Brazil is a country with huge potential and yet the deeply divided society and the polarisation between the left and right political parties remain serious issues.
As specialist brokers in trade credit insurance, AU Group’s mission is to be always prepared for the worst-case scenarios.
Why?
Because the Americanas, a 93-year-old company with stores across Brazil, surprised everyone by filing for bankruptcy protection owing creditors around $8 bn.
An $8 bn failure is an event that makes our jobs as specialized trade credit brokers so interesting.
The case has resulted in extensive debate whether Americanas was a victim of an honest mistake or a perpetrator of fraud. Recently the company admitted there had been widescale fraud.
The Coface Payment Survey 2023 states that delays in payment appear to be very frequent among Latin American businesses. Of the companies surveyed, 76% declared that they experienced payment delays. In sector terms, retailers were the only group in which the number of companies reported an increase in cases (37%). According to national statistics, insolvency cases in Latin America remained low between 2020 and 2022 (at least for countries where data are available, such as Brazil, Chile and Colombia). However, the situation in Brazil has changed dramatically since the beginning of 2023.
The number of insolvencies across all sectors and all size of companies increased 44% in H1 2023.
What is the reason for the sharp deterioration of payment experience in Brazil and what role do high interest rates/ tight credit conditions play?
Since March 2021, the Brazilian Central Bank (BCB) has aggressively hiked the benchmark interest rate (Selic) from 2% to 13.75% in August 2022. This led to a slowdown of domestic demand and increased debt servicing costs for consumers and businesses. According to Santander (Santander Economic Research – Brazil) estimates, total new corporate financing in January – May 2023 shrunk by 19.3% (inflation adjusted).
On 21st of June, policymakers held the key rate steady for the seventh time at 13.75%. Brazil’s central bank said it may be able to start cutting interest rates in August. The outlook improves as annual inflation eases closer to target.
Atradius projects Brazil’s GDP growth to slow from 3.0% in 2022 to 2.5% in 2023 and to moderate further to 0.4% in 2024.
The cause of the projected slowdown is due to the lagging effects of high domestic interest rates, lower external demand and policy uncertainty stemming from the change in government at the start of 2023. This suggests inflation will remain high and will delay the start of the monetary policy easing cycle (which Atradius expects in the last quarter of 2023).
Allianz Trade expects BCB to cut the interest rate in the second half of 2023. According to AU Group the cuts could be up to 50 basis points. However, Santander (Brazil Economic Activity June 2023), draws attention to the stronger than expected inflationary resilience as a downside risk. This might lead the BCB to keep a tight policy stance for even longer and might result greater than expected activity slowdown.
Allianz Trade grades Brazil’s country rating at B3 sensitive risk (Moderate growth, with rising fiscal risk)
Did your company sell to Americanas and did you have credit insurance to protect you?
If you wish to explore how credit insurance can help your business, then the AU Group Brazil Team is at your service!”
Make an appointment with our experts.
