Latin America drops off list of Brazil’s largest trade surpluses

Asian countries gain ground while Argentina plummets from fourth place in 2023 to 60th in 2024

02/12/2025

Brazil ended 2024 with a trade surplus 25% lower than the previous year and a reduced contribution from its neighbors. The list of the ten countries that generated Brazil’s largest trade surpluses in 2024 no longer includes any Latin American nations. In 2023, Argentina, Chile, and Mexico were part of this ranking. The surplus with these three countries shrank as exports declined and imports grew, driven by domestic demand.

China remained at the top of the list in 2024, although with a smaller surplus, followed by three Southeast Asian nations. Among them, Singapore—a city-state with around 6 million inhabitants—held onto third place, as it did in 2023. Malaysia and Indonesia, in ninth and tenth positions, respectively, were also present in the ranking last year but swapped places in 2024. Newcomers to the top ten were Egypt and Iran, ranking seventh and eighth, up from 16th and 12th places in 2023, respectively.

In a year when exports fell by 0.8% and imports rose by 9%, Brazil’s total trade surplus dropped to $74.2 billion in 2024, down from $98.9 billion in 2023. South America, which was the second-largest source of surplus for Brazil in 2023, slipped to fourth place in 2024, overtaken by the Middle East and Africa. Asia retained its lead for both years.

Argentina plummets

Among the Latin American countries that dropped out of the top ten, Argentina—historically a key market for Brazilian manufactured goods—had the smallest trade surplus with Brazil in 2024. The positive balance of $4.71 billion in 2023 dropped to just $201 million in 2024, pushing the country from fourth place in 2023 to 60th in 2024. Brazilian exports to Argentina fell 17.6% year over year, while imports from Argentina rose 13.2%.

A major factor behind this shift was an atypical surge in soybean exports to Argentina in 2023, which did not repeat in 2024, noted José Augusto de Castro, president of the Brazilian Foreign Trade Association (AEB).

Due to a poor harvest, Argentina had to import soybeans to fulfill its export contracts. In 2023, Brazil sold $2 billion worth of soybeans to Argentina, accounting for 12% of the total exports to the country that year. In 2024, shipments returned to normal levels, totaling just $90 million. Meanwhile, Brazilian imports from Argentina were driven by automobiles.

Livio Ribeiro, partner at BRCG and researcher at the Brazilian Institute of Economics of the Getulio Vargas Foundation (FGV Ibre), pointed out that Argentina is undergoing a severe income contraction. “In reality, the country is redefining itself as much poorer than previously perceived. Trade levels are adjusting in the short term between Argentina and the rest of the world, and its share in Brazil’s export agenda is shrinking.”

Brazil’s trade surplus with Chile also shrank, from $3.63 billion in 2023 to $1.71 billion in 2024, pushing the country from sixth place to 18th. Petroleum is Brazil’s main export to Chile, accounting for 29% of total shipments. In 2024, Brazil exported $1.92 billion worth of oil to Chile, a 38% drop from 2023, which drove an overall 16.2% decline in exports to the country. Meanwhile, imports from Chile rose by 14.8%, mainly due to increased copper purchases.

With Mexico, Brazil’s trade surplus shrank from $3 billion in 2023 to $2 billion in 2024, moving Mexico down from seventh to 15th place. This decline resulted from a 9% drop in exports and a 4% increase in imports.

Mexico, another key destination for Brazilian manufactured goods, imported $715 million worth of automobiles from Brazil in 2024. While cars remained Brazil’s top export to Mexico, sales fell 35% from 2023. Meanwhile, Brazilian imports of vehicle parts and accessories from Mexico rose by 22.3%.

Welber Barral, partner at BMJ and former foreign trade secretary, noted that Brazil and Mexico have a longstanding trade agreement primarily focused on the automotive sector. “There’s a proposal to expand the agreement to include more products, but one major obstacle is Mexico’s protectionist stance on agriculture,” he said.

Mr. Barral added that the more aggressive trade policies of U.S. President Donald Trump toward the United States-Mexico-Canada Agreement (USMCA)—the updated version of NAFTA negotiated during his first term and set for review in 2026—could push Mexico to revisit trade talks with Brazil. “It would be an opportunity, though the trade instability caused by Trump’s new tariffs is bad for the entire world,” he said.

Growing influence

For Mr. Ribeiro of BRCG, the decline in trade surpluses with Latin American countries is part of a broader shift in which Brazil is losing its traditionally captive regional market to China. “This is particularly evident in 2024, as China ramped up its exports—especially toward the end of the year—anticipating a worsening trade war,” he said, referring to the expected escalation of tensions between China and the U.S.

Looking ahead, Mr. Ribeiro said the key question is how global trade will balance in 2025. “The 2024 trade agenda was influenced by specific factors, but overall, Brazil remains a major commodity supplier, primarily to Asia. It also exports some industrial products to the Americas, but these are increasingly being replaced by Chinese goods.”

Despite its decline in 2024, Brazil’s trade surplus with China remains by far the largest among all partners, totaling $30.73 billion, down from $51.15 billion in 2023. The drop was driven by both lower exports, which fell to $94.4 billion (nearly $10 billion less than in 2023), and higher imports, which rose from $53.2 billion in 2023 to $63.6 billion in 2024.

Government data indicate that soybean exports accounted for much of the decline in shipments to China. In 2023, amid a record grain harvest, Brazil exported $38.9 billion worth of soybeans to China. In 2024, with lower agricultural production, sales fell to $31.5 billion. Shipments of oil and iron ore remained relatively stable, and together, these three products made up 75% of Brazil’s total exports to China in 2024.

Commodity prices played a significant role in these trends. The average price of crude oil exports fell by 4.4% in 2024, while iron ore prices declined by 5.2%. Soybean prices plummeted by 16.9%, further affecting trade values. Meanwhile, China’s GDP growth remained stable, rising by 5.2% in 2023 and 5% in 2024.

The surge in Brazilian imports from China was driven by domestic demand and China’s strategy to redirect its excess supply to new markets amid rising protectionist measures from the U.S. and Europe. In 2024, Chinese cars took advantage of favorable tariffs and stood out in Brazil’s import data. Boosted by electric and hybrid models, Brazil imported $3.1 billion worth of Chinese automobiles in 2024—triple the value of 2023.

For Mr. Castro of AEB, Brazil’s trade surpluses with China, as well as with countries like Egypt and Iran in 2024, reflect strong commodity sales. The top export to Egypt was corn, followed by sugar and molasses. For Iran, Brazil’s main exports were corn, soybeans, and soybean meal.

Singapore, which ranked third in trade surpluses with Brazil in both 2023 and 2024, serves as a key re-export hub, particularly for China and Southeast Asia. The Netherlands, which held second place both years, plays a similar role for the European Union.

*By Marta Watanabe e Álvaro Fagundes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Government rejects trade war, says U.S. isn’t aiming at Brazil

Brazil’s finance minister, Fernando Haddad, said U.S. President Trump’s tariffs are “a generic thing for everyone,” and reaffirmed Lula administration’s willingness to negotiate

02/12/2025

Brazil’s minister of institutional relations, Alexandre Padilha, stated on Tuesday (11) that Brazil “will not engage in any trade war” when commenting on the tariffs imposed by U.S. President Donald Trump on steel and aluminum imports. This measure directly impacts Brazil, which was the second-largest supplier of steel to the U.S. last year, trailing only Canada.

“Trade wars benefit no one. Brazil does not encourage and will not engage in any trade war,” he said during a meeting with mayors.

On Monday (10), President Trump imposed a 25% tariff on steel and aluminum imports to the U.S. The Brazilian government is still considering how to respond to this measure, but the initial inclination is to seek negotiations with the U.S. government rather than adopting retaliatory measures.

One approach could be to persuade the Trump administration to reinstate the export quota policy, which had been negotiated between Brasília and Washington during the first term of the Republican president (2017-2021).

Finance Minister Fernando Haddad said that unilateral tariff impositions by the U.S. government, such as the 25% tariffs on steel and aluminum imports, “are counterproductive for the improvement of the global economy” and that “the global economy loses with this contraction.” Minister Haddad also mentioned that “this is not a decision against Brazil; it is something generic for everyone” and reaffirmed the government’s willingness to negotiate. According to him, the Ministry of Development, Industry, Commerce, and Services is gathering information to present to President Lula for decision-making.

The Aço Brasil Institute, which represents steel manufacturers in the country, expressed surprise at President Trump’s decision to impose a 25% import tariff on steel regardless of origin. However, they remain confident “in the opening of dialogue between the governments of the two countries to reestablish the flow of steel products to the United States based on the agreements reached in 2018.”

The taxation nullifies an agreement made with Brazil during Mr. Trump’s first term, which set export quotas for the U.S. market at 3.5 million tonnes of slabs and semi-finished products and 687,000 tonnes of rolled products. This measure was negotiated after the U.S. had established 25% import tariffs. “It’s important to note that the negotiation that took place in 2018 met not only Brazil’s interest in preserving access to its main external steel market but also the interest of the American steel industry, which demands Brazilian slabs,” Aço Brasil stated.

In 2024, the U.S. imported 5.6 million tonnes of slabs to meet domestic demand, as they are not self-sufficient in this type of steel product. Of this volume, 3.4 million tonnes came from Brazil. According to Aço Brasil, Brazilian sales fully complied with the conditions established under the “hard quota” regime. The institute also notes that Brazil has been “plagued” by a significant increase in imports from countries engaging in “predatory competition, especially China.” As a result, the industry has requested that the Brazilian government implement trade defense measures, currently applicable to nine types of steel (NCMs).

“Therefore, contrary to the claims in the American government’s decision of February 10, there is no possibility of circumvention occurring in Brazil for steel products originating from third countries to the United States,” Aço Brasil argues. According to the institute, the United States and Brazil have a longstanding commercial partnership historically favorable to the U.S., with an average trade surplus of $6 billion over the past five years. Considering the main items in the steel chain (coal, steel, and machinery and equipment), the U.S. and Brazil negotiate approximately $7.6 billion, with the U.S. having a surplus of $3 billion.

*By Fabio Murakawa, Ruan Amorim, Guilherme Pimenta e Stella Fontes — Brasília and São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Itaú signals possible guidance revision amid economic uncertainty

CEO Milton Maluhy Filho says projections could improve if macro conditions exceed expectations, while analysts view bank’s outlook as conservative

02/07/2025

After another year of record results in 2024, Itaú Unibanco, Brazil’s largest private bank, released a conservative guidance for 2025, according to market analysts. Itaú CEO Milton Maluhy Filho emphasized on Thursday (6) that this stance reflects greater macroeconomic uncertainty but noted that if conditions improve beyond initial expectations, the bank may revise its projections upward.

“Guidance represents a range, not a fixed point,” he said. “In 2024, we started the year with a certain portfolio pace and ended with a completely different one” he added, referring to stronger-than-expected credit expansion last year. If the economic outlook turns out to be more favorable, Itaú has significant capacity to accelerate, he noted. “We’ve never been better positioned to handle any scenario.”

Credit growth

Itaú’s expanded loan portfolio reached R$1.35 trillion in December 2024, marking a 15.5% increase over 12 months. Adjusted for exchange rate fluctuations, the expansion was 10.2%. The bank had already revised its 2024 guidance upward, projecting growth between 9.5% and 12.5%, but for 2025, it now forecasts a much lower expansion of 4.5% to 8.5%.

The cost of credit is expected to range between R$34.5 billion and R$38.5 billion, a figure Mr. Maluhy said he is comfortable with.

For the bank’s Brazilian operations, Mr. Maluhy expects credit growth to land in the middle of the guidance range, between 6.5% and 7%. In the small and medium-sized business segment, growth could once again exceed double digits, he added.

Mr. Maluhy highlighted strong portfolio management efforts and said even the more volatile segments—such as personal and SME loans—are in healthy shape.

Regarding delinquency rates, he acknowledged there could be a slight increase but expects overall stability.

“It’s hard to imagine further improvement in default indicators, as they are already at historic lows,” he said. Itaú’s delinquency rate stood at 2.4% in the fourth quarter of 2024, down from 2.6% in the third quarter and 2.8% in the last three months of 2023.

During an earnings call, Mr. Maluhy was asked about Itaú’s net interest margin with the market, which is projected between R$1 billion and R$3 billion for 2025. He acknowledged that this figure is difficult to forecast, and given macroeconomic uncertainties, the bank chose a conservative estimate.

“Our ability to improve market-related margins is there, but it will depend on the scenario,” he said. “If we perform better than expected, we may revise guidance in the first or second quarter.”

On dividend distribution, Mr. Maluhy said that, barring any major changes, the bank expects to pay an additional dividend on 2025 earnings. “Our goal is not to retain excess capital,” he said. “When an extraordinary dividend is paid every year, it stops being extraordinary—so we’re calling it an ‘additional’ dividend now,” he added.

Mr. Maluhy also praised the government’s initiative to revamp the private payroll loan market in collaboration with banks. “It could become a very strong credit program, highly beneficial for the country,” he said.

The private payroll loan market is currently valued at around R$40 billion, with Itaú holding a 30% share. However, Mr. Maluhy said the bank would prefer to hold a smaller share in a much larger market—potentially four to five times its current size.

While acknowledging implementation challenges, he said that once the project is completed, it will greatly facilitate business participation.

“The new payroll loan system must be available across all channels—there cannot be a monopoly by a single marketplace,” he noted.

Market reaction

Analysts praised Itaú’s fourth-quarter results, highlighting credit growth, record-low delinquency rates, and strong profitability. However, the conservative guidance and slightly lower-than-expected implied profit left some market participants unimpressed.

Goldman Sachs estimates R$45.0 billion in net income for 2025, 3% below previous projections. “We believe Itaú continues to deliver the best performance among Brazil’s traditional banks. However, the overall earnings, dividend, and guidance announcement did not bring major positive surprises,” Goldman Sachs analysts said.

Citi analysts also described the guidance as somewhat disappointing, noting that Itaú’s credit provisions assume a highly challenging macroeconomic environment. However, they pointed out that if the economy proves resilient, there could be room for adjustments.

“Despite operating expense pressures, we believe Itaú has room to reach the upper end of its guidance range,” Citi noted.

*By Álvaro Campos e Mariana Ribeiro, Valor — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Household debt and delinquency decline in Brazil, but burden grows

Fewer Brazilians are in debt or behind on payments, but more income is going toward loan repayments, according to trade association CNC

02/07/2025

The share of indebted and delinquent consumers declined in January, according to the Consumer Debt and Delinquency Survey by the National Confederation of Commerce of Goods, Services, and Tourism (CNC). However, the portion of household income dedicated to debt payments increased, reaching its highest level in eight months.

The percentage of households reporting debt fell from 76.7% in December 2024 to 76.1% in January 2025. This figure was also lower than 78.1% in January 2024.

The share of households with overdue debt stood at 29.1% in January, slightly down from 29.3% in December, though still above 28.3% in January 2024. Among those unable to repay their loans, the proportion dropped to 12.7%, compared to 13% in December, but remained higher than 12% in January 2024.

Meanwhile, the share of household income allocated to debt payments reached 30% in January, up from 29.8% in December, marking the highest level since May 2024 (30.1%).

Another notable trend was the increase in consumers who consider themselves “heavily indebted”, which rose to 15.9% in January, the highest level since September 2024.

“High interest rates and tighter credit availability are leading consumers to take on fewer new debts. However, as an unintended consequence, they feel an increased burden from their existing obligations,” said José Roberto Tadros, president of the CNC-SESC-SENAC System, in a statement.

“The slight improvement in delinquency rates suggests that Brazilian households have been making an effort to balance their finances. However, the growing share of income committed to debt payments is a warning sign for the economy in 2025,” he added.

Despite the recent improvement in debt and delinquency indicators, the CNC cautioned that household debt levels could rise again throughout the year. The organization projects that by the end of 2025, 77.5% of Brazilian households will be in debt, with 29.8% classified as delinquent.

“The combination of increased reliance on credit for consumption and persistently high interest rates will make financial management even more challenging for Brazilian consumers,” said Felipe Tavares, economist at CNC.

In January, credit cards remained the most widely used form of consumer credit, accounting for 83.9% of total debt holders, CNC noted.

By the end of 2025, 77.5% of Brazilian households will be in debt, with 29.8% classified as delinquent, CNC says — Foto: Marcello Casal/Agência Brasil
By the end of 2025, 77.5% of Brazilian households will be in debt, with 29.8% classified as delinquent, CNC says — Photo: Marcello Casal/Agência Brasil

*By Alessandra Saraiva, Valor — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Península explores sale of Carrefour stake in Brazil

Block trade seen as likely option over share offering

02/07/2025

Carrefour Brasil reported net income of R$221m in the third quarter of 2024, up 67.4% year over year

Península, the investment vehicle of the Diniz family, is in talks with banks to sell its 7.3% stake in Carrefour Brasil but has yet to select a lead advisor. With the retailer’s market capitalization at R$13.6 billion, the Diniz heirs’ stake is valued at R$992.8 million.

A block trade—the full sale of the stake in a single transaction—appears to be the preferred approach given the size of the position, the stock’s liquidity, and the success of similar deals in the current market, according to sources familiar with the matter.

Península is also one of the largest shareholders of the Carrefour group listed in Paris, holding an 8.83% stake worth approximately €812.4 million based on the company’s current €9.2 billion market cap. Carrefour’s shares have declined 17.4% over the past year on the Paris exchange.

Since the European stock is more liquid, Península may prioritize selling its stake in the French parent company first, though the final decision will depend on market conditions.

Abilio Diniz first acquired a stake in the French-controlled retailer in 2014 after a dispute with Jean-Charles Naouri, then head of Casino, over GPA. Mr. Diniz attempted to renegotiate the terms of GPA’s sale and even proposed merging Pão de Açúcar’s operations with Carrefour in Brazil, but the plan fell through.

In 2018, Península reduced its position in Carrefour Brasil, then valued at R$31 billion, from 11.46% to 8.91% through a R$805 million block trade on the B3 stock exchange. Today, the company is worth R$13.5 billion, with its shares down 41.72% over the past 12 months but up 18.04% year-to-date. The investment firm’s intention to sell its stake was first reported by O Globo columnist Lauro Jardim.

Península executives hold three of the 13 seats on Carrefour Brasil’s board of directors. Mr. Diniz previously served on Carrefour’s board in France before being replaced by Eduardo Rossi, who also represents Península on the Brazilian board.

In Brazil, Carrefour operates the Atacadão wholesale chain, Sam’s Club, Carrefour Hiper, Carrefour Bairro, Nacional, Super Bompreço, and Carrefour Express. It has also expanded into other segments with Carrefour Drogarias, Carrefour Posto, real estate arm Carrefour Property, and financial services through Banco Carrefour.

The planned stake sale could put additional pressure on Carrefour Brasil’s already discounted shares. Analysts at J.P. Morgan noted in a late-January report that Península’s stake is equivalent to roughly nine days of average trading volume.

Carrefour Brasil is currently trading at a price-to-earnings (P/E) ratio of 7 times its projected 2025 earnings. J.P. Morgan maintains a neutral rating on the stock with a price target of R$11.50, implying an 85% upside from its current level of R$6.23.

In the third quarter of 2024, Carrefour Brasil reported net income of R$221 million, up 67.4% year over year, driven by cost reductions, synergy gains, and operating leverage from sales growth. However, its EBITDA margin remained stable at 5.7%. The group has been working to improve margins at Atacadão by expanding its B2C offerings, adding in-store services such as bakeries, butcher counters, and deli sections.

When contacted, Península stated that it “does not comment on market rumors.”

The original story in Portuguese was first published on Valor’s business news website, Pipeline.

*By Silvia Rosa, Pipeline — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Environmental agency gives priority to Petrobras’s plan for new oil frontier

The plan was one of the conditions for the environmental agency to proceed with the analysis of the company’s request for a license to explore oil in the Amazon River mouth

02/06/2025

Ivan Werneck Bassères, the coordinator of environmental licensing for oil and gas exploration at the environmental protection agency IBAMA, has requested that the agency’s experts team prioritize the evaluation of the wildlife protection plan submitted by Petrobras. This plan is a prerequisite for the environmental agency to proceed with the licensing application for oil exploration in the Mouth of the Amazon, part of the Equatorial Margin.

In a document released in IBAMA’s system on Tuesday (4), the coordinator asks the technical team to assess the possibility of approving the plan and the feasibility of Petrobras conducting the pre-operational assessment (APO).

The APO is a test in which the company simulates an oil spill in the region and demonstrates its capacity to resolve the issue with teams and vessels. This evaluation is the final step to obtaining the environmental license.

On Monday (3), President Lula indicated to the new President of the Senate Davi Alcolumbre that the government will work to “quickly” unlock exploratory activities in the region. Mr. Lula reportedly said that oil exploration in the Mouth of the Amazon “needs” to be carried out as soon as possible.

On Wednesday, the CEO of the oil company, Magda Chambriard, said that the company responded to all the environmental agency’s demands in November. “We submitted all of Ibama’s requirements in the last days of November. We are constructing the wildlife rehabilitation center in Oiapoque, as requested, which should be ready by March,” she said. “Now, we are awaiting IBAMA’s evaluation of the material we submitted.”

Rodrigo Agostinho, the president of IBAMA, told Valor last Thursday (30) that the license is expected to move forward only after March, when Petrobras anticipates completing the wildlife protection unit.

*By Kariny Leal, Valor — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Environmental agency gives priority to Petrobras’s plan for new oil frontier

The plan was one of the conditions for the environmental agency to proceed with the analysis of the company’s request for a license to explore oil in the Amazon River mouth

02/06/2025 12:56 PM  Updated uma hora

Ivan Werneck Bassères, the coordinator of environmental licensing for oil and gas exploration at the environmental protection agency IBAMA, has requested that the agency’s experts team prioritize the evaluation of the wildlife protection plan submitted by Petrobras. This plan is a prerequisite for the environmental agency to proceed with the licensing application for oil exploration in the Mouth of the Amazon, part of the Equatorial Margin.

In a document released in IBAMA’s system on Tuesday (4), the coordinator asks the technical team to assess the possibility of approving the plan and the feasibility of Petrobras conducting the pre-operational assessment (APO).

The APO is a test in which the company simulates an oil spill in the region and demonstrates its capacity to resolve the issue with teams and vessels. This evaluation is the final step to obtaining the environmental license.

On Monday (3), President Lula indicated to the new President of the Senate Davi Alcolumbre that the government will work to “quickly” unlock exploratory activities in the region. Mr. Lula reportedly said that oil exploration in the Mouth of the Amazon “needs” to be carried out as soon as possible.

On Wednesday, the CEO of the oil company, Magda Chambriard, said that the company responded to all the environmental agency’s demands in November. “We submitted all of Ibama’s requirements in the last days of November. We are constructing the wildlife rehabilitation center in Oiapoque, as requested, which should be ready by March,” she said. “Now, we are awaiting IBAMA’s evaluation of the material we submitted.”

Rodrigo Agostinho, the president of IBAMA, told Valor last Thursday (30) that the license is expected to move forward only after March, when Petrobras anticipates completing the wildlife protection unit.

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Investment grade requires change in spending structure, Fitch says

Todd Martinez, co-head of sovereign ratings for Latin America, sees fiscal uncertainty for Brazil in the medium term

02/06/2025

Fitch Ratings deems it unlikely that Brazil will regain its investment-grade status during the current government. Restoring the “good payer” status entails more than just meeting the targets of the current fiscal framework, according to Todd Martinez, co-head of sovereign ratings for Latin America. “It’s not just about having a balanced primary result in a few years, but rather a significant surplus. The current framework demands spending constraints, not cuts,” he told Valor.

The agency upgraded Brazil’s rating to “BB” with a stable outlook in 2023 and reaffirmed this assessment last year. Another review is expected before July.

Mr. Martinez noted that the positive surprises in GDP growth have not benefited Brazil’s fiscal situation as expected. He also emphasized the need to determine whether this stronger growth is a result of government spending or if recent reforms have genuinely made Brazil’s economy more dynamic.

The executive also remarked that U.S. President Donald Trump’s policies and the Federal Reserve’s actions could impact Brazil but the primary risks for the country are domestic. For Mexico, however, a widespread tariff war could be devastating, necessitating close scrutiny of President Claudia Sheinbaum’s microeconomic policies.

Valor: Fitch reaffirmed Brazil’s “BB” rating last year with a stable outlook, citing fiscal issues as a major constraint. Since then, the government has met the 2024 target and approved an adjustment package. How do you assess the situation now?

Todd Martinez: Last year’s fiscal result shows the government not only met the minimum required but exceeded expectations. There was a 0.1% GDP deficit, or 0.4% if we account for spending on Rio Grande do Sul. A year ago, markets didn’t expect the government to meet its 2024 target, and projections for 2025 have improved rather than worsened. The challenge is that, despite being on track to meet targets, the government has not gained market credibility. Last year’s target achievement was largely due to temporary rather than structural measures. The disappointing effect of the 2023 tax measures, which could have provided a structural revenue boost, also played a role. The positive fiscal surprise in 2024 stemmed from extraordinary revenues and the government’s decision to bring forward court-ordered payments of federal debts to 2023. Without these, there wasn’t a significant improvement. We remain concerned about the fiscal situation, as does the local market, due to considerable uncertainty. The government may have reached a fatigue point with Congress after tax reform approval. [Congress] doesn’t seem inclined to approve additional measures to increase structural tax burdens, while significant spending cuts are challenging due to a rigid budget.

Valor: How committed is the government to fiscal consolidation?

Mr. Martinez: We recognize the government’s commitment to fiscal targets. However, the challenge is that the fiscal framework and targets may not be enough to improve market confidence and ease pressure on the Central Bank to maintain high interest rates. The government has room to continue meeting its targets, but unfortunately, this may involve more improvisation, such as advancing dividends or freezing the budget. While these measures help, they are not structural solutions. Therefore, uncertainties about medium-term projections will persist.

Valor: The economy has grown more than expected. Could this help improve fiscal dynamics?

Mr. Martinez: The pace of economic growth is probably the best news for Brazil and was already partially reflected in our 2023 rating upgrade. Many economies surpassed expectations post-pandemic, but Brazil continues to positively surprise years later. However, it is still unclear whether 3% growth is the new normal or simply the result of a fiscal stimulus that will not be sustainable in the medium term. There are strong arguments that recent reforms and the recent tax reform could foster greater investment appetite, boost productivity, and thus support higher growth levels. But only if this strong growth continues without fiscal stimulus will we be convinced that this is the new normal. If the economy is growing more, why isn’t that enough for a higher rating? In many countries, stronger growth would improve fiscal conditions, but that has not been the case in Brazil. Higher growth has helped boost revenue, but much of the government’s spending is mandatory and tied to revenue increases. While economic growth aids revenue, it doesn’t equally improve the fiscal situation. There’s political pressure to spend more, so any positive revenue surprises often lead to higher spending. Additionally, strong growth has required the central bank to keep interest rates high, significantly increasing government interest expenses.

Valor: Do you see a scenario of fiscal dominance?

Mr. Martinez: Today’s Central Bank is very different from a decade ago, which was one of the reasons why we upgraded Brazil’s rating in 2023. The Central Bank has gained substantial credibility and formal autonomy, making it one of the most prudent and proactive globally. However, there are limits to what it can do. Given concerns over fiscal risks, raising interest rates may not be as effective as it would be otherwise. That doesn’t mean Brazil is in an extreme fiscal dominance scenario where rate hikes trigger fears over fiscal sustainability, prompting capital flight and making interest rate increases inflationary rather than deflationary. We still believe that rate hikes, on balance, help anchor confidence.

Valor: How does the relationship between the Executive and Legislative branches affect Brazil’s rating?

Mr. Martinez: One reason we upgraded the rating in 2023 is that, despite challenges and political tensions, we saw dramatic improvements compared to a decade ago. Challenges remain, but what’s positively surprising is that despite sometimes tense relations, Brazil manages to pass certain measures and has enacted significant reforms. That isn’t the reality in other Latin American countries. The fragmented Congress requires many negotiations to pass legislation, often leading to delays and dilution, yet Brazil ultimately approves measures. In the fiscal realm, the challenging relationship with Congress complicates the government’s fiscal consolidation agenda, primarily consisting of increasing revenue. Promoting spending cuts is difficult.

Valor: Do you believe Brazil can regain investment-grade status during the current administration?

Mr. Martinez: It’s difficult to foresee the positive fiscal shock needed to regain investment-grade status in the current government’s final two years. Improving public finances and market confidence would require more than budget freezes and minor measures, which are typically temporary. Significant improvement in revenue and changes in the structure of mandatory spending rules to reduce medium-term spending pressure would be necessary. This would require constitutional changes and a supermajority in Congress, which are unlikely decisions before an election. However, after the election, regaining investment-grade status is not unattainable. It would require more than just meeting the fiscal framework—a significant surplus, not just a balanced primary result, would be necessary. The current framework demands spending constraints, not cuts, and depends on revenue improvements that we do not expect to materialize.

Valor: How might U.S. President Donald Trump’s policies and their consequences for the Federal Reserve affect Brazil?

Mr. Martinez: We’re closely monitoring the U.S. now, as they pose a significant risk to the global economy, especially Latin America. Potential risk channels include tariffs, interest rates, immigration, and relations with China. Many of these aren’t as relevant to Brazil as they are to Mexico, for instance. Fed is the most relevant. Trump’s policies are inflationary, as higher tariffs can pressure U.S. prices, alongside fiscal expansion. Additionally, a larger fiscal deficit means a greater supply of Treasuries later on, which pressures the long end of the U.S. yield curve. All of that matters for Brazil. Nonetheless, local monetary policy depends more on domestic factors and confidence in fiscal developments.

Valor: Mexico is more vulnerable to the U.S. scenario. What should we expect from the Sheinbaum administration?

Mr. Martinez: Comparing Mexico with Brazil is interesting because they share similar strengths and weaknesses. Mexico’s debt is lower but its fiscal situation has deteriorated recently. However, like Brazil, external finances are a source of strength. Mexico’s central bank is also strong and credible. The difference is that despite having a left-wing government, they seem to have internalized that being too fiscally expansive could have market confidence repercussions. The major concern is with microeconomic policies. We saw the previous government make changes in the energy sector and intervene in airport construction, affecting economic dynamics. The question is whether President Claudia Sheinbaum will adopt a more pragmatic stance, allowing the country to leverage nearshoring. Recently, we saw judicial reform approval, and the country will now elect judges, a source of uncertainty for the business community. Overall, our main concern is the relationship with the U.S. The baseline scenario is that Mexico could remain a strong U.S. ally. The most likely outcome is sector-specific rather than universal tariffs. If that’s the case, it could negatively impact growth in the coming years, affecting the fiscal situation and the government’s ability to reduce its deficit. It would be a very negative scenario that could affect Mexico’s investment-grade status. As Brazil’s example shows, losing investment-grade status isn’t difficult if many things go wrong simultaneously, and regaining it is challenging.

Valor: What is your view on Argentina?

Mr. Martinez: We became more optimistic about Argentina towards the end of 2024. We raised Argentina’s rating from “CC” to “CCC,” which is still very low but reflects our view that the country is unlikely to restructure its debt. That is a risk, although not the most likely one. The government embarked on an aggressive fiscal adjustment and devalued the currency, and it wasn’t clear if these measures were sustainable. However, they managed to maintain the adjustment without a significant drop in popularity, so Milei’s political position remains strong. The exchange rate policy is concerning. The two anchors of the economic program are fiscal surplus and currency crawling peg [gradual adjustments], as inflation is so high that within a year, Argentina went from a cheap to an expensive country. It’s a risk since whenever Argentina has relied on currency appreciation as a political anchor, it hasn’t ended well. We don’t see the current policy leading to a reserve accumulation, which Argentina needs to stabilize the economy and repay its debts. Nonetheless, the government has done an excellent job of boosting confidence. Therefore, we believe Argentina can get through the year without major changes to its exchange rate policy and reach elections. However, it’s unclear how sustainable it is in the medium term.

*By Álvaro Campos  — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Embraer secures its largest executive jet sale

Shares traded the highest volume on B3 stock exchange, surpassing Itaú, Vale

02/06/2025

Embraer announced to the market on Wednesday (5) that it has signed an agreement with Flexjet—a U.S.-based company focused on leasing and sharing private aircraft—to sell 182 executive jets, along with 30 options. The deal is valued at $7 billion.

The agreement was well-received by the market, causing the Brazilian plane maker shares to soar by 15.51% at the close, reaching R$66.37 and marking the highest increase on the benchmark stock index Ibovespa.

Reflecting the news, the financial volume traded in Embraer shares was the largest on the trading floor, totaling R$1.377 billion, surpassing stock market giants Itaú (with R$1.246 billion), Vale (R$1 billion), and Petrobras (R$621 million), according to data from Valor Pro, Valor’s real-time information service.

According to Embraer, the agreement includes a fleet comprising the Praetor 600, Praetor 500, and Phenom 300E models, plus a services and support package. This is the largest order by Flexjet in its 30-year history and also the largest firm order for the Brazilian manufacturer’s executive jets.

“We are very happy with Flexjet’s renewed commitment to Embraer through this comprehensive purchase agreement, which further strengthens our over 20-year strategic partnership,” said Michael Amalfitano, president and CEO of Embraer Executive Jets, in a statement.

The partnership between Embraer and Flexjet began in 2003 when Flight Options, which became part of the Flexjet group in 2015, was the first shared ownership company to introduce the Brazilian Legacy Executive jet into its fleet.

The deal marks another strong bet from a major group in the Brazilian company. In March 2024, Embraer once again surprised the market by announcing an order of 133 E175 jets (including firm orders and purchase rights) by American Airlines. That agreement also exceeded $7 billion, considering the list price.

American Airlines, one of the largest airlines in the world, has become an important name in the global market betting on Embraer’s aircraft. On the commercial side, the Brazilian company has benefited from a post-pandemic trend of airlines seeking smaller planes, which are easier to fill.

The Embraer E1 has been successful in the United States, given access to the regional market. A union agreement limits the weight of jets in regional operation to 39 tonnes, which is why the E2, as it is a larger model, does not occupy that space.

Embraer ended 2024 with 73 aircraft delivered by its commercial division, a 14% increase year-over-year. In the executive segment, deliveries totaled 130, a 13% increase on the same basis.

The company still has an opportunity to grow its commercial division, which has been operating below the 100 annual deliveries mark for several years due to a weak supply chain. The company has indicated to the market that by 2026, depending on its suppliers’ capabilities, it expects to return to that level.

Despite the challenges, the Brazilian manufacturer has fared better compared to giants Boeing and Airbus, which operate larger aircraft and whose technology has posed complex challenges, particularly with more frequent engine maintenance on newer models.

Due to these maintenances, the industry has struggled with a shortage of engines, causing aircraft to be grounded worldwide. Embraer, by operating smaller jets with less drag (the more drag, the higher the fuel consumption, and the more force the engine must exert), requires maintenance at a greater interval.

In a report, the Itaú BBA team said Embraer’s announcement confirms that its executive aviation unit is among the company’s main growth drivers this year. According to analysts Daniel Gasparete, Gabriel Rezende, and Pedro Tineo, the order validates the Brazilian company’s strong operational moment, practically doubling its order book. The bank calculates that the order will sustain the company’s EBITDA growth by at least 10% per year until 2028, creating the potential for an upside in stock return estimates.

The Citi team noted that the announcement means a significant bet in the company regarding the quality of its products and the safety of its operations. Analysts Stephen Trent, Filipe Nielsen, and André Mazini wrote that even if the order has some discount due to its large volume, it considerably expands Embraer’s order book.

The XP team wrote that the deal confirms long-term delivery prospects following the current capacity expansion. Analysts Lucas Laghi, Fernanda Urbano, and Guilherme Nippes added that the addition of $7 billion to the order book ensures revenue visibility for the next five years.

“While we maintain our estimates unchanged, we believe that this order not only ensures longer revenue visibility but also reduces the delivery growth risk in the coming years,” XP pointed out.

  • By Cristian Favaro, Bruna Furlani e Felipe Laurence — São Paulo
  • Source: Valor International
  • https://valorinternational.globo.com/
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States increasingly resort to sales tax hikes

Governors raise general tax rate in an effort to recover revenue losses

02/03/2025

The movement to increase the general rate of the sales tax ICMS, Brazil’s main consumption tax, is not yet over. The average tax rate, which was 17.61% in 2022, is set to rise to 19.24% by 2025. This calculation includes all 26 states and the Federal District (Brasília), along with ICMS hikes approved in 2024 that will take effect by April this year in the states of Rio Grande do Norte, Piauí, and Maranhão. The trend of increasing rates began in 2022, and since then, at least 18 states and the Federal District have raised the ICMS rate at least once.

The highest standard ICMS rate, which was 18% in 2022, will increase to 23% starting February 23 of this year when the law raising the tax in Maranhão takes effect. With a five percentage point increase applied gradually since 2022, Maranhão’s ICMS has risen the most during this period, followed by Piauí’s tax, which will be 22.5% from April this year, up from 18% in 2022. States such as Amapá, Espírito Santo, Minas Gerais, Mato Grosso, Mato Grosso do Sul, Rio Grande do Sul, Santa Catarina, and São Paulo have not increased the standard ICMS rate since 2022.

In some cases, there have been attempts to raise the tax. For instance, the government of Rio Grande do Sul tried to pass a law in 2023 to ensure a higher rate in 2024 but withdrew the proposal. In the face of strong political opposition, Governor Eduardo Leite pulled back the proposal submitted to the Legislative Assembly of Rio Grande do Sul. The current modal ICMS rate for the state is 17%.

Due to the principle of annual anteriority, legislation to raise the ICMS rate must be approved in the preceding year. States also need a 90-day prior notice.

Carlos Eduardo Xavier, Secretary of Finance of Rio Grande do Norte, recalls that the state government attempted to raise the modal ICMS rate to 20% in 2023, to take effect in 2024. “The government faced a defeat in the Legislative Assembly. Last year, we managed to better organize our base and approved the 20% rate definitively.”

In 2022, the Rio Grande do Norte government increased the rate from 18% to 20%, effective for the following year, but the measure was temporary and only lasted until the end of 2023. Therefore, the modal ICMS returned to 18% last year. Among the “imperative issues” for reinstating the 20% rate, Mr. Xavier cites the need to restore revenue following the income losses since 2022.

In a statement, the Maranhão Department of Finance also said the restoration of lost revenue in 2022, when the federal government under Jair Bolsonaro imposed restrictions that reduced ICMS rates in key sectors such as electricity, fuels, and telecommunications for state revenue.

Until 2022, in most states, these activities paid ICMS above the standard or modal rate, which refers to the general rate set by states for the tax. The restrictions were introduced through Supplementary Laws 192 and 194, both in 2022. Rodrigo Spada, President of the National Association of State Tax Auditors (FEBRAFITE), said that these laws were based on precedents from the Supreme Court, which had already identified electricity and telecommunications as essential activities, exempting them from paying a higher-than-modal ICMS rate. He also said that fuels were included in the laws as well at a time when efforts were being made to combat inflation. At that time, gasoline and diesel prices followed the sharp rise in oil prices in 2022, shortly after Russia invaded Ukraine in the early months of that year.

This set of measures, Mr. Spada said, also resulted in a change in ICMS collection on fuels, shifting to the “ad rem” model, with a specific value per liter—for gasoline and diesel—and per kilogram for cooking gas, rather than applying the rate to prices.

According to the Maranhão Department of Finance, the restrictions on ICMS rates resulted in a monthly revenue reduction of approximately R$200 million. Despite cuts in costs and departmental budgets, a note from the state’s Finance Department said it was necessary to adjust ICMS rates to partially offset revenue deficits. The tax, which was 18% in 2022, rose to 20% during 2023, advanced to 22% in 2024, and will increase by another percentage point to 23% in February. “With the rate adjustment and improvements in the tax system, Maranhão’s revenue, when adjusted for inflation, will surpass the levels reached in 2022, allowing the state to make investments in infrastructure and finance public policies and social programs,” said the Maranhão Department of Finance.

Renata dos Santos, the Secretary of Finance for Alagoas, said that the state experienced “strong” revenue in 2023 and 2024 due to economic dynamism and law enforcement. In 2023, she recalls, a special tax installment program also boosted income. This performance, she said, contributed to the state not proceeding with rate increases. The Alagoas government raised the modal ICMS rate during 2023 from 17% to 19%, based on a 2022 law. Since then, there has been no increase in the modal rate. “There’s also a limit to taxing. When you tax too much, you end up increasing evasion,” she said. “Currently, there are no plans to raise the rate, but that depends on how ICMS revenue behaves this year. There are uncertainties about economic activity.”

Ms. Santos noted that the state, in addition to the 19% modal ICMS, has an additional 1% for the Poverty Eradication Fund (FECOEP). In Alagoas, she said, this additional charge has a broader base than in most states. For this reason, according to Ms. Santos, the state’s effective ICMS rate can be considered as 20%.

Helena Sayuri Roveri, a tax consultancy manager at Becomex, said that the additional FECOEP charge is levied by many states, but has a broader base in three of them: besides Alagoas with 1%, Rio de Janeiro with 2%, and Sergipe with 1%.

There are also other specific situations, Ms. Roveri noted. In Santa Catarina, she said, the general rate is 17%. However, internal operations in the state are taxed at 12% when conducted between taxpayers for goods intended for resale or manufacturing. This, she said, is a strategy to compete with the interstate ICMS rate of 12% and encourage companies to keep suppliers within the state.

According to the Secretary of Finance of Alagoas, even without an ICMS rate increase, the second half of the current term also comes with caution. A plan is being developed, she said, not only to boost revenue but also to cut expenses. “We’re studying contract revisions but without making blind cuts.” The idea, she said, is to analyze expenses “point by point,” evaluating travel and event costs, for example. “Expenses always need trimming,” she said. The aim is to ensure resources so that the government can fulfill investment promises made during the campaign.

According to Ms. Santos, ICMS revenue in Alagoas increased by 16% nominally in 2024, well above the 4.83% inflation rate measured by the IPCA. For 2025, she uses conservative projections and anticipates stability in real terms for federal transfers from the State Participation Fund (FPE). She projects a real increase of about 2% for ICMS revenue.

With the highest ICMS revenue in the country, São Paulo maintained the standard tax rate of 18%. Samuel Kinoshita, the São Paulo Secretary of Finance, said the government’s choice was to pursue other measures. He mentions the “Direção Certa” program, which includes cost containment, incentives for tax compliance, and a review of ICMS benefits. The state’s tax revenue grew by 8.2% in real terms in 2024 compared to the previous year, while there was an 8% decline in 2023.

*By Marta Watanabe — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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