By Mauro Mantica
At the meeting of the Monetary Policy Committee (COPOM), which ended on 31 January 2024, the Central Bank decided to reduce the discount rate (SELIC) by a further 0.50%, bringing it to 11.25% per year. It is the fifth reduction in a row, and it is probable that in the next meetings, there will be further cuts, again of 0.50%.
Inflation is still falling, recording +4.47% at the end of January compared to the previous year.
The unemployment rate recorded in the October-December 2023 quarter fell to 7.4%, equaling the pre-crisis level of 2014. Employment is growing in industry, construction, commerce, and transport, while it is decreasing in the agricultural sector.
The average income recorded in the period was R$ 3,032, up 3.1% annually.
The International Monetary Fund (IMF) has increased its 2024 Brazilian GDP growth estimate, bringing it from +1.5 to +1.7%. It is a slowdown compared to 2023 (+3.1%) but still demonstrates greater dynamism than most economies of industrialized countries.
On January 22, 2024, the government launched an incentive plan for the development of Brazilian industry, called “Nova Industria Brasil”. The plan provides financing and subsidies for 300 billion reais (around 60 billion dollars) with the aim of stimulating the recovery of the sector. According to the opinion of several economists, this is the re-edition of old policies dear to the PT, such as that in Lula’s second mandate (and then in Dilma Rousseff’s first), which provided for the issuing of loans at very subsidized rates to companies called “campeãs nacionais.” At the time, the results were disastrous and helped push Brazil into the deep recession of 2014-2015.
Tax revenues in 2023 matched the record of those in 2022, thanks mainly to sustained GDP growth. A repetition of this result is expected for 2024, which should guarantee – if public spending does not grow – the balance of public accounts.
On January 10, 2024, the government sent to Parliament a bill (Lei das falencias) amending the legislation regarding bankruptcies. The objective is to give greater power to creditors of failing companies and speed up the legal process (today lasting on average around 11 years!). According to some estimates, on average, at the end of the 11-year process, only 6.1% of the collectible debts are recovered.
The level of insolvency among the Brazilian population is increasing. In 2023, it reached the level of 29.5%, against 28.9% in 2022; therefore, about a third of Brazilians are late in paying credit card debts, repaying personal loans, and paying home and car mortgages. To this figure, we must add that of indebtedness: 77.8% of Brazilians have open debts (even if they are not necessarily insolvent).
A crisis in the agricultural sector is expected in 2024. Crops have been damaged by drought and bad weather: for soybeans, for example, a 20% decrease in harvested volumes is expected. Furthermore, the prices of agricultural commodities are decreasing globally while production costs are increasing.
The Lula government’s attempt (fortunately unsuccessful) to impose the name of Guido Mantega as president of Vale, a private company listed on the stock exchange, caused quite a stir. Mantega was Minister da Fazenda during the Dilma government and was one of those responsible for the failed economic policy that led Brazil into a deep recession in 2014-2015. Public opinion and the “market” reacted promptly, averting this attempt at interference by the government.
The airline company Gol has applied to the US justice system (Chapter 11) to enter into judicial recovery, with the aim of restructuring its debt. According to the company, the legal process will begin with a debtor in possession (DIP) loan of $950 million from Abra, its parent company, and other creditors. Since the beginning of the year, Gol shares have suffered a collapse of 70%.
On January 24, 2024, General Motors announced an investment of approximately $1.4 billion for the modernization of factories, the renewal of car models, and the implementation of new technologies. Although the CEO has declared that GM’s future is “totally electric”, the transition will occur following the dynamics of demand for electric vehicles and improvements in infrastructure. GM, therefore, follows other companies that have recently expanded investments in Brazil: Stellantis, BYD, GWM, Chery, Renault, and Nissan.
Here is the trend of the main economic indicators:
GDP (Value added at market prices)
The Brazilian GDP growth forecast for 2024 is stable, estimated at +1.6% per year. Despite the predicted crisis in the agricultural sector, some economic institutions are more optimistic and expect growth close to 2%. The release of a significant amount of “precatorios” (a sort of judicial reimbursement of taxpayers by the State), expected during 2024, can inject significant liquidity into the economic system and encourage consumption and investments.
Inflation and real/dollar exchange
The 2024 inflation growth forecast is slightly decreasing to +3.81%. The fall in prices, therefore, continues, which is allowing significant cuts in the discount rate.
The dollar is quoted today (7 February 2024) at R$ 4.96, slightly appreciating compared to a month ago (R$ 4.87).
In recent weeks, the dollar has appreciated globally, given that the start of the process of cuts in American interest rates is moving towards May. The solidity of the American economy is holding back the FED, and the dollar is, therefore, tending to appreciate.
The euro is quoted today at R$ 5.34, the same price as a month ago.
Interest rate
The discount rate (SELIC) is at 11.25%, and a new cut of 0.50% is expected at the next meeting of the Central Bank’s Monetary Policy Committee (COPOM).
The market expects Selic to close in 2024 at 9%.
Even if the FED and ECB were to start cutting rates towards the end of the first half of 2024, the Brazilian real interest rate (now above 5%) would remain very attractive to international investors.
The Brazilian Stock Exchange (Bovespa)
The Ibovespa closed the session of 6 February 2024 at 130,416 points, -1.5% compared to the closing at the beginning of January (132,426 points on 8 January 2024). The decrease in the period was -3.3% in dollars and -1.5% in euros.
The trend of the index was not uniform: during the month of January, there was a strong growth in the prices of Petrobras and a fall in the other industrial giant, Vale. The financial sector is stable, and the “small caps” are decreasing despite the reduction in the discount rate.
The Brazilian macroeconomic scenario continues to be positive, and even if there are many unknowns at an international level (conflicts in Ukraine and the Middle East and the Chinese crisis, in particular), the stock market could return to following the positive trend of the end of 2023.