Aurelia Butler

BUENOS AIRES/MEXICO CITY (Reuters) – Brazil’s slowing economy will likely remain weak in 2023 as a planned spending drive by newly-elected President Luiz Inacio Lula da Silva risks keeping already-high borrowing costs elevated for longer, a Reuters poll of economists found.Lula’s government, which took power on Jan. 1, is increasing the size of welfare programmes well beyond strict budget limits to address deeply-rooted social problems. Former President Jair Bolsonaro’s government did not keep within those rules either. However, many investors and analysts fear a new wave of planned spending could put Brazil’s debt on even more unsustainable path and stir inflation, which is dropping after a long series of interest rate rises.Heeding their worries, the central bank is set to keep benchmark rates high for a long time, but that may amplify an economic slowdown and stoke tensions with the government.Growth is forecast to recede sharply to 0.8% in 2023 from 3.0% last year, according to median estimates of 44 economists polled between Jan. 9 and Jan. 20. The growth forecast for this year was unchanged from an October poll, with 2022 upgraded from 2.7%.”The main reason for our negative outlook is in regards to the fiscal policy that is being implemented,” Tomas Goulart, an economist at Novus Capital, said. His growth forecast for this year was just 0.5%.With a possible reinstatement of taxes on fuels to help pay for extra spending measures “inflation will be around 5.0% in 2023 and the central bank won’t be able to lower its Selic rate, reducing growth for the next years,” he added.This month, bank chief Roberto Campos Neto cited a likely restoration of taxes on fuels as one of the main factors behind his forecast of 5.0% inflation in 2023 – an outcome that would exceed the 4.75% objective for a third year.Finance Minister Fernando Haddad presented a fiscal scheme to appease market concerns. Still, he said it was only a list of proposals that Lula had yet to approve and were prone to “frustrations”, as well as more unexpected outlays.UPCOMING TAX REFORMDomestic markets, which have remained calm recently, could be tested after the Southern Hemisphere summer break and Carnival (NYSE:CCL) holidays, as the government begins to press lawmakers to vote on a tax reform in the first-half.”There are risks of higher inflation with the pass-through (to consumer prices) of a more depreciated exchange rate in case of sharper fiscal deterioration,” Mauricio Nakahodo, senior economist at MUFG, said.Asked a separate question on the overall trend for Brazil’s GDP growth in 2023, a slight majority of seven of 12 who replied said it was tilted to the downside, while three saw upside potential, and two said neutral.Headwinds hitting Latin America’s No. 1 economy should be somewhat offset by an improvement in terms of trade from rising commodity prices due to China’s reopening, and by the impact of Lula’s policies on aggregate demand.Estimates for Brazil´s growth in 2023 ranged from stagnation to 1.5%, while projections for Mexico varied between a 0.5% contraction and 1.7% growth, with the median in the survey pointing to a slowdown to 1.0% this year from 3.0% in 2022.On the Mexican economy, Citi analysts said in a report they expected activity to decelerate “as the expansion of the U.S. economy loses traction, the improvement of the labor market slows down, (and) real interest rates increase”.But contrary to Brazil, where frictions between the central bank and government are materializing, Mexican President Andres Manuel Lopez Obrador has praised policymakers for their work, supporting business confidence.Also, the Mexican peso has been trading close to three-year highs against the U.S. dollar, reflecting a much more subdued political climate compared to this month’s chaos on the streets of Brasilia.(For other stories from the Reuters global economic poll:) More

(Reuters) – U.S. companies borrowed 9% more in December to finance equipment investments compared with a year earlier, industry body Equipment Leasing and Finance Association (ELFA) said on Tuesday.The companies signed up for $12.9 billion in new loans, leases and lines of credit last month, compared with $11.8 billion a year earlier, according to ELFA. Cumulative borrowings were up 6% from January 2022.ELFA, which reports economic activity for the $1 trillion equipment finance sector, said credit approvals totaled 76.6% in December, down from 77.7% in November.”Not knowing yet the full impact of the Fed’s series of rapid rate increases on the economy, I believe many companies will start the year with more focus on credit quality and spreads versus origination volume,” said AP Equipment Financing’s president, Chris Lerma. Washington-based ELFA’s leasing and finance index measures the volume of commercial equipment financed in the United States.The index is based on a survey of 25 members, including Bank of America Corp (NYSE:BAC), and financing affiliates or units of Caterpillar Inc (NYSE:CAT), Dell Technologies (NYSE:DELL) Inc, Siemens AG (OTC:SIEGY), Canon Inc and Volvo AB (OTC:VLVLY).The Equipment Leasing & Finance Foundation, ELFA’s non-profit affiliate, said its confidence index in January stood at 48.5, an increase from 45.9 in December. A reading above 50 indicates a positive business outlook. More

The government was discussing the plan with the central bank and a review of requirements for export earnings was nearly complete, Airlangga Hartarto, the coordinating minister for economic affairs, was quoted as saying by mainstream media. His ministry’s spokesperson did not immediately respond to a request for comment.He earlier this month said Indonesia was considering revising a 2019 regulation that mandated exporters of natural resources keep earnings in a special account at domestic banks. He also said the revision included the possibility of setting a minimum holding period and might be expanded to cover exporters in the manufacturing sector. Separately on Wednesday, Bank Indonesia (BI) Governor Perry Warjiyo said the central bank would suggest to Airlangga and the finance minister the possibility of more attractive tax incentives for exporters’ special savings.”There are incentives already now, but how do we make them more attractive,” he told a forum with bankers.Amid tight U.S. dollar liquidity globally, Indonesian exporters had placed their earnings in local banks “for two seconds before running to move them offshore”, the governor said, blaming low domestic interest rates for FX term deposits.Warjiyo detailed BI’s plan to launch a new monetary policy instrument aimed at providing exporters with better returns for domestic FX deposits, which he previously said would be launched next month.BI’s new instrument will allow appointed banks to pass on exporters’ deposits to the central bank and BI would pay a competitive rate for the U.S. dollar for exporters. The banks would receive a fee, he said, giving examples of term deposit with tenors of one to three months.A major commodity exporter, Indonesia last year saw its shipments hit a record high of $291.98 billion as global prices of its top commodities such as coal and palm oil surged following the crisis in Ukraine. More

TORONTO (Reuters) – The Bank of Canada is expected to raise interest rates to a 15-year high on Wednesday in the face of a tight job market and above-target inflation, but economists say the move could be the last in the current tightening cycle.A Reuters poll of economists shows that Canada’s central bank will hike its benchmark rate by a quarter of a percentage point to 4.50%, its highest level since December 2007, when the decision is released at 10 a.m. EST (1500 GMT).This week’s meeting will be significant as the BoC will offer minutes from the policy-setting session for the first time. They will be published on Feb 8.Money markets see a roughly 70% chance of a 25-basis-point move and expect the policy rate to peak at 4.50%.”An unexpected surge in employment in December and a decline in the unemployment rate to a near record low of 5% is the main reason we expect the BoC to follow through with one final rate hike,” Royal Bank of Canada economists, including Nathan Janzen, said in a note.After raising rates at a record pace of 400 basis points in nine months, the central bank said in December that a decision to tighten further would be data-dependent.Economists expect the BoC to leave the door open to further tightening should upcoming data show price pressures persisting and push back against market expectations for interest rate cuts in the second half of the year.The BoC has said it wants to slow an overheated economy without causing a deep recession, but that taming inflation is still its priority.A blowout December employment report, released earlier this month, highlighted the upside risk to wage and price growth.Inflation cooled to an annual rate of 6.3% in December, its lowest since February, while economists’ estimates show that more timely, three-month rates of core inflation have eased in recent months but remain above the BoC’s 2% target.”The small improvements are an encouraging sign that peak inflation is behind us, but aren’t anywhere close to slow enough to have the BoC breathing easy,” Benjamin Reitzes, Canadian rates and macro strategist at BMO Capital Markets, said in a note.Economic projections on Wednesday are expected to show an upgrade to the central bank’s forecast of annualized growth of 0.5% in the fourth quarter of 2022, but not much change to its forecast of 0.9% growth for 2023. The economy is estimated to have grown at a 3.3% pace last year.The dilemma for the BoC is that realized data shows that the economy “remains remarkably resilient in the face of significantly tighter monetary policy, while the forward-looking survey data hints loudly at a slowdown to come,” TD Securities strategists, including Andrew Kelvin, said in a note.”If the prophesied recession never arrives, the BoC may quickly find itself behind the curve again, further damaging its efforts to bring inflation under control. Better to err on the side of too much tightening with a 25-basis-point hike.” More