If a politician is named for Treasury, even a pragmatic one, there may be an adjustment in assets, CIO at WHG says

11/07/2022 9:37PM  Updated 16 hours ago

Andrew Reider — Foto: Leonardo Rodrigues/Divulgação

Andrew Reider — Foto: Leonardo Rodrigues/Divulgação

The nomination of a pro-market Finance Minister in the next Luiz Inácio Lula da Silva’s administration, such as Arminio Fraga, Pérsio Arida, or, especially, Henrique Meirelles, is becoming a growing expectation in the market, and anything different from that may be enough to put pressure on Brazilian assets. The statement is from Andrew Reider, chief investment officer at Wealth High Governance (WHG).

In an interview with Valor, he said that investors have worked with three different scenarios about the profile of those who may occupy the ministry. The first is that of ideological politicians, and the second is of more pragmatic politicians, such as senator-elect Wellington Dias (Workers’ Party, PT, of Piauí), governor of Bahia Rui Costa (PT, of Bahia), and former minister Alexandre Padilha; and the third of names closer to the market.

“It seems that the chance of being an ideological politician is migrating to zero. The pragmatic politician was the consensus until a few weeks ago, but the view that it could be someone from the pro-market group is growing,” he says. “During the [past] week this has increased with Henrique Meirelles appearing a lot since he participated in an event with Lula.”

Given this expectation, Mr. Reider says, if a minister from the group of pragmatic politicians is ultimately announced, Brazilian assets tend to fall. This fall tends to be moderate, but, for the executive, the intensity may vary according to the team that will be in charge of the Treasury. “If they are several technicians, reproducing the first Lula government, it would be ok, but still a little worse than the dream the market embarked on in the last few days,” he says.

The executive recalls, however, that the global scenario also influences the performance of assets.

In case Mr. Meirelles — former Finance Minister and former president of the Central Bank — is chosen, the manager sees “the market will be a little more bullish, but not much.” In the case of an unlikely name, such as Fraga, former president of the Central Bank, Mr. Reider sees a chance for investors to get excited. “But you would have to see what the minister would say at the beginning, what would be the priorities,” he says.

According to the WHG executive, the choice of the Treasury is important for signaling what can be expected from the next government in the fiscal field. “There is talk of an increase in spending of R$100 billion to R$200 billion. A number above R$200 billion would be very frowned upon.”

While local investors are focused on the fiscal issue, foreign investors monitor inflation and when the Central Bank will have room to cut interest rates. “The two converge because if the fiscal is moderate and inflation falls, there is room to cut interest rates,” he says.

Investors abroad have already received a positive signal after the election. “The fear was that there would be something more disruptive,” he says. “In practice, I think what happened showed the strength of our institutions, with [Vice President Hamilton] Mourão and Tarcísio [de Freitas, governor-elect of São Paulo] recognizing the result immediately.”

According to the executive, foreigners see that there is a turn to the left in Latin America, with a risk of institutional rupture in some countries, but they saw that Brazil is different. “For them, this has value, although it was already expected by local investors,” he says.

Mr. Reider says Brazil was already an option for foreigners because of the several crises around the world, such as inflation and rising interest rates in the United States, lower growth in China, and the war in Ukraine. “Latin America ends up being good for a global allocator. And most countries in the region have had very anti-market elections and anti-market policies,” he says. “That leaves Brazil and maybe Mexico, which could benefit.”

*By Augusto Decker — São Paulo

Source: Valor International

Monetary policy slows GDP from July, but new fiscal stimuli kick in


After positive surprises with activity in the first half of the year, the Brazilian economy enters the second half of 2022 under low visibility. Since the data from the beginning of the year started coming in better than expected, analysts expected that starting in July activity would start to feel the monetary tightening in a more relevant way, slowing down. This view holds, but with the strong recovery in the labor market and the forecast of further fiscal stimuli by the government, projections of GDP contraction at the margin have been pushed from the third quarter to the fourth quarter or even to 2023.

The turn of 2021 to 2022 was marked by a general drop in projections for GDP this year, notes Santander, recalling that the median reported in the Focus survey reached 0.25% on January 20. The perception was that real interest rates had entered the restrictive field, imposing tepid activity in the first half, still sustained by the recovery of services and records in agriculture, but contractions from then on.

Since then, figures for the agricultural sector have been revised downwards, but in services, even though the omicron variant wave has postponed consolidation, expectations have even been exceeded. The sector’s contribution to GDP in the first half of the year is strong, especially in those segments most dependent on the normalization of mobility.

But even assets-related areas, such as industry and retail sales, brought positive surprises, economists note. For Santander, the continued increase in household consumption has reflected spending of savings accumulated during the worst moments of the health crisis, the expansion of the real total wage bill – in the wake of the recovery in the labor market, and the increase in government transfers – and the support for credit concession.

Santander projects 0.2% growth for the second-quarter GDP, after a 1% rise in the first quarter, but the bank’s monitor indicates that this number is higher, around 0.5%, “which implies upside risks to our annual projection,” say economists Lucas Maynard and Gabriel Couto. Santander, which was already on a more optimistic side by estimating a 0.7% growth for the GDP in 2022, now expects 1.2%.

Débora Nogueira, the chief economist at Tenax Capital, recently adjusted her projection for the GDP in the second quarter to 0.7% from 0.4%, because she says she continues “to see strong data at the end”. For her, the numbers from the labor market in April, when the quarterly unemployment rate dropped to 10.5% (it is now at 9.8%), were “a great watershed”. In addition, she mentions the resilience of credit, especially to individuals, and the fiscal stimuli of the period.

“The question was how the shock, positive for Brazil, of the terms of trade [ratio between prices of exports and imports] was going to impact the economy, how this wealth would spread. It is being by the fiscal way,” she says. The authorization to withdraw money from Workers’ Severance Fund (FGTS) accounts alone, for example, added 0.3 percentage points to its projection for the year’s GDP, now at 2.2%.

The increase in disposable income in the second quarter also made BRCG Consultoria raise its GDP forecast for the period and the year, which went to 1.1%. But the second semester “is complicated,” says Livio Ribeiro, partner at BRCG.

The consumption of goods and services should decelerate in the second half of the year, while the total wage bill should “drift sideways,” says Santander. “If, on the one hand, employment performed better than we expected, on the other hand, inflationary surprises eroded real income even more than our scenario initially considered,” Messrs. Maynard and Couto point out. What can give support to the economy, they say, are less cyclical sectors linked to commodities and longer cycle sectors, which take longer to feel the rise in interest rates, such as construction.

Santander estimated that the upward shock in commodity prices due to the war in Ukraine pushed the risk of contraction of the Brazilian economy from the third to the fourth quarter. The bank’s respective projections are for a stable GDP and then a 0.4% contraction, versus the previous estimate of two 0.3% declines.

Tenax does not expect GDP contraction in any quarter of the second half, but highs of 0.3%. “Before, we had the fourth quarter negative. Now, we think that, with the fiscal environment and the carryover on the labor market, it will no longer be so,” says Ms. Nogueira.

Marcelo Toledo — Foto: Ana Paula Paiva/Valor

Marcelo Toledo — Foto: Ana Paula Paiva/Valor

Even if the GDP slows down in the second semester and the creation of job openings follows this movement, the unemployment rate will probably continue to fall in the period, says Marcelo Toledo, chief economist at Bradesco Asset Management (Bram).

In addition, according to him, the fiscal impulses under discussion at the moment – such as tax cuts and an increase in the cash-transfer program Auxílio Brasil – naturally lead to an upward revision of activity in the second half of the year.

“You have to wait for the outcome, but the drop in [sales tax] ICMS represents an increase in disposable income,” he exemplifies. Bram had projections of quarterly GDP closer to stability in the second half of the year; now, a slight growth is possible, according to Ms. Toledo. “We still see an upward bias in this projection of 1.9% for 2022,” he says.

On the other hand, in the second semester, the “post-pandemic” reopening effects on the activity may be practically exhausted, at the same time that the world, which had a positive contribution to Brazil’s growth in the first semester, may operate in neutrality, Mr. Toledo points out.

By Anaïs Fernandes — São Paulo

Source: Valor International

Less than 25% of the economic analysts consulted for the Focus survey of market expectations believe that the Central Bank’s Monetary Policy Committee (Copom) will end the monetary tightening cycle this week.

This is what the map of the distribution of market expectations, released by the monetary authority, shows. Less than 25% of economic analysts believe that the Selic, Brazil’s benchmark interest rate, will end the year between 12% and 13% per year.

The Copom will release its monetary policy decision on Wednesday and it is expected to raise the Selic to 12.75% per year from 11.75%, as widely signaled by the policymakers.

The question mark is whether the Copom will continue to raise interest rates in the coming meetings. In March, Central Bank President Roberto Campos Neto said that it would most likely stop at 12.75% per year. But negative surprises in the inflation indexes released since then have made analysts reinforce bets on a deeper tightening.

The map of the distributions of expectations shows that more than 70% of analysts see the Selic between 13% and 14% per year. The median expectation stands at 13.25% per year.

Besides the higher interest rate peak, analysts see a longer monetary tightening cycle. The median interest rate forecast for the end of 2023 rose to 9.25% per year from 9% last week.

The map of the distribution of expectations shows that about 50% of analysts expect an interest rate at the end of 2023 higher than 7.75% per year, with bets up to 9.25% per year. There is a large group, of about 45% of the analysts, who believe that the Selic will exceed 9.25% per year by the end of 2023, with bets as high as 10.75% per year. Around 5% of analysts think that the interest rate will exceed 10.75% per year.

The revision of bets on the size and duration of the monetary tightening cycle is linked to the faster current inflation and higher market expectations for the price index.

Last week, the median of the analysts’ projections for Brazil’s official inflation index IPCA in 2023 rose to 4.1% from 4%. Thus, it is getting further and further away from the target for the year, of 3.25%, which is today the central target of monetary policy decisions.

Only something like 5% of analysts project inflation around the 2023 target, ranging between 2.88% and 3.48%. In March, the Central Bank projected that inflation would reach the 3.25% target, but these calculations are increasingly questioned by private-sector analysts.

Some 45% of analysts project inflation between 3.48% and 4.08%. In addition, 45% of analysts forecast inflation between 4.08% and 4.68%.

Source: Valor International

The combination of high interest rates and income-eroding inflation means a very favorable environment for nonperforming loans, both from individuals and companies. The figures do not confirm a substantial advance for now, which can be explained by the efforts by banks to renegotiate with their clients and give them more time or even a grace period to pay debts. Yet, several market players say the warning is blaring.

Defaults were previously expected to end this year very close to the level seen before the pandemic. Now there are concerns that they will rise substantially beyond that. At this beginning of the cycle, defaults affect first the low-income population and riskier lines of credit, such as the revolving credit card.

The latest available data provided by the Central Bank shows that defaults on non-earmarked loans, both for individuals and businesses, rose to 4.6% in January. The data is quite outdated because a strike prevented the monetary authority from releasing the credit statistics for February. Yet, even as there was growth, the figures show that the default rate is still far from the level seen before the pandemic, of 5.6%.

Those who follow the market believe that the default rate will continue to rise this year but, right now, it is difficult to predict at what pace. Experts acknowledge that the current macroeconomic scenario is a great challenge for the models. Brazil’s benchmark interest rate Selic is rising more than expected – the market already foresees a policy rate between 13% and 14% a year at the end of the tightening cycle, compared with 11.75 % now – while inflation faces even more pressure as the Russia-Ukraine war weighs on commodities prices. This impacts the population’s income and the ability of companies to generate revenue.

The banks’ hands-on approach to renegotiations prevented the most pessimistic forecasts from materializing, said Flávio Esteves Calife, the chief economist at Boa Vista. He recalled that the rate of nonperforming loans was expected to skyrocket when social distancing measures were put in place back in 2020. “That didn’t happen. The curve flattened instead: defaults didn’t skyrocket, but they spread.”

Banks are still negotiating with clients who signaled that they will not be able to pay loans on time, which helps to limit, if not totally avoid, the advance of defaults. Boa Vista’s figures, which include clients with payments in arrears, including those of credit cards, suggest that the number of defaulters rose 5.1% in March compared to February (seasonally adjusted data). In the first quarter, there was a 9.2% year-over-year growth, or a 6.7% increase compared with the fourth quarter of 2021.

“There is pent-up default and that is why we think it will grow gradually over the coming months and also in 2023,” Mr. Calife said. In the revolving credit card segment, the default rate is already at 36.2%, the highest since October 2020. “The default rate will grow. It remains to be seen how fast. Contracts paused during the pandemic turned into nonperforming loans [with at least 90 days in arrears] in the first quarter,” said Michael Burt, an analyst at LCA.

In March, credit bureau Serasa held a large event aimed at people with a bad credit score and encouraged 3.3 million agreements with a combined discount of R$5.7 billion. The company saw a 0.54% increase in the number of indebted people from January to February, to 65.17 million people, the highest since May 2020. The main debts are: bank/credit card (28.6%), utility bills (23.2%) and retail (12.5%).

“Inflation has eroded purchasing power, especially among low-income people, and this directly affects the default rate. The first thing they stop paying is the credit card because they need to prioritize utility bills and buy food,” said Matheus Moura, a manager at Serasa.

Isabela Tavares, an economist at Tendências Consultoria Integrada, said that the bank’s very active renegotiation drive has slowed down growth in defaults. For this reason, she projects that defaults on non-earmarked loans will remain below the levels seen before the pandemic: 4.7% among individuals and 2.1% among companies. In February 2020, these rates were 5.1% and 2.3%, respectively. A recent survey by the Brazilian Federation of Banks (Febraban) with its members found that the projection for default in free credit at the end of this year increased to 4% from 3.7%.

However, Ms. Tavares stressed that the data changes according to the income bracket. In December 2021, the default rate among households earning up to two minimum wages (R$2.424) a month was 4.87%, compared to 4.03% in the same period in 2020. The default rate among those earning more than 20 minimum wages (R$ 24.240) a month fell to 0.5% from 0.71%. “The scenario is very risky, and the delay in updating the Central Bank data may bring some surprises,” she said.

Felipe Salgueiro, a partner at Multiplica Capital and head of special credits and nonperforming loans, said that “we have not yet realized the default caused by the pandemic.” Banks have moved ahead of potential delays from customers, both individuals and companies, and made renegotiations, extending deadlines or even offering grace periods for the payment of debts, he said. This effort cushioned the crippling effects of the pandemic on the economy. But the impact is expected to be seen clearly in the form of defaults during the second half of this year and in 2023. “Banks are clearing out their stock of distressed loans to prepare for the new stock of distressed loans that is being created,” he said.

Guilherme Ferreira — Foto: Silvia Zamboni/Valor
Guilherme Ferreira — Foto: Silvia Zamboni/Valor

This more complex credit environment is likely to make banks more selective. And, on the other hand, it will further heat up the activity of distressed asset managers, who have already been expanding their portfolios in recent years. According to Guilherme Ferreira, a partner at Jive Investments, sales of distressed portfolios – including both non-performing loans and those seen as likely to become non-performing – are expected to range from R$40 billion to R$60 billion this year. In 2021, they ranged between R$25 billion and R$45 billion, including banks and other financial firms.

Mr. Ferreira links the beefed-up portfolios of loans in arrears to the economic backdrop of low growth, high unemployment and political instability. At the same time, high inflation shrinks the margin of companies and the disposable income of households. “Companies don’t have now the time they had when the Selic was at 2%,” Mr. Ferreira said. “Many will have a hard time paying off their debts.”

This greater supply of portfolios of outstanding loans was noticed by Strategi Capital, an asset manager focused on alternative and illiquid investments. According to founder Cristian Lara, the company had planned to allocate all the R$75 million raised by its new fund over the next two years. But in the first quarter of this year, the fund has already allocated 25%. “If we continue at this pace, we will have almost 100% of the capital invested in the first year.”

Source: Valor International

What are the benefits of moving abroad

The flight of Brazilians to other countries, especially to the United States, gained strength last year, with the worsening of the economic crisis in the country and the permission of people vaccinated against Covid-19 to go abroad.

In 2021, 17% of the Brazilians who left the country did not return, the highest number in the Federal Police survey, which began in 2010, when 7% of those who had left did not return. In 2019, that portion was 5%.

According to the Ministry of Justice’s International Migration Observatory (Obmigra), the continued negative balance of the movement of Brazilians and migrants residing in the country has proven to be “structural”.

This scenario is also confirmed by data on remittances from abroad to Brazil, deportations, and detentions at the U.S. border, which hit a record high last year.

Part of this flow continues to be people with low education who use illegal schemes to cross overland from Mexico to the U.S.

But, although more numerous, those Brazilians who pay for the services of coyotes to complete the crossing are only part of the picture of emigration. In recent years, and especially with the improvement of the pandemic, the number of professionals and families seeking American visas, to undertake or continue studies, has also increased.

Antônio Tadeu de Oliveira, Obmigra’s statistics coordinator, says that the large number of arrests of Brazilians at the U.S. border reinforces the perception of the occurrence of negative migratory balances, i.e., more Brazilians leaving the country.

“From 2012 to now, when the economic scenario worsens, we start to see this movement of outflows outweighing inflows,” says Mr. Oliveira. According to him, this is reinforced when we look at data from the Federal Police and the Federal Revenue (of people who stopped income to deliver their income tax returns in Brazil), as well as the number of arrests and deportations, and the increase in remittances sent from Brazilians living abroad. He notes the U.S. is the main destination for Brazilian emigration.

“With the pandemic, there were border closures and reduced flow. But what we have seen now is people here seeking opportunities in other countries. Not only Brazilians, but also foreigners,” he continues.

One of the signs of the increased flow of migrants, the number of arrests of Brazilians attempting to enter the U.S. hit a record last year. The average daily number of arrests of Brazilians at the border rose to 148.8 in 2021 in fiscal year 2021 (October 2020 to September 2021) and 18.6 in 2020 from 49.3 in 2019, according to data from the U.S. Customs and Border Protection (CBP).

In a December report, CBP said that arrests skyrocketed in fiscal year 2021 for countries that historically have not been common sources of migration at the U.S.-Mexico border, highlighting Brazilians and Ecuadorians, for example.

Brazilians ranked sixth among nationalities detained in 2021 by the CBP. The figures coincide with the number of Brazilians deported from abroad, which is the highest in a decade. In 2011 there were 2,721 Brazilians deported. In 2019 there were 2,348, slowing to 1,586 in 2020. Last year, however, the number grew to 2,449.

Sociologist Sueli Siqueira, a specialist in the migration of Brazilians to the U.S. at the Vale do Rio Doce University, says that the profile of today’s migrant is different from that of previous decades.

In the past, the most common thing was adults traveling alone and looking for ways where they could not be noticed by the police. Today, whole families migrate and want to be noticed by the authorities.

“Now they turn themselves in, as if they were falling, which gave rise to the name ‘cai cai’ [falling] for the agents or coyotes who make this crossing possible,” says Ms. Siqueira. “Since they are with children, they are detained, but no longer separated, as was the case under [former U.S. President Donald] Trump. A date is set to present themselves to U.S. immigration and they are given an ankle monitor or cell phone [by which they are monitored]. Sometimes the deadline to report is quite long and it gives them time to settle down and get a house, a job.”

She adds that not only are whole families migrating nowadays, but the intention is to go and not come back.

“They are entire families, with children, mother and mother-in-law, who close their homes and have no intention of returning. Before they migrated, earned money, and came back. There was the idea of returning and sending remittances to relatives. Today, the intention is to migrate with the whole family and not return,” she says.

Even with this change, the amount of remittances sent by Brazilians living abroad has been growing, especially those from the U.S.

According to Central Bank data, total international remittances sent from Brazilians living abroad to Brazil rose to $3.8 billion in 2021 and $3.3 billion in 2020 from $2.9 billion in 2019. Of the $500 million more sent last year, compared to 2020, over $450 million came from the U.S.

The U.S. tops the ranking of countries of origin of remittances to Brazil. In 2021, more than $2 billion left the U.S., 28.9% more than the previous year. The UK came second, followed by Portugal, Switzerland, and Spain.

Maxine Margolis, anthropologist at the University of Florida and author of the books “An Invisible Minority: Brazilians in New York City” (2009) and “Goodbye Brazil: Brazilian Emigrants in the World” (2013), says that more than the desire to enter the U.S., today there is a strong desire to leave Brazil.

“There was a feeling among many Brazilians that, with [President Jair] Bolsonaro, things would get much better. But the economy is not going well, and many have lost confidence,” she says, remembering that a Brazilian earns in one week doing cleaning in New York what he would earn in four weeks working in Brazil.

Source: Valor International

Desemprego elevado é um dos maiores desafios do Brasil após crise sanitária

The unemployment rate in Brazil reached 11.2 percent in the mobile quarter encompassing December 2021 through February this year. The index is lower than in the quarter ended in November (11.6%) and in the one ended in February last year (14.6%).

The figures can be found in the Continuous PNAD (National Household Sample Survey), released today (Mar. 31) by the Brazil’s official statistics agency IBGE.

The jobless also declined in number to 12 million in the quarter ended in February, down 3.1 percent from the previous quarter (ended in November), or 389 thousand fewer people. Compared to the same quarter last year (ended in February 2021), the drop was 19.5 percent, 2.9 million fewer people.

The employed population (95.2 million) remained stable from the previous quarter, but rose 9.1 percent against the same quarter last year.

Source: Agência Brasil

Claudio Considera — Foto: Leo Pinheiro/Valor
Claudio Considera — Foto: Leo Pinheiro/Valor

The economic activity fell 1.4% in January compared to December, according to GDP Monitor — an indicator calculated by think tank Fundação Getulio Vargas (FGV) to measure the monthly evolution of the economy, unveiled on Monday.

Claudio Considera, the economist in charge of the readings, says that the result indicates stagnation in the economic activity in early 2022. This is because there are no signs of robust reaction in key segments of the economy, such as household consumption and services economy — the latter representing more than 70% of the GDP.

According to him, Brazil does not have, at the moment, conditions for sustainable growth this year, and is expected to end up with a variation close to zero in the GDP in 2022, compared to last year. “We have today a perfect picture of a totally stagnant economy,” the specialist said.

FGV also unveiled that, in the GDP Monitor, the economy grew 1% in the moving quarter ended in January, compared to the one ended in October 2021. Compared to January last year, the economy grew 1.2% in January this year, with expansion of 2% in the quarter ending in January, compared to the same period in the previous year.

Mr. Considera said, however, that those increases are favored by the low base of comparison, referring to last year, and do not represent the economy accelerating at the beginning of 2022.

This is because the faster advance of vaccination against Covid-19 only happened in mid-2021, when the gradual reopening of the economy began to take place, as people went back to work and restrictions on circulation were eased. Immunization against the disease started in Brazil only in January last year — a month in which the economy, especially in the commerce and service sectors, was operating at a weak pace, hampered by the pandemic, and was strongly affected by social distancing measures designed to contain contagion.

On the demand side, one factor that help form the current moment of weaker activity is the weakening of household consumption at the beginning of the year, Mr. Considera said. In the GDP Monitor, in January, household consumption fell 1.3% compared to December last year.

There was an increase of 2.2% compared to January 2021, but the analyst said that the use of a low base of comparison influenced upwards the high results seen in the indicator in January 2022. In the moving quarter ended in January versus the one ended in October, household consumption grew only 0.8%.

“Household consumption is falling, and now with higher inflation it will be even harder to grow,” he noted, adding that higher inflation leads to lower real household income. “We are not seeing any sign of improvement [in family consumption],” he said.

Another aspect Mr. Considera mentioned was the Russia-Ukraine war, which has led to a surge in the price of oil abroad and to increases in fuels in Brazil. As long as the war goes on, the price of a barrel of oil in the foreign market may remain high, making prices soar in the Brazilian domestic market, he said.

On the demand side, the services sector is not showing good signs on the margin either. In January, this activity fell 1.7% compared to December last year in the GDP Monitor.

According to Mr. Considera, the factors at the moment indicate that the country does not show the necessary conditions to grow above 1% a year in 2022. “I don’t see conditions to strongly grow this year. We are expected to have a very weak growth of 0.6%, 0.7% [in the 2022 GDP],” he said.

Source: Valor International

What is Gross Domestic Product, and what does it measure?

The Brazilian economy is expected to have closed 2021 at a faster pace in November and December, offsetting the weak performance in October. In the year, GDP growth is expected to have reached 4.5%, after the 3.9% drop with the pandemic in 2020.

For this year, expectations still tend to shape in the coming days depending on the evolution and consequences of the war waged by Russia against Ukraine. One reading is that the pattern of last year will be repeated in Brazil: growth concentrated in the first quarter, but with the GDP ending the year much weaker. Another reading, which can take shape, is that the conflict will undermine the drive expected for activity at the beginning of the year.

A survey by Valor with 67 financial and consultancy firms shows a median projection of 0.2% GDP growth in the fourth quarter of 2021, compared to the immediately previous three months, seasonally adjusted. In the second and third quarters, there were drops by 0.4% and 0.1%, respectively.

On the supply side, agriculture is expected to grow 6.1% from October to December 2021, but the sector has seen significant declines in previous quarters, explained by adverse weather events and harvest losses, which will still make the agriculture GDP fall 0.2% in the year, analysts estimate.

Industry even managed to grow in December, but it is unlikely to be enough to prevent a 1.5% contraction in the fourth quarter of 2021, compared to the third quarter, according to estimates. The industry suffered throughout the year with bottlenecks in global production chains. Still, after contracting 3.4% in 2020, it is expected to increase by 4.4% in 2021.

More sustained growth, however, must come from services. While the sector may slow down from a 1.1% rise in the third quarter to a 0.2% rise in the fourth, according to projections, it would end 2021 up 4.6%, after a drop of 4.3% in the previous year. “A good part of this fourth quarter result is supported by services, which should still follow in pace of recovery with vaccination. But for the rest, it’s an very weak picture,” said Marcos Ross, chief economist at Haitong. He sees GDP up 0.3% in the fourth quarter of 2021.

On demand side, in the last three months of 2021, only government consumption (up 0.4% from the third quarter) and imports (1.8%) are seen as not contracting. Gross fixed capital formation (GFCF, a measure of investment) is expected to fall 0.1%, while household consumption is expected to drop 0.1%, and exports to decline 2.7%. In 2021 as a whole, however, investments are expected to rise 16.6% after falling by 0.5% in 2020, while household consumption is expected to rise 3.4%, only partially recovering the 5.4% loss in the previous year.

Like Mr. Leal, Flávio Serrano, chief economist at Greenbay Investimentos, says that activity indicators in the fourth quarter reinforce the idea of exhaustion of fiscal stimuli that helped to avoid even greater losses in 2020. He sees, however, the possibility of a 0.1% contraction of GDP between October and December 2021, compared to the previous three months.

Depending on the GDP result for the fourth quarter, the change in growth forecast for last year as a whole would just be “a fine adjustment”, says Mr. Ross, with Haitong. “The things is to determine whether the growth was 4.5% or 4.6%. It even looked worse, which would be below 4.5%, but the November and December data show that perhaps it was not. But if you think about a broader discussion, it doesn’t make much difference.”

The end of 2021 is likely to leave a “statistical carryover” of 0.1% for 2022, a number that has already been negative in the economist’s accounts. “It’s a detail for the better, but it shows that there’s a growth problem yet to be solved,” says Mr. Ross. Although the December numbers have “a kind of positive feeling,” this is not a perception likely to be sustained in 2022, according to him.

The consequences of the war may prove to be a problem for Brazil, due to the potential pressure on energy and grain prices. And even though Brazil’s trade relations with Russia and Ukraine are limited, the conflict tends to weaken the pace of the economies of several countries more dependent on trade with the Russians – which would also have a secondary effect on activity in Brazil.

In addition to the potential damage of the war, 2022 had already begun under the effect of the triggering of contaminations by the omicron variant. But José Pena, chief economist of Porto Seguro Investimentos, believes that although January may have lost a little steam because of the pandemic outbreak, it was not to the point of having compromised the activity. Mr. Pena projects a GDP close to stability in the period and says he is cautious about the rest of the year.

The survey carried by Valor points to a median growth of 0.3% for the 2022 GDP. Mr. Ross projects a 0.1% rise from January to March, compared to the fourth quarter of 2021, and sees a contraction of 0.4% in the Brazilian activity this year. The effects of the monetary tightening throughout 2021 will be more evident in activity in 2022 and are expected to be boosted by high indebtedness and lower credit supply, points out Mr. Serrano, with Greenbay, who also foresees a 0.5% drop in GDP in this year.

Mr. Leal projects a 0.3% increase in GDP in the first quarter of this year, with seasonal adjustment. The same variation is estimated for the activity in 2022. But he recalls that projections for this year still do not consider possible effects of the war between Russia and Ukraine. It is still uncertain, for example, how long agricultural commodities and oil prices can stay higher, which affects global and domestic inflation. This scenario, accompanied by a devalued exchange rate due to risk aversion, can lead to a higher interest rate than expected for the year, he notes, which would further restrict activity.

Mr. Leal says he believes the peak impact of the current monetary tightening cycle on the economy is likely to happen between the second and third quarters of this year. “The question mark is the repercussion of this for the 2023 economy.”

Source: Valor International

Economia em 2021: Safra vê recuperação e crescimento após a pandemia |  Investe Safra | Valor Econômico

Abilio Diniz sees the economy as the central agenda of the candidates for the Presidency of the Republic in 2022. About to turn 85 on the 28th, when he will be traveling with his family to Aspen, Colorado, Mr. Diniz sees viability in a third way project for the country – and believes that former President Luiz Inácio Lula da Silva will move towards the center in the political spectrum. Without declaring his vote, Mr. Diniz says he will not support any candidate. Not even his son-in-law, Luiz Felipe d’Avila, from the New Party (Novo).

“I intend to analyze all the economic plans and offer my opinion about them. Bolsonaro will have Paulo Guedes [as Economy minister], Sergio Moro has Affonso Celso Pastore, who is a great name and was an awesome move [of Mr. Moro to approach him], João Doria with [Henrique] Meirelles. Lula I don’t know yet.”

Although he rarely attends political lunches and dinners, the businessman went on Friday to meet Economy Minister Paulo Guedes, who had lunch in São Paulo at an event organized by Esfera Brasil, a group created by businesspeople to discuss economic and political matters. “I went to give Guedes a hug.” Mr. Diniz is not anymore among businesspeople pessimistic about the government – “I used to publicly criticize it, but what’s the point?” – and is against the “wrong tendency of only seeing the glass as half empty.” He cites, for example, that even though Brazil is cheap on the stock exchange, companies have not lost their fundamentals.

Founder of investment holding Península and shareholder of Carrefour, Mr. Diniz saw a decade ago the beginning of a difficult merger talks between GPA and Carrefour, which fell apart, and today he analyzes the stage of the companies. He also says that the French group is analyzing global partnerships and dismisses rumors about Alexandre Bompard leaving the post of global CEO of Carrefour. Read below the main excerpts from the interview.

Valor: Did you attend Paulo Guedes’s lunch held by Esfera on Friday to support the Economy minister?

Abilio Diniz: You have to support Paulo and the people who are working for Brazil. You can say whatever you want, but they are working for the country. If they are making mistakes, maybe people make mistakes. The idea of his economic plan is consistent and was the best for Brazil at this moment. Did some things get out of control? This happens. If there is something that is going well in Brazil, it is the economy.

Valor: Do you really think so, even with the technical recession, inflation and interest rates going up?

Mr. Diniz: Inflation is high around the world and it is an inflation of costs, of supply, not of demand. It is much more difficult to work with inflation of supply. We lack inputs to produce here. And who in the world is not facing inflation problems today? Look at the United States, which just announced an [12-month] inflation of 6.7%, and the last time [it was so high] was during the oil shock a few years ago. The United States doesn’t have an indexing mechanism and exchange rate effect as we do.

Valor: But we are among the countries with the highest inflation.

Mr. Diniz: What is accelerating our inflation is our exchange rate, which is highly misaligned. The classic interest rate mechanism works, but it is not so efficient, because the problem is that supply inflation is harmful to the economy.

Valor: And why do you think the exchange rate is misaligned? Is political instability one factor?

Mr. Diniz: You formulate policy and you get the results. The macroeconomic fundamentals lead to an exchange rate that is what we call relative prices. Why do we have an exchange rate with a weakened real? By the flow, money is only going out and not coming in. The worst thing for businesspeople is a volatile exchange rate. It may stop at R$6 or R$5, but too much volatility is even worse. If we have confidence in this country, without legal insecurity, the money will come in. We will not get out of the mess we are in if we do not have GDP growth and increased productivity.

Valor: And how can Brazil grow?

Mr. Diniz: You need investment. You have to use private capital, have local capital. The world has a surplus of liquidity that can come here. We are very attractive to foreign investors.

Valor: But investors are wary of Brazil. Doesn’t the political risk scare capital away? You yourself wrote a public letter, after Jair Bolsonaro’s election, asking the president to unite the country and work for everyone. But the scenario remained turbulent. How to reassure the country?

Mr. Diniz: The past is only good for me to observe and not to make mistakes again. My concern is with the current moment. The three branches of government are in harmony at this moment, especially the Executive and the Legislative branches. We had approved [last week] the regulatory framework, which will allow investments of billions of reais in railroads, and the basic sanitation [framework] passed last year. Brazil has a very wrong tendency to see the glass as half empty. We have to see the glass as full. We had a pandemic that was extremely devastating. I did more than 70 live-streaming videos with businesspeople, with Paulo Guedes, Roberto Campos [Central Bank president], Tarcísio Gomes [Minister of Infrastructure]. I have over 2.5 million followers [in social media] and I have credibility and responsibility. I have no doubt that we have to look at the country and be more accommodating. Until the middle of the year, we had no vaccine. From June on, the vaccine started to arrive and we did a great job. SUS [Brazil’s public healthcare system] has been extraordinary in this.

ValorBut if it depended on the federal government, vaccination would not have advanced at this pace. And part of the private sector has encouraged inoculation campaigns.

Mr. Diniz: I had the vaccine and I can tell you. The private sector helped a lot. Let’s look at the results. More than 70% of the population has the first dose, more than 60% has two doses. If you look at other countries, see what is happening. We have to look at the relativity of things. We are with 10% [12-month] inflation, the U.S. with 6.7%, Europe is likely to announce 5%. They had deflation before. Let’s look a little bit better at what is happening.

Valor: How will 2022 be with global interest rates rising, the U.S. tapering stimulus and the need to regain the market’s confidence, all of this in the middle of an election year?

Mr. Diniz: We have to remember that the U.S. is a very competitive market [to investors]. Brazil is for sale. Look at the stock market and the prices of the companies, look at Carrefour, its stock has already reached R$24 and today it is around R$15. The company is the same. The assets in Brazil are highly depreciated. Capital will come. What is the point of raising interest rates in the U.S., look at the inflationary gap there. The money will start to come. Is it the money we want? We don’t want it so volatile, but it will come for the time being to help the exchange rate. Everything here is indexed to the dollar. We have to be careful with inflation because it penalizes vulnerable people, and we have to grow. When I was part of the National Monetary Council (CMN), in the 80’s, I fought all the time because I wanted growth with income distribution. I was accused of demagogy.

Valor: You say that the country is cheap, but the foreigners are not coming back yet.

Mr. Diniz: They are not coming back because they don’t feel they have legal, administrative and political security. They don’t feel secure yet, but they will. This money [from foreigners] is under pressure. They have to dig, and in Brazil you don’t have to dig very far to find it, and it is really for sale for a lot of companies, just look at the charts. Do you think that people from abroad are not seeing these prices? Companies that had a recent IPO, a health care company, fell 40% afterward. And the fundamentals of the companies are the same. Why did it drop 40%? Because the guys take money from where it is liquid, from where it can be taken. Where there is a small free float, they can’t get it out.

Valor: The problem is that a company in this situation today, even with good fundamentals, cannot tap the market, make an offering, strengthen cash reserves. Isn’t there a risk for the companies as well?

Mr. Diniz: Of course there is, especially for people who are indebted and seek capital because of this, and at the same time need to respect the covenants. But I think this is OK. The value of the companies fell a lot, but who went bankrupt? You don’t have this noise. We don’t look at this, we keep looking at what is not good.

Valor: How do you think we will see this growth? This requires government and private-sector investments, but government investments face a fiscal tightening and companies may protect their cash again.

Mr. Diniz: It is evident that you have to be careful with the fiscal issue. There has to be austerity, otherwise there will be chicken flights [growth followed by tumbles]. Last year we broke the [spending] cap. It was necessary. The [emergency] aid was extremely important. For this year, while the country is not growing, there is high unemployment, but this unemployment figure comes from 2015 and 2016, with the recession during the Rousseff administration. As long as you don’t create jobs, you have to have aid. And they say that we have gone over the spending cap. It wasn’t a flick of a switch, this was discussed. What is important now is to honor the fiscal austerity. What has been surpassed now, what has increased in relation to debt/GDP, is very little. We still are not in dire straits in this regarding.

Valor: How do you see the electoral scenario for 2022 and the expectation of a third strong candidate?

Mr. Diniz: Let’s look back a bit. Since September 7, it has been calmer. I don’t know if it is ideal, but there is less noise. I talk a lot to investors abroad, in the United States and France. Brazil has very strong, solid institutions that work. This is a guarantee for investors. At the moment, it is not ideal, but it is converging towards a greater understanding between the branches of government. What has been achieved in the Chamber of Deputies and Senate is important. Look at the railroad regulatory framework, the billions of reais announced by companies.

Valor: We must remember that the country has also been the target of criticism for environmental issues. How do you see this matter?

Mr. Diniz: At the moment, we are talking about what we have been doing, like at the global climate conference (COP 26). As soon as we prove that we are acting differently, this will change. I have no doubt that it will. People out there have to feel that we are not standing still.

Valor: Do you support the idea of a third way?

Mr. Diniz: I intend, with the credibility I have, to guide people, not to vote, but for them to think assertively about the candidates. I have no doubt that the discussion will be centered on the economy, on job generation. We have problems with education, inequality as well, but the economy will be in the foreground. I intend to get together with the people from the management company O3 Capital [which has Mr. Diniz as a partner] and analyze all the economic plans and offer my opinion about them. Bolsonaro will have Paulo Guedes [as Economy minister], Sergio Moro has Affonso Celso Pastore, who is a great name and was an awesome move [of Mr. Moro to approach him], João Doria with [Henrique] Meirelles. Lula I don’t know yet.

Valor: Mr. Lula has already said that he is against privatizations, that he could interfere with the price of gasoline. It’s a speech that doesn’t please part of the business community. Do you believe Mr. Lula can move towards the center?

Mr. Diniz: He will go to the center.

Valor: An agreement with former governor Geraldo Alckmin goes in this direction? How do you see the union between Messrs. Lula and Alckmin?

Mr. Diniz: I didn’t want to talk about people. Not even my son-in-law, Luiz Felipe d’Avila [Novo’s pre-candidate], I am going to support, and I love Felipe. I want to be independent to analyze the government plans of each candidate and be able to tell that to the people who follow me.

Valor: Do you believe in a third way?

Mr. Diniz: Of course I do. But we are a long way from the election, there are many things to happen. Moro is ahead in this group that forms the third way, but Doria can grow. I know Alckmin and Lula very well. I think they are different, but if they want to get together, that’s fine. When you put different things together, suddenly something good comes out.

Valor: Do you intend to support anyone based on your analysis of the plans of each candidate?

Mr. Diniz: I teach at FGV [Fundação Getulio Vargas], but I hardly tell my students what I am going to do. I tell facts and theories, and I cite cases and they decide. I believe in free will. The moment I support a candidate, I destroy everything. I won’t declare a vote. My intention is to analyze the plans. I spent ten years working for the government, negotiating debt abroad, helping Bresser [former Minister Luiz Carlos Bresser-Pereira] to negotiate, but I never did anything, if I hadn’t been there, they would have negotiated the same way. I gave ten years there, my lost decade. Now I think I give a bigger contribution now.

Valor: Since the last elections we have seen businesspeople taking a stance, but there is still criticism that there is a timid involvement.

Mr. Diniz: All businesspeople want the same thing: growth, legal security, stability. They don’t want noise, so they can work. They want peace of mind. I don’t like to classify myself only as a businessman and stop thinking about other segments of society. I learned a lot in this pandemic about the vulnerable. I went to Heliópolis [in the city of São Paulo], walked around the slum, I was surprised with the organization. It makes me want to call the people to work with me.

Valor: Minister Paulo Guedes has been criticized a lot in the financial market. The tax and administrative reforms did not work. What went wrong?

Mr. Diniz: Paulo made a plan with the Executive branch, but then to take it to the Legislative branch is another matter. We got the pension reform, but we had a hard time getting the Executive to work with the Legislative. Any president who comes will not have unanimity in Congress and will have to know how to work there. Some of the great problems we live in today come from the 1988 Constitution. We already knew that many things that were put there would bring problems. This environmental issue, many barriers come from the Constitution. When Arthur [Lira, Chamber of Deputies speaker] and Rodrigo [Pacheco, president of the Senate] were elected, a period of understanding began and it has been moving forward.

Valor: How do you see the government’s alliance with the Centrão [a cluster of center-to-right parties]?

Mr. Diniz: In every country in the world, you have to have a harmonious relationship between the Executive and the Legislative branches. If it is Centrão, left-wing or right-wing groups of parties, it doesn’t matter, you have to know how to work. Many of the demands of Congress are legitimate. You have to know how to negotiate. I see a greater understanding, and suddenly next year the administrative reform will come out. But I think that the tax reform is unlikely to pass next year because it involves states. I believe that the tax reform will be a reality in 2023 and the president-elect will have to attack it right away. But I understand that whatever the president is, he has to work with Arthur and Rodrigo. They are criticized, but they are doing it. I’ve learned that you don’t fight with the government. If you want to interfere, be close. Before I went around criticizing, what good did it do? Nothing. I think you have to stay close.

Valor: There is a movement of large retailers to unite, and Carrefour is studying partnerships and associations. In October, the group said that the negotiation with the French Auchan did not move forward. Why does Carrefour seek these agreements?

Mr. Diniz: Why, when I was at GPA, did I look for opportunities? Because you need to grow. Or the people who are with you don’t have opportunities. Why did we open O3’s capital to investors? To keep people. That’s why we are searching. We don’t need to, but we look for opportunities.

Valor: There is a lot of information in the market about the possibility of the exit of Alexandre Bompard, Carrefour’s global CEO, and that he himself is studying new paths. Can the group change its command?

Mr. Diniz: On November 9, I was in France, in a presentation about actions we are taking regarding online shopping. This is the path, we are going to transform Carrefour here and there. BIG is coming now [the chain acquired this year in Brazil] and there are synergies in between. About Bompard, he is a young guy, intelligent and absurdly committed to digital. What they presented in France is impressive. But they are plans, and they have to convert into reality. You have to transform the culture. It is easier to go from digital to physical, like Amazon and Alibaba, than from physical to digital, like us.

Valor:It’s just that, after the departure of Bernard Arnault, who sold his shares in Carrefour in September, there are rumors that there are partners in favor of changes in the global management…

Mr. Diniz: My opinion, already externalized, is that Bompard is absolutely committed. Mainly with the implementation of digital. And I am very satisfied with the management in Brazil, the new CEO is very good, he has a clear head. Bompard is excellent, I feel a certain satisfaction to work in France for the global business. And about Arnault, he had almost nothing [in shares], and compared with the total equity, he hardly knew what it was.

Valor: Ten years ago, the plan for a GPA and Carrefour merger failed. Your relationship with Jean-Charles Nouri, CEO of Casino, a partner in GPA, is calmer and more cordial. Is there still room for a global agreement between Carrefour and Casino?

Mr. Diniz: There is room for Carrefour, Casino, Metro [German group], there is room for everything.

Valor: Today, we saw GPA spinning off Assaí and closing Extra. Carrefour, on the other hand, has integrated businesses and is buying assets. But both have similar market capitalization, if we consider GPA and Assaí. Are the companies following different paths?

Mr. Diniz: They are different managements at the top. Casino’s management is a strategist, seeking to maximize value. It separates, puts Éxito [Colombian group] inside GPA, they are more financial moves. We have a more consistent line, working silently, on the day-to-day operation.

Source: Valor international

Three decades of increased schooling had profound impacts on the Brazilian economy, helping to reduce informality and raise workers’ income. Without the universalization of public schools’ enrollments from 1990 onwards, Brazil would today have even more people in informal jobs, with salaries virtually stagnant, a study by the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV) found.

According to the survey, the informality rate in Brazil was 56.4% in 1992 and, despite the recent deterioration, the long-term trajectory maintained a downward trend, to 47% last year. But if the workforce had today the same number of years of schooling as 30 years ago, the figure would have jumped to 62.8% in the meantime, according to a simulation by FGV Ibre. The calculation considers workers without a formal contract, self-employed ones and those who help relatives without remuneration.

From 1992 to 2020, the average schooling time of the employed population in Brazil went to just over 11 years from 6.5 years. In other words, on average, workers today reach the market with at least incomplete secondary education. Before, they didn’t even advance much beyond the early years of elementary school.

Fernando de Holanda Barbosa Filho — Foto: Silvia Costanti/Valor

Fernando de Holanda Barbosa Filho — Foto: Silvia Costanti/Valor

“Despite criticisms about the lower-than-expected return on educational investments, the [expansion of] education had a substantial impact on the Brazilian economy,” said Fernando de Holanda Barbosa Filho, a researcher at FGV/Ibre and co-author of the study. “Informality dropped in Brazil because the quality of labor improved. The greater the participation of more educated people, structurally speaking, the lower the informality,” he said.

Data from national and international assessments show that the learning of Brazilian students still has a long way to go to match the level of cutting-edge teaching nations. At the same time, the transformations in the labor market that have occurred as a result of the increase in the educational offer help to rebut the thesis of the failure of public policies in education, a narrative that has gained ground during the Bolsonaro administration.

The FGV/Ibre survey points out that people with zero to four years of education reduced, from 1992 to 2000, their participation in the labor market to less than 10% from more than 30%. At the same time, the most educated, with 12 to 15 years – therefore, at least with complete high school or incomplete higher education – went to around 40% from less than 15%. “The fact that there are more and more workers with more education has made the aggregate informality fall structurally,” said Mr. Barbosa.

Despite the beneficial effects on the economy, education is only one of the forces determining the direction of the labor market. Since the 2015 recession, there has been an increase in informality among all groups, with the exception of those who studied for up to four years. “Over time, education has deeply contributed to reduce informality. But the structural effect is incapable of facing the economic situation,” said Fernando Veloso, a researcher at FGV/Ibre.

The increase in schooling also translated into higher salaries. From 1992 to 2020, the average income from work went to just over R$2,500 from R$1,500. Without a change in the composition of the workforce, remuneration would have advanced just a little, to just over R$1,600, according to the FGV/Ibre study.

Among the variables analyzed, the unemployment rate is the only one in which the educational effect is not very significant, since the indicator is more linked to economic cycles. The level of unemployment increased to 13.5% in 2020 from 7.7% in 1992.

The rate would even be slightly lower without the improvement in educational offer, by 13.3%. But this is because the unemployment rate by educational level is usually lower at the ends (zero to four years of study and 16 years or more) and higher in the middle of the sample (5 to 8 years of study, 9 to 11 years and 12 to 15 years). “Over time, [with an increase in education] the employed population has been displaced to groups with a higher rate of unemployment,” said Paulo Peruchetti, with FGV/Ibre.

According to Mr. Barbosa, low unemployment among the less educated occurs because in this category there is a predominance of occupations that require technical skills. “These are people who are in the job market because they have some specific knowledge,” he said.

More broadly, the less educated tend to have a lower participation in the labor market, which helps to statistically reduce the unemployment rate. “The question mark that remains is why these people are not looking for a job. It is as if they were part of an almost subsistence economy,” said Luiz Guilherme Schymura, director of FGV/Ibre.

For Mr. Veloso, the low unemployment of this group suggests that the unemployment rate is not always a good barometer on the real situation of the labor market. “Vulnerability manifests itself in other ways, such as underemployment [those who would like to work longer hours but can’t],” he said.

From now on, economists estimate, education should help to reduce unemployment. “The increase in people with an average education level contributes to increasing the unemployment rate. In the next few years, this contribution tends to be in the opposite direction, reducing the unemployment rate, as we are now migrating more people to 12 to 15 years of schooling, a range in which the unemployment rate starts to fall,” said Mr. Barbosa.

Source: Valor international