With the first quarter of the year coming to a close, we can draw a clearer picture of the Brazilian economy, retail, and technology investments in 2024. In a country that has been experiencing years of low growth and numerous political and economic turbulences, entrepreneurs have been working with great caution, delaying investments and seeking to avoid risks. But, in my view, it is necessary to adopt a more optimistic perspective.
After all, despite the "harbingers of the apocalypse" who insist on predicting a collapse of the Brazilian economy, the outlook is positive. The Central Bank, for example, has been implementing a consistent reduction of the basic interest rate, the Selic, since August 2023: over the past seven months, the country has moved from a rate of 13.75% per year to the current 11.25% – and the financial market's expectation is that by December we will be between 9% and 9.5%.
This margin of more than four percentage points should bring relief to companies' balance sheets, reducing financial expenses, which were hindered by difficulties in accessing credit in 2023 after the "Americanas episode." This more positive scenario facilitates debt rollover and increases the capacity to invest in expansion, technology, and inventories. By itself, this is an essential point for retail behavior in 2024 and beyond.
But there is more good news infrontMacroeconomic: The Focus Bulletin, compiled by the Central Bank based on the views of the main financial agents, estimated, in early March, a growth of 1.77% for the Brazilian economy in 2024, with a 2% increase next year. Considering that retail traditionally grows faster than GDP, there are good prospects on the horizon for companies that can identify opportunities.
The slowing inflation is another positive point. The Focus Bulletin projected an IPCA of 3.76% for 2024 and 3.51% in 2025, both within the Central Bank's target – which opens up room for continued interest rate cuts and improvement in the population's overall income. Less inflation means more purchasing power, more consumption, and more jobs, creating a virtuous cycle that benefits society as a whole.
Who could grow in 2024?
The retail growth perspective can be segmented into two major blocks. The first is the one related to sectors dependent on income and employment, such as supermarkets, pharmacies, and pet stores: with one year of positive expectations, but relatively stable for the evolution of the wage mass and the unemployment rate, it is expected that these segments will have moderate growth – above GDP, but nothing spectacular.
On the other hand, credit-dependent segments and consumer confidence, such as semi-durable goods and (especially) durable goods, may finally leave behind a long sequence of bad quarters and adopt a more positive outlook.
Still, different companies will take advantage of the moment in various ways. Just as in recent years we saw many companies with serious problems, others showed spectacular performances. The most important thing is each retailer's ability to develop a coherent strategy and execute it efficiently. It is increasingly necessary to rely on customer data analysis and business performance to make quick decisions aligned with the strategy.
Just because the wind starts to blow favorably doesn't mean everyone will be in the ideal position to hoist the sails and sail smoothly. Especially because the first semester is still expected to be marked by small turbulences, with a better outlook starting from July. With the municipal elections approaching in October, but in a less tense political moment than we saw in 2022, instability is expected to be less felt by retail.
However, it is important to pay attention to what happens outside the country. As Thomas Friedman said, we live in a flat world: global movements have a very rapid impact on economies and can trigger quick changes in expectations, behaviors, and business decisions. In the last year, for example, factors such as the conflicts between Russia and Ukraine and between Israel and Hamas brought geopolitical tensions, while a stranded ship in the Suez Canal disrupted the global supply chain. The Panama Canal has been suffering from a lack of rain in the region, reducing its cargo transportation capacity, while El Niño reinforces the global emergency of global warming.
Looking outside the "Brazil Island," there are many reasons for concern. Although these factors are generally beyond our control, it is necessary to be prepared to react quickly and, if necessary, change plans, goals, and initiatives to address new scenarios.
Technology, innovation,venture capital
From the perspective of innovation and venture capital investments, the context we are beginning to experience, with falling interest rates and increased capacity for companies to resume projects, is quite positive. In 2022 and especially in 2023, digital transformation initiatives cooled down in many companies, which were more concerned with ensuring short-term survival. The problem is that failing to invest in the foundational aspects of the business virtually guarantees failure in the long term. A complicated dilemma, which the economy in 2024 is gradually helping to unlock.
With lower interest rates and inflation under control, incentives for risky investments increase, especially in technology companies with solid proposals and clear responses to retail "pain points." We are far from the "irrational exuberance" of a few years ago, which is even good: ideas without effective application lose ground in an environment of pragmatism. The cost-benefit ratio and the ability to generate real advantages for companies will determine the size of the "check" that startups will receive throughout 2024.
