Tag Archives: GDP

Economists reduce Brazil inflation forecast for 2017 and the next 12 months

Market economists reduced their estimate for inflation by the Broad Consumer Price Index (IPCA) in 2017 and in the next 12 months, according to the average forecast in the Focus Bulletin, released on Monday by the Central Bank (BC) .

For this year, inflation bets were reduced from 3.03% to 2.88%, below the floor of the target for the calendar, of 3%. The center of the inflation target is 4.5%. In 12 months, the projection for the advance of prices increased from 3.96% to 3.91%. For 2018, the estimate was maintained at 4.02%.

Last Friday, the Brazilian Institute of Geography and Statistics (IBGE) reported that the IPCA slowed the rise to 0.28% in November, after rising 0.42% a month earlier.

The average estimate for economic growth had a new round of upward adjustments after the IBGE revised positively the Gross Domestic Product (GDP) figures for the first and second quarters of this year. Thus, the projections went from expansion of 0.89% to 0.91% in 2017 and advance from 2.60% to 2.62% in 2018.

For the basic interest rate, Selic, at the end of 2018, the projections were maintained at 7%

Brazilian stocks and Real fall amid difficulty in approving pension plan reform

Brazilian financial market reacts negatively again to the noise surrounding the pension reform. According to professionals, this morning’s news brought more negative elements about the possibilities of the government being able to approve the reform, which was reflected in the dollar, interest rate hikes and in the fall of the Ibovespa stock index at the opening of the trading session.

But, half an hour after business started, prices have worsened, reacting to comments from House of Representatives president, Rodrigo Maia, that would have expressed a more pessimistic reading regarding the number of votes to approve the reform.

This market behavior confirms the investors’ sensitivity to the pension plan reform news, something that has already been happening in the last sessions and that intensifies as the deadline for voting approaches.

The importance of this reform for the Brazilian stock, currency and interest markets has already been explained in this article from June in this blog.

Fitch keeps the Brazilian credit rating at BB, with negative outlook

Fitch Ratings reinforced Brazil’s credit rating on ‘BB’, with a negative outlook. That is, with the possibility of the classification being revised downwards in the future.According to the agency, the country’s ratings is limited by the structural weaknesses in public finances and high government debt, weak growth prospects and weaker governance indicators than the country’s peers, in addition to the recent history of political instability.

These weaknesses, Fitch added, are offset by the economic diversity of Brazil and consolidated civil institutions.

The negative outlook reflects the continuity of uncertainties related to the sustainability and strength of the Brazilian economic recovery, the prospects for medium-term debt stabilization and the progress of the legislative agenda, especially the pension reform.

Fitch expects a modest cyclical recovery in Brazil, with growth accelerating from 0.6% in 2017 to an average of 2.6% during 2018 and 2019. Consumption began to recover, sustained by lower inflation, which drives wage gains, stabilization of the unemployment rate and a recovery of consumer credit. A recovery in investment is also expected in the coming years.

According to the agency, the risks that can cause the government not to reach its fiscal goals in the short term include a weaker economic recovery and the difficulty in cutting public spending, especially in the election year. The implementation of the pension Reform and other adjustments will be necessary to ensure that expenditures meet the target in the medium term.

Fitch projects that Brazilian public debt will continue to grow during the forecasted period, even taking into account the impact of the National Treasury’s loan payments anticipated by the National Development Bank (BNDES) between 2017 and 2018. The agency projects that debt will reach 76% of GDP in 2017 (above the median of the “BB” countries, 45%) and advance to 80% in 2018.

Brazil’s current account deficit is expected to fall below 1% in 2017, according to Fitch projections, and should remain below 2% in the period projected by the agency. The deficit fell 80% during the first nine months of 2017, compared to last year, with the growth of the trade surplus.

Funding of Brazilian companies with debt and equity jumps to R$ 192 billion (US$ 60 bi)

The wind begins to shift to the capital market in the wake of falling interest rates to near historic lows and the contraction of bank credit after two years of deep recession. Since last year, the favorable environment has opened space and consolidates a trend of strong growth for corporate debt issues, along with capital openings and subsequent stock offers, which increasingly assume a major role as a source of financing for large companies .
Between January and September, data from the Brazilian Association of Financial and Capital Market Entities (Anbima) shows that the issuance of fixed income securities in Brazil and abroad by companies plus funding through variable income in the country reached R$ 176.3 billion, or three and a half times the volume of R$ 49.9 billion granted by BNDES in the same period, according to figures from the state bank itself.

For Sergio Goldstein, chairman of Anbima’s corporate finance committee, the expansion is expected to continue in 2018: “the economy probably accelerates next year and thus there’s no way the capital market does not come along.”

A singularly favorable situation fuels this movement of greater participation of the capital market as a source of funds: falling interest rates and prospects that it will remain close to historical lows for a prolonged period, low inflation, growth, albeit gradual, and a change in the policy of subsidized rates by the BNDES.

Brazilian Government Announces Economic Package with 12 Measures

President Michel Temer announced on Thursday (15) a new economic package with measures to stimulate the economy. Also taking part in the announcement were the house or representative’s president, Rodrigo Maia (DEM-RJ), Senate’s President Renan Calheiros (PMDB-AL), Finance Minister Henrique Meirelles and the Minister of Planning, Dyogo Oliveira.

Temer started the announcement saying that the goal is to stimulate growth and reduce unemployment. Before announcing the measures officially, the president commented on the approval of the PEC 241, which limits spending increases for the next 20 years, approved on Wednesday.

According to Temer, “these reforms aim to increase the growth of the Brazilian economy. We never ignored the difficulties that we would have when we took over the government, but we are succeeding in advancing these topics.”

Despite being positive for the economy, these 12 measures are seen as a desperate way to try and deviate the attention from the corruption investigations that are currently hitting Temer’s government right in the core. In any case, the measures are positive. To them:

Tax Debt Negotiation

Finance Minister Henrique Meirelles was responsible for giving more details on each of the measures. The first provides for tax debt negotiation for companies with debts due through November 30. Meirelles said that “any tax debt” is eligible, including social security. For debts that are being questioned in the Court, it is necessary to prove the desistance of the lawsuits.

“The program allows tax negotiations for companies that are preparing to grow again, as macroeconomic adjustment is under way,” said Meirelles.

Guaranteed Property Letter

Another measure, according to Meirelles, is the regulation of the “Letra Imobiliária Garantida”, an instrument of funding for real estate credit. The objective is to broaden the supply of long-term credit for civil construction.

Meirelles said that this type of bond, being both secure and long-term, is an “important alternative source for real estate lending and increases the supply of long-term lending to the industry.” This measure will have to go through public consultation and then be regulated by the National Monetary Council (CMN).

Improvement in the “positive register”

Meirelles also announced the improvement of the positive credit rating, which allows the creditor to analyze the person’s history. Membership becomes automatic, and exclusion has to be requested. The goal is to reduce credit risk and make room for lower interest rates for good payers.

Credit measures

Meirelles says another measure is to allow price differentiation according to the mode of payment. Such a change allows retailers to charge different prices depending on the payment mode used, ie different prices if the customer pays cash or credit card, which is currently prohibited by law. He recalled that it is common for stores to give discounts for purchases made in cash, but not the same on credit cards.

Reduction of card interest

Another measure presented by Meirelles is the reduction of interest rates on the credit card charged to the consumer and the term of payment to the merchant. The minister says the regulation should be submitted within 10 days.

Bank spread

According to the finance minister, the government is also proposing the creation of the electronic duplicate with the objective of reducing the so-called “spread” of the banks (difference between the rate of funding, close to the basic rate of the economy, at 13.75%/ year today, and the rate charged to bank customers).

“We want to create a central registry of duplicates, credit card receivables and allow the granting of credit with a lower guarantee, which increases the security for creditors and the supply of credit for small and medium-sized enterprises, with lower interest rates. “, he said.

Reduction of bureaucracy

On the issue of de-bureaucratization, Meirelles says that they will simplify the payment of labor, social security and tax obligations through a system called eSocial. The objective is to reduce the time spent by companies to fill declarations, forms and books and the redundancy of information provided to the tax authorities. The deadline for implementation in all companies would be July 2018.

Refund of taxes

Another proposal is to simplify the procedures for restitution and compensation of the taxes administered by Receita (Brazilian IRS), including the compensation between the social security contribution and other taxes.

Business Start-up

Meirelles says another measure will reduce the time to open ventures. A national network for simplifying the registration and legalization of companies and businesses will be implemented.

Competitiveness

The government also announced measures to speed up purchases and sales in foreign trade. According to Minister Meirelles, a single web-accessible portal will be created to forward all documents and data required for business transactions with other countries.

“The idea is to cut import and export procedures by 40 percent”, he said. The implementation period for exports is until March 2017 and for purchases from abroad until the end of next year.

BNDES

Following this, the Minister of Planning, Dyogo Henrique de Oliveira, spoke about other measures. The first deals with the increase from R$ 90 million to R$ 300 million the limit to access the BNDES credit for micro, small and medium enterprises.

Companies with up to R$ 300 million in revenues can also renegotiate debts of operations of up to R$ 20 million with the BNDES. Therefore, companies can seek cheaper interest rates, based on the Long-Term Interest Rate (currently at 7.5% per year).

According to him, the total volume of refinancing is estimated at R$ 100 billion, which will “increase the liquidity of companies”.  “Today, companies are suffering from a great deal of liquidity,” said the Planning Minister.

For large companies, with revenues above R$ 300 million per year, operations included in the Investment Support Program (PSI) may be refinanced. “These refinanced amounts will be with BNDES’ own resources, but with funds with TJLP (Long-Term Interest Rate) funding, with a lower cost”, he said.

FGTS

Another measure announced is the distribution of half of the profits in the FGTS to the workers. “That is to say, when there are profits, part of them will continue to be deposited and the other half will be made available to the worker to pay debts or make a different use”, he said.

Still on the FGTS, he announced the gradual reduction of the additional fine of 10% – which is paid by employers at the time of dismissal of employees, on top of the 40% that goes to employees. According to him, the idea is to reduce that 10% at the rate of one percentage point a year to relieve the entrepreneurs.

Brazilian Economy shrinks 0.51% in May, according to the Central Bank

The Brazilian economy has not confirmed the brief improvement in April. The Economic Activity Index Central Bank (IBC-Br) fell 0.51% in May, after growing 0.07% in April (revised), which was the first increase in 15 months. In the year, the decline was a significant 5.79%.

In the 12 months ending in May, the IBC-Br indicates a decrease of 5.43% in the series without adjustment and 5.51% in the adjusted data. Due to the constant indicator review, the IBC-Br measured for 12 months is more stable than the monthly measurement. Compared with May 2015, there was a low of 4.91% in the series without adjustment and 5.32% with adjustment.

The results came worse than expected by the market players. The average of forecasts made by 21 financial institutions suggested a decrease of 0.24% in the month. Estimates ranged from a decrease of 0.9% and increase of 0.1% for the monthly variation.

In the June Inflation Report, the central bank projected a drop of 3.3% in the GDP for 2016, against the previous forecast of a 3.5% decline. Analysts consulted for making the Focus Bulletin also point to a decrease of 3.3% for the Brazilian economy this year.

What to Expect for Brazilian Interest Rate in 2016

Monetary Policy Committee (COPOM) has decided to keep the Brazilian interest rate benchmark in Brazil (SELIC) at 14.25% a year, unanimously. The central bank repeated the note issued with the previous decision, in which it says “we see advances in the inflation fighting but the still elevated cost of living and expectations are out of the target”.

Even with the repeated note, economists started to review their opinions about when the interest rate will go down again. The last meeting was still ran by central bank president Alexandre Tombini. Now, Ilan Goldfajn will be the one responsible  to deal with variables like economic recession and inflation. Inflation, by the way, that was showing signs of reduction but has again showed resilience.

According to newspaper Folha de São Paulo, despite inflation have shown acceleration in May, the interim government of Michel Temer believes that the fall in the US Dollar exchange rate and the credibility of the new economic team opens space for a reduction in the SELIC. The government is working under the assumption of inflation declaration by year end as well as a further drop in the US$. According to the report, Folha’s initial forecast was for a drop in the interest rate in July but now this may be postponed till August.

And that review in expectation was also followed by other investment banks, such as Goldman Sachs and Bradesco. Bradesco now believes the interest rate benchmark will end the year at 12.75% versus 12.25% before.

China-Brazil infrastructure cooperation mutually beneficial

Infrastructure cooperation between China and Brazil is mutually beneficial and should be further strengthened, experts say.Brazil hopes to attract Chinese investment in highways, railways, ports, airports and other infrastructure projects, while the Chinese government regards infrastructure building key to bilateral cooperation, they say.

“The Brazilian government can count on infrastructure investment as a way to overcome the current economic recession, and promote economic and social development,” Xie Wenze, a visiting scholar from the Chinese Academy of Social Sciences.

A 1-percent increase in infrastructure investment can raise Brazil’s GDP by about 0.6 percent, he said.

Currently, bilateral infrastructure cooperation is mainly centered on one-off projects. Equity mergers and acquisitions around these projects are expected to bring long-term benefits for both sides, according to Xie.

Bilateral energy cooperation has yielded great results in recent years. China’s State Grid Corp. has expanded its business in Brazil as a result.

“The experience of equity mergers and acquisitions on the part of China’s State Grid Corp. could be promoted to other … projects in railways, highways, ports and other areas,” said Ivanildo Marcos Beltrao, a Brazilian company official.

To support cooperation projects between China and regional countries, the China-Latin American Cooperation Fund was launched in early January with a startup capital of 10 billion U.S. dollars.

A similar 10-billion-dollar fund was set up in September, 2015 to support China’s investment in an array of medium- and long-term projects in Latin America.

Foreign investment in Brazil grows in September, covers external gap

Brazil’s current account deficit grew wider than expected in September but was easily covered by foreign investments, central bank data showed on Friday. 

Brazil posted a current account deficit of $3.076 billion in September, larger than a gap of $2.487 billion in August and the $2.3 billion deficit forecast by economists for the month, central bank data showed on Friday. 

Brazil attracted $6.037 billion in foreign direct investments last month, up from $5.246 billion in August, the central bank said. 

Despite the monthly increase, the current account deficit declined as a percentage of Brazil’s gross domestic product in the 12 months through September. It was equivalent to 4.18 percent of GDP, down from 4.34 percent in the previous month. 

A weaker Brazilian real is helping exporters and curbing imports, boosting the country’s trade balance after the country recorded its first deficit in 14 years in 2014. 

Brazil’s currency dropped more than 30 percent this year to a record low of more than 4 per dollar as investors fret over a steep rise of the country’s debt. 

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).