We have reached 2019, a year that marks a decade of global economic expansion and five extremely complicated years for Brazil, which faced the period of lowest economic growth in its history. How will this new political and economic scenario influence the pulp and paper sector?
After 10 years of growth, it is only natural that the global economy is “slowing down”. Factors such as trade wars, a possible financial crisis and the European political environment, aggravated by waves of migration, loom like a storm cloud on the horizon.
According to the IMF, World Bank and European Central Bank, Global GDP will not undergo any sudden changes in 2019, however, for these institutions, it shows a downward trend during the new year, causing apprehension, mainly among countries that are dependent on variations in the commodities market to show growth.
The international market and Brazil
Throughout the electoral campaign, then-candidate Jair Bolsonaro made several statements that were not well received by the international community and many trading partners. Comments by Finance Minister Paulo Guedes, showing little interest in strengthening Mercosur, which has been discussing the signing of a trade agreement with the European Union, also contribute to raising doubts regarding how the country will behave in relation to foreign trade.
Another point that could bring benefits to companies is the possible tax reform sought by the economic team. Among his proposals, Paulo Guedes has the simplification and unification of taxes at the federal level, with the creation of a value-added tax (VAT). The minister also intends to reduce the tax for companies from the current 34% to 15%, with the aim of stimulating the formation of new companies, reducing costs and, therefore, reverting more resources to the government.
These proposals are viewed positively by experts, but they still require further study on how they can be implemented without affecting revenue or harming states and municipalities. In other words, analyzing whether they are economically viable.
As the country is highly dependent on foreign investment to promote the essential changes desired by the new president's team, international relations and good trade agreements are essential for Brazil to improve its economic situation, which showed slight growth in 2018.
Paper And Cellulose
Because a large part of its production is exported, the pulp and paper sector is one of those that could be affected by the Bolsonaro government's foreign trade policies. With the exchange rate favorable to exports, the sector has increased production in recent years and, since the beginning of 2017, prices have been showing constant growth.
In the last quarter of 2018, with increased demand, falling production costs and a devalued exchange rate, the three largest companies in the sector in Brazil reported record operating results.
If this scenario continues, the tendency is for prices to continue to raise producer price indexes throughout much of 2019.
