Published by Minyanville

The Brazilian government has distanced itself from a $14 billion merger that was to take place between the country’s top two retailers, Pão de Açúcar and Carrefour, after the deal was attacked on both legal and antitrust grounds. The state development bank was to provide finance with $2.4 billion of public funds.

Brazil’s trade and industry minister Fernando Pimentel has said that the government will now only authorize the deal for state funding if guarantees are made that more Brazilian products will be sold overseas.

The bank has now said that finance would only come forward if the deal is approved by Casino, Careefour’s French rival which owns 43% of Pão de Açúcar.

Casino was keen to warn Carrefour of its position. RBS analyst Justin Scarborough told Reuters, succinctly: “I think Casino has all the aces. They don’t need the cash and they’ve got what looks like a growth driver long-term. They've got every right to say, ‘We're not doing a deal.’”

Brazil's Stock Market "One of the Weakest in the World"

Brazil’s benchmark IBOVESPA index has “not only been the worst performing [stock market] in the region but also one of the weakest in the world,” begins the Wall Street Journal in its quarterly review of the country’s economy.

The market fell 9% in the second quarter, just as the country’s central bank raises interest rates in an attempt to slow inflation. Paulo Winterstein of the Journal puts some blame on global crises such as in Japan as well as Greece’s debt problems. However, with those calamities looking to calm, “growth and inflation expectations in Brazil are likely to stabilize,” says Winterstein.

Inflation Headache Continues for Brazil

Inflation is the continual headache for Brazil. New data shows that the government held back on spending in May in order to cool the economy. In the 12 months through May, the IPCA inflation index rose to 6.55%, above the government’s target range of 4.5% to 2013.

The over-valued real is another problem for the country’s authorities. It is likely to be about to hit 1.5 to the US dollar. There are hopes that policymakers will finally step in to slow down the currency’s relentless growth which neared 12-year highs in recent weeks.

Finance minister Guido Mantega spoke this week to the Financial Times, admitting that the country was still a long way off from agreeing new guidelines on managing currencies. He blamed slow growth and low interest rates in the world’s more developed economies for the surge in the real.

“Monetary policy is very tight in Brazil and the level [of interest rates] in real terms is higher than in other [emerging] countries,” Mantega told the London paper, before rejecting any suggestions that the country was overheating.

Brazil Trade Relations With China

Brazil’s trade relations with China have been the subject of speculation recently, following Rousseff’s visit to China in April. Brazil had a trade surplus with the Asian giant of $57 billion last year with the bulk of exports coming from just iron ore, soybean and petroleum.

“Brazil is growing dependent on Chinese industrial goods used in the early stages of the production chain,” Julio Almeida, director of the Brazilian Institute for Industrial Studies, told the Wall Street Journal. “Brazil's advantage is that it has rebuilt and reinvented a vibrant internal market,” he continued. “But Brazil will never recreate the Asian model of export-oriented industrial growth.”

Brazil’s manufacturing sector is still lagging behind its Chinese counterpart, according to a recent academic study. Manufacturers need a new set of industrial policies, claims the Brazilian Center for Analysis and Planning (CEBRAP) who carried out the study, to relieve prospects. The deficit in manufacturing is offset by things like raw materials and electronic components, according to the report.

Brazil Transport Minister Forced to Resign

Transport minister Alfredo Nascimento has been forced to resign as allegations have appeared which suggest that his staff was skimming money from federal infrastructure projects. The news is worrying for Rousseff, as Nascimento is the second member of her cabinet to resign in the past month on charges of corruption. Both Nascmento and Antonio Palocci, former chief of staff, have denied wrongdoing.

Goldman Sachs (GS) is looking to boost its Braziliam workforce, as it looks to expand in emerging markets, following in the footsteps of many of its competitors.