• Brazil's gross debt continued its downward trajectory in January, while the consolidated public sector recorded a strong primary surplus, the central bank showed on Tuesday.
• The government debt as a percentage of gross domestic product fell to 73.1% in January, from 73.4% in December, the lowest level since June 2017, when it reached 72.7%. The reduction was mainly due to the growth of nominal GDP, followed by net debt redemptions, which are affected by positive budget balance figures.
• In January, the Brazilian public sector recorded a primary surplus of 99 billion reais (US$19Mn), surpassing the 90 billion reais surplus expected by economists polled by Reuters. However, the figure was lower than the 101.8 billion reais surplus in the same month last year. The performance was mainly driven by the 79.4 billion reais surplus from the central government, helped by record revenues for the month.

• Despite the positive data, the anticipated outturn for 2022 may show a strong primary deficit, worsened after leftist President Luiz Inacio Lula da Silva secured Congress approval for a multi-billion reais spending package to fulfil campaign promises.
• However, the government has signalled that it will seek to reduce the fiscal shortfall, through the reimposition of taxes on fuels announced by the Finance Ministry on Monday.

(Source: Reuters)

• Markets in the Americas face high political risks due to public dissatisfaction with incumbent governments, which will continue to manifest in persistent protests (such as in Peru) and the inability to pass reforms (as in Ecuador).
• As a result of these risks, in February 2023, Fitch made three further downward changes to its Short-Term Political Risk Index (STPRI) and six upward changes to the index (a lower score implies higher risk).
• Fitch has increased the STPRI score (specifically its social stability component) in five small markets in the Americas - namely Barbados, Bahamas, the Dominican Republic, Panama and Puerto Rico - where it expects a degree of economic recovery will lower the risk of public unrest. Risks in Guatemala have also decreased, given that an established candidate is expected to prevail in the 2023 elections after two outsider challengers were barred from the campaign. This is likely to lead to a degree of policy continuity for the country.
• However, the political risk in Peru, Ecuador, and Cuba has increased due to ongoing anti-government protests, rising gang violence, and expected social unrest increasing slightly due primarily to elevated inflation. Political risks for both Mexico and Brazil remain stable.
• Overall, the GDP-weighted average STPRI score in Latin America and the Caribbean rose slightly from 55.6 to 55.9 out of 100, implying a modest easing of political risks. For Caribbean nations in particular, political risk is expected to ease due to the expected economic rebound and other, more idiosyncratic factors.

(Source: Fitch Solutions)

• China’s factory activity for February bounced further into expansion territory, according to data from the National Bureau of Statistics. The official manufacturing purchasing managers’ index rose to 52.6 in February – above the 50-point mark that separates growth from contraction. That marks the highest reading since April 2012, when it hit 53.5.
• The government said February’s reading showed continued improvement in the climate for production and business, noting that the total volume of activity “significantly increased” as well.
• “The broad-based obvious improvements for both Manufacturing and non-Manufacturing PMIs in February reflect the solid momentum of post-reopening recovery,” economists at Citi said in a note. Citi economists added that while expectations for stimulus policies are low, the People’s Bank of China would be “mindful of inflation risks and may tilt to a natural policy once the economy is back on track.”
• Shortly after China’s factory activity data was released, Moody’s announced that it expects China’s economy to grow by 5% for 2023, an upgrade from its previous outlook of 4% growth, while noting growth will likely decline over the medium term.

(Source: CNBC)

• Consumer confidence dipped for the second straight month as stubborn inflation and anxiety over a potentially slowing economy weighed on Americans. The Conference Board reported Tuesday that its consumer confidence index slipped to 102.9 in February from a reading of 106 in January.
• The business research group’s present situation index — which measures consumers’ assessment of current business and labour market conditions — ticked up to 152.8 from 151.1 last month. The board’s expectations index — a measure of consumers’ six-month outlook for income, business and labour conditions — tumbled to 69.7 in February from 76 in January. A reading under 80 often signals a recession in the coming year, the Conference Board said.
• Consumers have been a pillar in the U.S. economy. They have not slowed spending even as the Federal Reserve tightens its monetary policy and signals more rate hikes ahead in its effort to cool the economy and bring down persistent, four-decade-high inflation.
• Earlier in February, the government reported that retail sales jumped 3% in January following a two-month slide. Americans boosted their spending at stores and restaurants at the fastest pace in nearly two years. But that confidence could be waning.
• The board says consumers appear to be showing early signs of pulling back their spending, particularly on big-ticket items like cars, major appliances and homes. Plans to take vacations were also dialled back in February.
• Earnings reports from major retailers this month have echoed consumer anxiety. While Target, Home Depot and others largely met Wall Street’s quarterly sales and profit expectations, they have cut their forecasts for 2023 with inflation lingering longer than expected.

(Source: AP News)

• For January 2023, output prices for producers in the Mining and Quarrying industry decreased by 0.5% while for the Manufacturing industry, prices increased by 0.6%, as indicated by the Statistical Institute of Jamaica (STATIN).
• The decline in the Mining and Quarrying industry index was mainly attributed to a decrease in the index for the major groups ‘Bauxite Mining & Alumina Processing’ (0.5%) and ‘Other Mining & Quarrying’ (0.1%). This is due primarily to the appreciation of the Jamaican dollar against the United States dollar.
• The main contributors to the increase in the index for the Manufacturing industry were the ‘Refined Petroleum Products’, ‘Chemical and Chemical Products’ and ‘Food, Beverages & Tobacco’, which increased by 2.0%, 2.0%, and 0.1%, respectively. The increase in the index for the major group ‘Refined Petroleum Products’ was due to higher prices for other petroleum products, despite a decline in some petrol prices. The movement in the index of the ‘Chemical and Chemical Products’ group was attributed to higher cost of raw materials and transportation costs. The increase in the index for ‘Food, Beverages & Tobacco’ was influenced by upward movements in the index for the groups ‘Production, Processing & Preserving of Meats, Fish, Vegetables, Oils and Fats’ and ‘Manufacture of Beverages and Tobacco’, each increasing by 0.3%.
• For the period January 2022 – January 2023, the Mining & Quarrying industry’s index fell by 26.9% while the point-to-point movement for the Manufacturing industry’s index increased by 9.5%. The fall in the Mining & Quarrying industry’s index was a result of a decline in the price of Bauxite & Alumina on the international market. However, the manufacturing industry, while now reaping the benefits of falling prices, has contended with increased prices for major inputs during the review period, given the Russia-Ukraine war amongst other things.
• The PPI, which measures the average change over time in selling prices received by domestic producers of goods and services, has trended down over the second half of 2022. Despite a slight increase in the index in January, the fall in freight charges and fuel prices are expected to result in lower costs for local producers going forward and could translate into lower prices for consumers.

(Source: STATIN)

• Jamaica’s economy is estimated to have grown by 5.1% between January and December 2022. This was disclosed by the Director General of the Planning Institute of Jamaica (PIOJ), Dr. Wayne Henry, who said the outturn was spurred by an estimated 6% growth for the Services industry and 2.1% for the Goods Producing Industry.
• All sub-industries are estimated to have recorded growth in output, with the exception of the Construction, and Mining, and Quarrying industries. Growth during 2022 was led by the Hotels and Restaurants (48.9%); Other Services (11.1%); Agriculture, Forestry, and Fishing (9%); and Transport, Storage, and Communication (6%)” industries.
• Meanwhile, the economy is estimated to have grown by 3.4% for the Q4 2022. The Goods-Producing Industry rose by an estimated 4.3%, while the Services Industry grew by an estimated 3%. This outturn largely reflected, among other factors, the positive impact of a strengthening of economic activities, as some industries showed signs of returning to and surpassing their pre-COVID-19 output levels, and increased external demand, supported by growth in the economies of Jamaica’s main trading partners.
• The economy’s short-term prospects remain generally positive, based on several factors, including the relative stability in the macroeconomy, evidenced by a tempering of the inflation outturn; and strengthened demand, stemming from increased economic activities, as most industries are expected to grow. Coupled with these, continued recovery in the economies of Jamaica’s main trading partners augurs well for increased external demand, for tourism services, for example.
• For the January-March 2023 quarter, the economy is expected to grow within the range of 3-5%, led by strong performances for the Hotels and Restaurants and Mining and Quarrying industries. Further, the economy is projected to grow within the 4-6% range for the fiscal year 2022/23. It is important to note that should the economy perform as expected for the remainder of 2022/23, Jamaica’s GDP would have fully recovered to pre-COVID-19 levels in this fiscal year, earlier than the initially projected date of 2023/24.
• Further, for the fiscal year 2023/24, the economy is projected to grow in the range of 1-3% and would largely reflect a faster-than-expected pace of recovery, leading to an earlier-than-anticipated normalisation of output and a return to the long-term trend of growth.

(Source: JIS News)

• Fitch Solutions expects that Trinidad and Tobago's (T&T) budget deficit will shrink slightly from 1.1% of GDP in FY22 to 0.9% in FY23. This is a major reversal of trends observed in pre-COVID years when T&T ran an average deficit of 4.3% (FY15-FY19).
• Persistent strength in hydrocarbon exports will help to drive the reduction in the budget deficit, via stronger revenue growth. T&T benefitted immensely throughout 2022 from hydrocarbon revenue owing to higher energy prices. Although T&T does not provide an exact breakdown, in USD terms, about a quarter of hydrocarbon production revenue currently comes from oil with the rest coming from natural gas.
• According to Fitch’s Oil & Gas team, growth in hydrocarbon production in the barrel of oil equivalent (boe) terms will ease from 8.8% y-o-y in 2022 to 4.2% y-o-y in 2023, but still well above pre-Covid production levels. Meanwhile, hydrocarbon exports are expected to remain strong in 2023, and Fitch forecasts that T&T export volumes will come in at about 314,000 in boe terms, compared to 286,000 in 2022, a 10.0% increase.
• That being said, expenditure growth will remain moderate in T&T as policymakers continue to signal their commitment to fiscal consolidation. Fitch forecasts that government spending as a share of GDP will drop back from an estimated 27.2% of GDP in FY22 to 26.9% in FY23, as T&T’s government continues to avoid pursuing significant spending increases despite the revenue windfall.
• The combination of still robust nominal output growth and a smaller expected deficit should see the government debt-to-GDP ratio decline from 72.3% in 2022 to 71.3% this year and is likely to remain manageable in the years ahead as the government continues with its cautious approach to fiscal policy.

(Source: Fitch Solutions)

• Outstanding loans in Brazil decreased by 0.3% in January, according to the Central Bank, marking the first decline in a year. The result suggests a slowdown that is likely to gain momentum in a scenario of high borrowing costs following the aggressive monetary tightening implemented by the central bank to curb inflation.
• Outstanding loans fell to 5.3 trillion reais ($1 trillion) in January, with loans to companies decreasing by 2.4%, while credit to families rose by 1.1%. Over the past 12 months, total credit expansion was 13.6%, down from 14.0% in the previous month.
• Fernando Rocha, head of the central bank Statistics Department, said that credit retraction to companies followed a seasonal behaviour, although the drop was "slightly greater" this time from the same month in 2022. After Brazilian retailer Americanas SA entered into bankruptcy protection in Brazil, Rocha stated that it is too soon to say whether the case has impacted the credit market.
• Bank loans in Latin America's largest economy have decelerated amid more expensive credit, as the country's benchmark interest rate stands at 13.75% from a record low of 2% in March 2021. This has prompted constant criticism from the new leftist President Luiz Inacio Lula da Silva and his political allies, who see the level of interest rates as unjustifiable given slowing inflation, which reached 5.63% in Mid-February.
• The central bank has left interest rates unchanged since September, but data from the central bank shows that average interest rates on non-earmarked loans have increased to 43.5% per year from 41.7% in December.
• Bank lending spreads also grew from 28.7 points the month before to 30.6 percentage points, while a broad measure of Brazilian consumer and business default ratios increased to 4.5% from 4.2% in December.

(Source: Reuters)

• Britain's economy, which had seemed certain to fall into recession in early 2023, has shown some unexpected signs of recovery, raising questions about whether the Bank of England really is about to pause its run of interest rate increases.
• The British central bank signalled on Feb. 2 it was getting close to slowing or pausing its run of interest rate increases after some measures of inflation pressure eased and the economy looked set to go into recession.
• Since then, however, the improvement in the economic data has prompted investors to increase their bets on the Bank Rate, which currently stands at 4.0%, rising to 4.25% next month and 4.5% in May, with a one in three chance of hitting 5% in August.
• Bounces in measures of business activity and consumer confidence and a pickup in tax revenues have led some analysts to upgrade their forecasts for the economy this year, although any growth is likely to be weak. JP Morgan last week raised its projection for gross domestic output growth in 2023 to 0.4% from a previous estimate of 0.1%. That compares with the Bank of England's (BoE) forecast, made in early February, for a contraction of 0.5%.
• Despite the improvement signs, Britain is the only Group of Seven (G7) economy still smaller than before the coronavirus pandemic. Economists say that reflects the pandemic's big impact on the country and the problems relating to Brexit.

(Source: Reuters)

• The European Union agreed Saturday to impose new sanctions on Russia over its invasion of Ukraine targeting more officials and organizations accused of supporting the war, spreading propaganda, or supplying drones, as well as restricting trade on products that could be used by the armed forces.
• Asset freezes were slapped on three more Russian banks and seven Iranian “entities” — companies, agencies, political parties, or other organizations — that manufacture military drones, which the EU suspects have been used by Russia during the war.
• Russia’s energy sector was hit, too — notably oil and coal — and the bloc, through its own measures and political decisions combined with retaliation from Moscow, was rapidly weaned off its dependence on Russian natural gas.
• Ukrainian President Volodymyr Zelenskyy welcomed the new package in his nightly address on Saturday. “Sanctions will continue to be introduced so that nothing remains of the potential of Russian aggression,” he said.
• The sanctions are meant to undermine Russia’s economy and drain funds for its war effort, but they are also increasingly inflicting pain on European economies already hit by high inflation and energy prices and still suffering from the effects of the COVID-19 pandemic.

(Source: AP News)