Brazil’s GDP contracted 2.6% in Q2 2015 from a year earlier, worse than expected

The Brazilian GDP (Gross Domestic Product) fell by 1.9% in the second quarter of 2015 compared to the first quarter of 2015, according to IBGE (Brazilian Institute of Geography and Statistics) announced on Friday (28). On an year-over-year basis, the decline was 2.6%. The GDP in the 1st half of 2015 decreased by 2.1% compared to the same period 2014, following the negative growth of 0.4% in the six months ended in December 2014.

Analysts estimated a decline of 1.7% in the second quarter 2015 compared to the first quarter, taking into account the average of Bloomberg survey estimates. In the annual comparison basis, it was expected a drop of 2.1%.

Accumulated in the four quarters ending in the second quarter of 2015, GDP decreased by 1.2% compared to the immediately previous four quarters, also the number recorded in the accumulated result of the year until the month of June was 2.1% over the same period of 2014. In absolute number, GDP in the second quarter of 2015 reached R$ 1.43 trillion (Aprox. US$ 400 billion).

In the quarterly contraction, agriculture had contraction of 2.7%, while the industry fell by 4.3% and services showed 0.7% contraction. In industry, the largest decrease occurred in construction: a decrease of 8.4%. The manufacturing industry, with (-3.7%) and electricity activities and gas, water, sewage and urban cleaning (-1.5%) also fell in the second quarter. On the other hand, mining registered a positive variation of 0.3%.

In services; administration, health and public education (1.9%) and real estate activities (0.3%) showed positive results. The other activities suffered retraction compared to the previous quarter: trade (-3.3%), transport, storage and postal services (-2.0%), information services (-1.3%), other services (-1,0%) and financial intermediation and insurance (-0.2%).

From the perspective of expenditure, gross fixed capital formation recorded the eighth consecutive quarter of decline in this comparison: 8.1%. The households’ consumption expenditure (-2.1%) fell for the second straight quarter. However the government consumption expenditure grew by 0.7% compared to the previous quarter. In regards to the external sector, exports of goods and services increased by 3.4%, while imports of goods and services fell 8.8% in the first quarter 2015.

All components of domestic demand fell, comparing the second quarter of 2015 against the same period in 2014. The households’ consumption expenditure (-2.7%) registered the second consecutive decrease. This result can be explained by the deterioration in the inflation indicators, interest rates, credit, employment and income over the period.

The gross fixed capital formation suffered contraction of 11.9% in the second quarter of 2015, the highest since the first quarter of 1996 (-12.7%). This decline is explained mainly by the fall in imports and domestic production of capital goods, and also by the negative performance in construction, says the IBGE. The government consumption expenditure, in turn, fell 1.1% in the second quarter of 2014. In the external sector, exports of goods and services expanded by 7.5%, while imports of goods and services fell by 11.7%, both influenced by the currency devaluation of 38% in the period.

The investment rate in the second quarter 2015 was 17.8% of GDP, lower than in the same period last year (19.5%). The savings rate was 14.4% in the second quarter of 2015 (compared to 16.0% in the same period of 2014).

JBS S.A. Announces the Successful Syndication of the Financing (Term Loan) for the Acquisition of Cargill Pork Business in the United States

JBS S.A. (BM&FBOVESPA: JBSS3, OTCQX: JBSAY, “JBS” or “Company”) communicates to its shareholders and to the market in general, pursuant to CVM Instruction 358 of January 3, 2002, as amended, that on August 18, 2015, through its indirectly controlled subsidiary, JBS USA, LLC, it has successfully syndicated to the market US$1.2 billion aggregate principal amount of borrowings in the form of incremental term loans to JBS USA, LLC’s existing credit agreement (the “Incremental Term Loans”).  The Incremental Term Loans will have a final maturity of seven years from the date of the Cargill Acquisition (as defined below) and bear interest at a rate equal to the LIBOR rate plus 3.0% (with a minimum LIBOR rate of 1.0%).

The proceeds from the Incremental Term Loans will be used, together with cash on hand, to pay the consideration for the previously announced acquisition of certain assets, properties, and rights of Cargill Meats ownership in Cargill Pork LLC (the “Cargill Acquisition”).  The consummation of the Cargill Acquisition is subject to customary closing conditions, including receipt of requisite antitrust approvals.

The joint bookrunners for the financing were Credit Suisse Securities (USA) LLC, Bank of America Merrill Lynch, Pierce, Fenner & Smith Incorporated and Rabobank, New York branch.

TOTVS to acquire Bematech and create largest IT provider for retail in Latin America

TOTVS, one of the largest Brazilian IT companies, will pay R$ 467.4 million (US$ 130 million) in cash and R$ 82.5 million (US$ 24 million) in stock to buy 100% of Bematech, which specializes in automation for retailers. The operation should be voted on at a meeting of shareholders, on September 3. CADE, Brazil’s anti-trust authority has been notified. The deal is being called corporate restructuring. If it was a classic acquisition, a public offering would have to be done, explained the director of investor relations at Totvs, Douglas Furlan. Totvs already operates in retail automation, but focused on a few areas such as large discount retailers and car dealerships, for example. Now, with Bematech, the scope increases for food outside the home, hotels and building materials, among other sectors.

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Moody’s reduce Brazilian sovereign rating but stable outlook reduces chance of losing investment grade

Moody’s rating agency announced on Tuesday the downgrade of Brazil’s sovereign risk rating from ‘Baa2′ to ‘Baa3′, the lowest in the investment grade scale. Moody’s also changed the outlook from “negative” to “stable”. The market was expecting the reduction in the Brazilian rating, but there was a concern that the agency would maintain a negative outlook, which would increase the risk of the country losing its investment grade. In a report, Moody’s assessed that weaker economic performance than expected, the upward trend of government spending and the lack of political consensus on fiscal reforms will prevent the authorities to achieve high primary surpluses enough to contain and reverse the trend of debt increase this and next year.

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Bradesco confirms favoritism and acquires HSBC Brazil for US$ 5.2 Billion

Bradesco has confirmed its favoritism and, in the early hours of Monday, has formalized the acquisition of HSBC’s Brazilian operations, as highlighted by HSBC in its earnings report. The purchase was made for US$ 5.2 billion, or R$ 17.6 billion. The Brazilian central bank was notified last night of the transaction outcome. Thus, the amount to be paid by the national operation of the bank was well above the already rumored, US$ 4 billion. In recent weeks, the estimates for the business ranged between R$ 10 and R$ 12 billion.

Bradesco shares were down up to 3% on the São Paulo stock exchange today on the news.

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Copom raises interest rate in 0.5% to 14.25% per year and indicates an stable rate in the near future

As expected by the majority of the economists, the decision of the Central Bank was to raise the SELIC to 14.25% per year. The 0.5% increase is the seventh in the tightening cycle started last october.

The raise was expected because the inflation is currently at the dangerously high levels, with the IPCA, the official inflation index at 8.89% inflation accumulated in the last 12 months. The reduction in the fiscal saving target from 1.1% of the GDP to 0.15% announced last week left the hard part of the inflation combat to the monetary policy.

The monetary committee indicated, however, that the SELIC will probably remain at this level in the next meetings. “The committee understands that the maintenance of this level for the interest rate benchmark for a period long enough is necessary to bring the inflation the the target at the end of 2016”, said the central bank in its note. The Brazilian inflation target is 4.5% per year plus or minus 2%, so from: 2.5% to 6.5%.

After Two Months of Contraction, Brazilian GDP Remains Stable in May

After two months of contraction, the Brazilian economy remained stable in May. According to the metric from the Central Bank (IBC-Br), the activity had a modest rise of 0.03% in May compared with April, when it had shrunk 0.88% (revised from 0.84%), in the seasonally adjusted series.

May result was below the estimated by analysts. The average forecast suggested a high of 0.1% in May.

bancocentralIn the 12 months ending in May, the IBC-Br shows a decrease of 1.68% in the adjusted series and fall of 1.72% in the observed data. Due to the constant indicator reviews, the IBC-Br measured in 12 months is more stable than the monthly measurement, like the Gross Domestic Product (GDP). In the year, the IBC-Br decreased 2.78% without adjustment and 2.64% without adjustment for seasonality. Compared to May 2014, the activity shows contraction of 4.75% without adjustment and 3.08% in the adjusted data.

The Central Bank (BC) continues to add to its data the new methodology adopted by the Brazilian Institute of Geography and Statistics (IBGE). Thus, revisions are made steadily in the historical series. Data for December 2014 went from 0.97% to 0.95% contraction. In February, the growth was 0.71% instead of 0.7%; in March, there was a decrease of 1.53% instead of 1.51%.

Although it is known as “the BC GDP”, the IBC-Br has different calculation methodology from the official GDP calculated by IBGE. The IBC-Br takes into consideration the estimated production for the three sectors plus tax. But the GDP calculated by the IBGE is the sum of all goods and services produced in the country for a certain period.

In the June Inflation Report, the central bank projected a fall in GDP of 1.1% in 2015. Analysts consulted for making the Focus bulletin estimated contraction of 1.5%.

Pão de Açucar (CBD) Post 6% Sales Growth in Q2. Highlight is Food Sales

Grupo Pão de Açúcar (NYSE:CBD) reported net revenue of R$ 16.1 billion in the second quarter 2015, representing an increase of 6% year over year. The food segment rose 6.4% on the same basis of comparison, to R$ 8.95 billion, and non-food has advanced 5.3% to R$ 7.17 billion.

pao-de-acucarAccording to the company, the quarter sales performance was negatively impacted by the effects of the Football World Cup, which took place in the same period of 2014 and Easter sales, which happened partially in the first quarter of 2015 and in the previous year it had happened all during the second quarter.

CBD also states that the more cautious consumer landscape, due to the macroeconomic environment, affected the performance of the quarter.

Same store sales retreated 2.9% in April, May and June, with a negative highlight to Via Varejo (which includes the brands Casas Bahia and Ponto Frio), and fell by 23.5% in this indicator.

Within the food segment, multivarejo, which includes the brands Extra and Pão de Açucar, had an improvement of 0.7% in revenue in the quarter to R$ 6.51 billion.

Assaí, which is the group’s wholesale chain, was the positive highlight with a high of 25.6% to R$ 2.45 billion, with same store sales above inflation and market share gain.

The food segment opened 141 stores in the last 12 months, being 120 proximity (small) stores, seven Pão de Açucar four Extra, nine Assaí and one drugstore.

Within the non-food segment, Via Varejo’s sales fell 21.7% in the quarter to R$ 4.32 billion.

The sale of televisions retreated 56.6% over the previous year, with an impact of 10 percentage points in the total fall. The main factor for this performance was the strong TV sales performance during the Soccer World Cup last year.

The company claims that a number of additional measures have been implemented to adjust its expense structure, covering all operational and administrative areas, in order to mitigate the effects of inflation on fixed costs and the lower dilution of expenses.

Disposable Income Drops 10% in 6 months in Brazil

The combination of high inflation with layoffs and wage loss caused a downturn of unprecedented proportions in disposable income for consumption in Brazil. The Monthly Employment Survey (PME) of IBGE shows that real wages decreased by 10% between November 2014, peak of recent years, and last May. In the crisis of 2003, a decline of this magnitude happened after eight months of deterioration in the labor market. In the 2009 crisis, despite the recession, there was no drop in payrolls of this magnitude.

The decline is highlighted in part because of the seasonality for jobs. November is traditionally a strong month in terms of jobs created for the end of the year. Adjusting for seasonality, the drop indicates a nominal income 4.7% lower. In this series, the largest and only previous loss (considering the clipping six months) was 2.8% between April and October 2003.

While some of the effects of this drop in disposable income is already affecting the economy, the spiral effect that it can cause is probably just starting and will affect the Brazilian economy more heavily in the second half and into 2016.

Petrobras to Pay R$ 2.2 billion to ANP – National Oil Agency

Petrobras (PBR) reported today, after the market close, that the Arbitration Court issued on July 2nd, an interim decision on the arbitration proposal by Petrobras regarding the resolution of ANP (National Agency of Petroleum, Natural Gas and Biofuels), which considers the concessions Baleia Anã, Baleia Azul, Baleia Franca, Cachalote, Caxaréu, Jubarte and Pirambu as a single field from the second quarter of 2014.

The interim decision determines that Petrobras starts to deposit quarterly, on behalf of ANP, the controversial “special participations”. Based on the current price of oil and the current production in the field, this amount will be approximately R$ 350 million per quarter. “Although the amount is pending confirmation by the parties, the value previously estimated by the ANP is R$ 2.2 billion”, Petrobras said, stressing that “it is a decision of preliminary nature, given that the arbitrage has not decided on the merits of the matter yet”.

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