachment of former President Dilma Rousseff.

The Ibovespa closed down 2.23%, at 108,212.86 points, the lowest level since January 24. In the first trading session of April, Ibovespa was up 16% in the year, but those gains were reduced to less than 4% after Tuesday’s session. The exchange rate ended the day up 2.35%, at R$4.99 to the dollar, despite the extraordinary auction of 10,000 foreign exchange swap contracts by the Central Bank.

Concerns about a faster tightening of monetary policy in the United States have been compounded by the prospects of slow global growth, with signs that China will maintain strict policies to control the pandemic. This combination has made the global scenario more complex and has fueled broad risk-averse behavior.

Brazilian assets, which had seen substantial gains in the first quarter, are deteriorating fast against a backdrop of lower demand for risk.

“The last few days have been of very intense movement of the exchange rate. The appreciation had been a bit exaggerated and now there is a strong realization,” said Adauto Lima, the chief economist of Western Asset in Brazil. He notes that commodity prices have cooled in recent days and highlighted, in particular, the scenario of a stronger global economic slowdown, which has fed risk aversion in the markets.

“When you add monetary policy in the U.S., the Chinese economy growing less due to restrictions and structural issues, the perception of risk and insecurity is very big,” he said. In addition, he cites the uncertainty with the impacts of the war in Ukraine, which increased again after Russia cut off natural gas supplies to Poland and Bulgaria.

The stress seen in the foreign exchange market also drove up future interest rates, which showed a firm increase throughout the entire term structure of the curve. The rate of the interbank deposit (DI) contract for January 2025 rose to 12.14%, from 11.99% at the previous closing, while the rate for the January 2027 contract climbed to 11.97% from 11.82%.

“Despite recent strengthening, we expect a less benign global environment for the real ahead. Currently, the fundamentals point to mixed directions for the real: while on the one hand a stronger dollar and higher risk aversion is likely to weaken it, the new round of commodity price increases is likely to have a positive effect on it,” Citi’s economic team for Latin America wrote.

According to the team, the effect of commodities on the exchange rate in Brazil had been prevailing until recently, but this situation may change in the short term. “We see increasing risks for a less benign global environment for emerging markets due to the expected monetary tightening in the U.S. Moreover, a potential additional round of dollar strengthening amid lower commodity prices may exacerbate the negative impacts on the real, supporting our projection [an exchange rate at] R$5.19 to the dollar by the end of 2022,” Citi said.

The dollar gained ground against other emerging currencies as well, but more moderately. The greenback advanced 0.94% against the Mexican peso, rose 0.92% against the South African rand and gained 0.31% against the Chilean peso.

Tomas Awad, founding partner at 3R Investimentos, said that even during the first quarter, when local assets appreciated, he had little conviction that the stock market rally was sustainable. “I don’t see many ways for the rally to continue, especially because I didn’t see it back there either. The scenario of sideways movement in the stock market is not much to complain about.”

According to him, the global backdrop is quite challenging, with high inflation, monetary tightening in the United States, slowing growth in China and troubled geopolitics. As the Brazilian economy has little consistent fundamentals, in his view, Mr. Awad prefers industries linked to basic consumption in the local stock market.

Besides the fragility of the external scenario on Tuesday, local market participants received poorly the results of Santander Brasil in the first quarter. Thus, the financial industry, one of the few in Ibovespa that had been showing resilience in recent days, closed the day with widespread losses. Santander fell 4.55%, while Banco do Brasil dropped 2.25%. The preferred shares of Bradesco and Itaú declined 4.29% and 3.4%, respectively.

Global investors are increasingly wary since last week, when Federal Reserve Chair Jerome Powell endorsed remarks by members of the Federal Open Market Committee (FOMC) that a faster interest rate hike in the country is an option. At the same time, financial agents are monitoring the evolution of the pandemic in China, with fears that Beijing will be subjected to the same level of restrictions seen in cities such as Shanghai.

Source: Valor International

https://valorinternational.globo.com

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Machinery industry wants R$32bn to upgrade agricultural equipment

A Smarter Industries Through Smarter Machinery,How Taiwan Plans to Advance Major Industries

The head of the Brazilian Association of Machinery and Equipment Industry (Abimaq), João Marchesan, said Monday that the modernization of agricultural machines in Brazil depends on the conditions of the next Harvest Plan 2022/23, under formulation by the government, and requested R$32 billion for Moderfrota — a program for the upgrading of the tractors fleet and other agricultural equipment. That amount is much higher than the R$7.5 billion available for the line in this season 2021/22.

During the opening in Ribeirão Preto (São Paulo state) of the 27th edition of Agrishow (international fair of agricultural technology), Mr. Marchesan said that half of the machines currently used by Brazilian farmers is already over 15 years old and must be renewed.

He told Agriculture Minister Marcos Montes, present at the event, that farmers need a Crop Plan with interests compatible with the country’s economic situation. He also highlighted the need for predictability and security in the use of funds. The subsidized lines of this Crop Plan 2021/22 have been suspended since February due to the exhaustion of the National Treasury budget.

Mr. Montes will meet Tuesday with Economy Minister Paulo Guedes and Chief of Staff Ciro Nogueira to discuss the budget for rural credit subsidy. The intention is both to unlock the current Crop Plan — which depends on the vote of bill number 1/2022, scheduled for this week — and to outline scenarios for 2022/23, even more difficult due to the federal government’s budget squeeze.

Besides Moderfrota, Abimaq suggested the allocation of R$11 billion for the purchase of machines by family farmers through Pronaf — a government program intended to strengthen them. In the 2021/22 harvest, R$9.9 billion have already been injected in the Mais Alimentos financing line program. In all, small producers had R$17.6 billion for investments in general.

For the lines of innovation and modernization in farms, such as Inovagro and Moderagro, the proposal is for R$8.15 billion. In the current season, the combined amount for the two programs was below R$4.5 billion.

Mr. Marchesan also emphasized the need for investments in storage and irrigation. The suggestion for Proirriga (program for irrigated plantations) is R$5 billion, compared to an availability of R$1.35 billion for this harvest. For the PCA (program to finance warehouses), the request is for R$15 billion, three times more than the current R$4.12 billion.

“The positive indication of a new record harvest shows that Brazil is responding well to the demand for food. But this puts pressure on the storage deficit, close to 100 million tonnes, bordering the logistical chaos,” he added.

The country has about 740 companies that manufacture agricultural machines and implements, and more or less 30% of the production is exported. The turnover of this segment is close to R$100 billion. “To grow, we must invest. There is no other way,” Mr. Marchesan said. Between subsided and free resources, the 2021/22 Crop Plan totaled R$73.45 billion in funds for investments in farms.

Still at the opening of Agrishow, the CEO of Caixa Econômica Federal, Pedro Guimarães, once again challenged Banco do Brasil, the leader in the rural credit market in the country, by saying that his bank will take the lead in this ranking by the end of 2024. “Here we heard several criticisms in relation to Caixa. Great, I’m here to learn. Today, we are only very bad. The day that Caixa is more or less we will be the biggest agribusiness bank,” he said.

According to the event’s organization, Agrishow may total R$6 billion in deals, even with the lack of definition about the Crop Plan.

Source: Valor International

https://valorinternational.globo.com

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Enel Green Power begins operation at wind farm in Pernambuco

Enel Green Power | Climate Bonds Initiative

Enel Green Power, the renewable power arm of Italy’s Enel in Brazil, has started commercial operations of the Fontes dos Ventos II wind farm, in Pernambuco. The R$430-million project has an installed capacity of 99 megawatts, with 18 wind turbines.

The power will be sold in the free market, in which large consumers can choose their own suppliers, through the trading company Enel Trading. One client is retailer Lojas Renner.

Fontes dos Ventos II will supply the demand of 170 stores and a distribution center of Renner for 15 years, in a contract with an expected total maximum volume of 11.3 average megawatts. According to Enel Green Power, the contract will allow Renner to reduce the final cost of power by 40% and avoid around 6,200 tonnes of carbon per year in emissions.

Fontes dos Ventos II is installed in the same region where Enel has been operating since 2015 the country’s first hybrid solar and wind farm, which combines the Fontes dos Ventos I wind farm and the Fontes Solar project, with a total installed capacity of 89.9 MW.

“We are expanding our wind installed capacity in a region where we have had a presence for years. Long before the recent resolution of the regulatory agency for the development of hybrid plants in the country, we installed in that region of Pernambuco a pioneering project, with a wind and a solar farm built side by side. It was a project that generated important lessons learned for the company and for other agents in the sector,” said Roberta Bonomi, head of Enel Green Power in Brazil.

Today, in Brazil, Enel Green Power has a total installed renewable capacity of more than 4.7 gigawatts, of which more than 2.1 GW are from wind power, 1.2 GW from solar sources and 1.3 GW from hydroelectric plants.

Source: Valor International

https://valorinternational.globo.com

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Opposition to EU-Mercosur deal to continue with Macron’s victory

Because of Brazil, EU-Mercosur agreement is likely to be jeopardized — Foto: Roque de Sá/Agência Senado
Because of Brazil, EU-Mercosur agreement is likely to be jeopardized — Foto: Roque de Sá/Agência Senado

Emmanuel Macron’s reelection as president of France for the next five years means continued French resistance to the European Union-Mercosur free trade agreement on its current terms. What might change depends more on what will happen in the October presidential election in Brazil.

This is the assessment of Professor Gaspard Estrada, executive director of the Political Observatory of Latin America and the Caribbean (Opalc) at Sciences Po University, in Paris. He notes that in the debate between Mr. Macron and far-right candidate Marine Le Pen last week, this was reflected when both mentioned “chicken from Brazil”.

Ms. Le Pen complained about “a whole series of EU policies that I disagree with,” citing “the multiplication of free trade agreements in which German cars are sold, sacrificing farmers to competition from Brazilian chickens or Canadian meat.”

To which Mr. Macron retorted: “What chicken from Brazil?”, recalling that he had “opposed” the EU’s agreement with Mercosur because “when we ask things of our farmers, we ask the same thing of the other side.”

“We refused to move on this issue because there was no respect for the Paris Agreement commitments, respect for biodiversity and [also] we fought against imported deforestation,” Mr. Macron said.

In this scenario, notes Mr. Gaspard, “until there is a real change in the Brazilian environmental policy, it will be difficult for the implementation of the EU-Mercosur agreement to prosper.”

The professor notes that environmental policy is part of a general political change “and this can only happen with an alternation of power, because the Bolsonaro administration has shown that it will not change its environmental policy and that France is not on its radar.”

He mentions the public squabbles between the two presidents, when Mr. Bolsonaro spoke ill of Mr. Macron’s wife and the occasion when he refused to receive the French Chancellor, Jean-Yves Le Drian, claiming he had to go to the barber.

“What can unlock the knot on the EU-Mercosur agreement is a political agreement between leaders,” he adds. “We must not forget that the conclusion of the agreement was announced with Messrs. Bolsonaro and Macron in power, and before the political problems. Everything can also end with agreement, but for that you need to have people at the table with the will to make agreements.”

For Mr. Gaspard, if Mr. Lula da Silva is elected, “there will be an important change in the bilateral relationship, a relaunch of the strategic partnership”. He recalls that last year, Mr. Lula da Silva was received by Mr. Macron at the Élysée Palace with a head of state protocol. And that, a few days before the French election, Mr. Lula da Silva made a statement of support for Mr. Macron to defeat the far-right.

Once the impasse between Brazil and France is overcome, Europe’s very relationship with Latin America in general could improve, Mr. Gaspard believes. He notes that Ms. Macron has never visited the region in his five years in office, with the exception of his participation in the G-20 in Buenos Aires.

He notes that there is a lack of interest in Latin America on the part of European capitals. Now the Spanish prime minister Pedro Sánchez is trying to return to the region, but more forceful and ambitious initiatives are still needed. Without France or Germany, it is difficult to go ahead with larger rapprochement projects.

For Mr. Gaspard, in the context of the strategic rivalry between the United States and China, France and Latin America have everything to increase their strategic partnership – and profit from it.

Source: Valor International

https://valorinternational.globo.com

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Low education puts youngsters in bottom of labor market

Poverty, inequity and the potential of Brazil's public schools | Financial Times

Four of the ten occupations that employ young people the most in the country have low schooling requirements – less than eight years at school. The account considers the number of young people in relation to the total number of workers in a given activity. A similar situation is seen also among the activities with the highest absolute number of workers between 15 and 29 years: four of the top 10 have incomplete elementary school as their most frequent schooling.

The information is in a survey carried out exclusively for Valor by consultancy IDados, based on microdata from the Continuous National Household Sample Survey (Pnad Contínua) for the fourth quarter of 2021, the most recent for the indicator.

Among the activities that appear in the study are pedal- or arm-driven vehicle drivers, call center workers, domestic service workers in general, and elementary building construction workers.

This picture can be seen at a moment in which there is an advance in the level of education of young Brazilians. For the sake of comparison, 14.9% of Brazilian workers between 15 and 29 years already have completed higher education, and only part of them would be old enough to do so.

Adding the 12% of those who have incomplete education, the portion with higher education exceeds a quarter of the workers in this age group (26.9%). In addition, 42.9% have completed high school. The share of those who have only completed elementary school, on the other hand, is much lower, at 17.2%.

The data suggest, according to specialists, that young people enter the market in occupations that contribute little to their professional development and that there is also a mismatch between the advancement of the level of education of young people and the opportunities offered by the labor market.

“There are many young people with a college degree (complete or incomplete) in this age group of 15 to 29 years. However, the occupations that employ young people the most generally require less than this, such as complete high school or even incomplete elementary school. This suggests that there may be a mismatch between the young people’s education and the qualification required for the occupation,” said Bruno Ottoni, a professor at the State University of Rio de Janeiro (UERJ) and a lead researcher of the labor market at consulting firm IDados.

The economist, who led the study, said that, far from criticizing the occupations that appear at the top of the list that most employ young people, it is necessary to evaluate that many are activities that give few opportunities for development for young people, compromising the professional future.

“All work is worthy, but the question is what kind of work the market is managing to offer our young people. Are they jobs where they see long-term prospects? Are they jobs where they will be able to take advantage of their education? Our young people are in occupations that are great from a job standpoint, but in general don’t offer long-term career prospects,” he said. “We have more qualified young people, but there is a structural characteristic of the Brazilian labor market that today is not managing to generate better jobs for these young people.”

Along with lower educational requirements, the profile of the occupations presented in the study is also lower paid and more unstable, said Stélio Coêlho Lombardi Filho, a professor with the School of Economics at the Federal University of Bahia (UFBA). Young people typically have less experience and end up having to take jobs with lower requirements, usually in sectors such as services and commerce, as well as administrative support, he said.

“With the resumption of the economic activities, young people have managed to find available jobs. But these occupations, in general, have a lot of instability and high turnover, low qualification requirements and low wages,” said Mr. Lombardi Filho, who is also a researcher at UFBA’s Economy of Labor research group. “These young people often manage to overcome the barrier of the first job, but almost always they are in a situation of instability that prevents them from making the transition to adulthood, from having the autonomy to raise a family.”

Despite they usually face greater obstacles to enter the job market due to lack of experience, young people tend to suffer more in moments of crisis such as the current one. Companies tend to take less risk and, therefore, avoid hiring professionals who require higher investments in training, Mr. Lombardi Filho recalled. The professor mentions the so-called “scar effect” — which usually marks the professional trajectory of those who entered the market in moments of crisis.

“This outlook of the occupations that most employ young people reflects not only the bad moment of the economy as a whole, but also the fact that young people are already a very sensitive group in the labor market. They form a group with a higher turnover rate, they have higher unemployment rates, lower salaries, and are more in the informal market. And they accept it, especially because they need to gain experience,” said Solange Ledi Gonçalves, a professor at the São Paulo State University (Unesp).

In her view, there is currently a higher mismatch between the level of education of young people and the qualification of the positions available in the job market, which compromises the capacity of professional growth of young people, as scientific papers on the subject found.

“Papers show that, by accepting a job that is not compatible with their level of education, the young person may have more difficulty in growing in the job market later on, and this can impact their career progression. For example, if you have a higher education, but started working at McDonald’s, you may have more difficulty after getting a junior analyst position, which is more consistent with higher education, because you spent that time there,” she said.

Source: Valor International

https://valorinternational.globo.com

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Analysis: Exchange rate will be key for monetary authority

An appreciated real against the dollar may help the Central Bank to project inflation less distant from 2023 target — Foto: Scott Eells/Bloomberg
An appreciated real against the dollar may help the Central Bank to project inflation less distant from 2023 target — Foto: Scott Eells/Bloomberg

In the coming days, the evolution of the exchange rate will be fundamental in the inflation projections that will support the decision of the Monetary Policy Committee (Copom) of the Central Bank next week.

An appreciated real against the dollar, as seen earlier last week, may help the Central Bank to show an inflation projection less distant from the 2023 target and therefore reduce the pressure for a stronger monetary tightening.

On Friday, however, the real weakened sharply against the dollar as a result of a signal from Federal Reserve Chair Jerome Powell that a 50 basis points hike in U.S. benchmark interest rates is on the table.

The Brazilian Central Bank intervened in the exchange rate, with a sale of $571 million. The action was justified to maintain functionality in the exchange rate, in a market session squeezed in the middle of a long holiday. But in the end, it prevented a further weakened real.

Another doubt is the uncertainties about the Chinese economy, with the prospect of a more severe lockdown being enacted in Beijing to contain the latest wave of coronavirus contagion in the country. Iron ore prices dropped about 10% on Monday.

The exchange rate has no direct relation with monetary policy, but has gained prominence recently for two reasons.

One was Central Bank President Roberto Campos Neto’s remarks that market sectors were not taking into account the new, lower exchange rate in their inflation projections.

There hasn’t been a reliable indicator of market projections for inflation since March 25, when the Central Bank servants’ strike began. The Central Bank promises to release the Focus survey this Tuesday. But informal surveys, such as that of XP Investimentos, indicate that the market’s inflation projection for 2023 may have risen to 4%, against an inflation target of 3.25% for the year.

Another fact that gives greater visibility to the exchange rate, within monetary policy decisions, is that the so-called pass-through of exchange rate variations into inflation has increased.

A 10% rise in the exchange rate leads to a maximum effect of 1.1 percentage points on inflation 12 months ahead. In the longer term, between 18 and 21 months, this effect falls to somewhere between 0.6 and 0.7 percentage points.

It can make a big difference. Last week, the exchange rate even oscillated around R$4.6 to the dollar, or 8% below the market consensus, which informal surveys indicate is close to R$5 to the dollar.

This translates into an inflation projection about 0.5 percentage point lower for 2023. It may help the Copom to present an inflation projection closer to the target.

The expected inflation under relative control, in turn, would avoid taking the benchmark interest rate much further over the 12.75% per year signaled by the Copom in March for the end of the monetary tightening cycle.

Source: Valor International

https://valorinternational.globo.com

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