Myth Of Decline: U.S. Is Stronger and Faster Than Anywhere Else

On Aug. 5, 2011, when Standard & Poor’s stripped the United States of its AAA credit rating, it was the latest in a string of economic humiliations for the U.S. After the failure of Lehman Brothers in the fall of 2008, the globe’s longtime economic leader suffered its deepest and longest economic contraction in 80 years. Its markets were scythed in half, and Washington’s political paralysis spooked investors. Most distressing were the numbers: annual deficits over $1 trillion, 8.75 million jobs lost, $4-per-gallon gasoline.

Given the magnitude of the economic fall, it’s no surprise that declinism quickly emerged as the time’s chic intellectual pose. Left and right, highbrow and lowbrow, ideological and pragmatic, historians and futurists—all came to an agreement: the U.S. had a very slim hope of recovering from its self-inflicted blows. The lion was now a lamb, shorn of aggression and vitality, unable to compete with rivals like China. Much like Japan, which has endured two decades of stagnation and misery since its real-estate bubble popped in the late 1980s, the U.S. had fallen and couldn’t get up.

As is frequently the case, however, the conventional wisdom is wrong. The U.S. economy suffered a wipeout in the Great Recession of 2008–09, much like 1970s icon Steve Austin. Austin, played by Lee Majors, was an astronaut who crashed to Earth and then was rebuilt with typical American optimism. “We can rebuild him,” the voice-over for the opening of The Six Million Dollar Manintoned. “Better than he was before. Better, stronger, faster.” Like the world’s first bionic man, the U.S. economy has come back—better, stronger, and faster than most analysts expected, and than most of its peers.

In fact, the lows of March 2009 marked the beginning of an unexpected recovery—not the beginning of an era of irreversible stagnation. The U.S. economy went from shrinking at a 6.7 percent annual rate in the first quarter of 2009 to expanding at a 3.8 percent annual rate in the fourth quarter of that year—a turnaround unprecedented in modern history. The stock market has doubled since March 2009, while corporate profits and exports have surged to records. The U.S. economy has regained its 2007 peak, and is now growing at a 3 percent annual clip—a more rapid pace than any other developed economy. The crucible of the recession forged an economic structure that is more resistant to shocks than the brittle vessel that shattered in 2008. Meanwhile, Europe continues to grapple with insoluble banking and sovereign debt crises, and developing-economy juggernauts like China and Brazil are showing signs of cracking.

It’s clear that the story of America’s recovery—unsatisfying and problematic as it has been—isn’t a Hollywood tale. Rather, it rests on an understanding of its core competencies and competitive advantages: attitudes and capabilities that, even in this age of globalization, remain unique. Contrary to the declinists’ view, global growth has not been a zero-sum game for America’s economy.

A rapid, decisive, and sufficiently effective policy response was the precondition for a return to growth. It took the U.S. just 18 months to conduct the aggressive fiscal and monetary actions that Japan waited 12 years to carry out after its credit bubble burst. But America’s recovery since then has been fueled by a resilient and nimble private sector. Rather than sit around and wait for salvation, U.S. companies quickly moved to restructure operations and debt. Business bankruptcy filings spiked from 28,322 in 2007 to 60,837 in 2009—an increase of 115 percent in two years. In 2009 a record 191 U.S. companies, with a combined $516 billion in debt, defaulted on their bonds.

Rather than sink deeper into a financial morass, the American private sector emerged better: better equipped to meet obligations, to save, to invest, to spend, and, ultimately, to grow. Pretax corporate profits rose from $1.25 trillion in 2008 to $1.8 trillion in 2010, and to $1.94 trillion in 2011. And rather than throw in the towel and surrender to Chinese competitors, U.S. companies figured out how to get more out of existing resources.

From the fourth quarter of 2008 to the fourth quarter of 2009, productivity rose 5.4 percent. And it rose an impressive 4.1 percent in 2010. At businesses big and small, memos went out about using fewer paper clips, printing on both sides of the paper, and canceling newspaper subscriptions. Thanks to the work of efficiency-seeking engineers, UPS squeezed more deliveries out of existing resources by eliminating left turns from trucking routes. The typical passenger car sold in 2010 averaged 33.9 miles per gallon, up from 30.1 in 2006.

Companies that made a business of helping other people save money thrived during the recession. BigBelly Solar, a startup in Newton, Mass., manufactures solar-powered trash compactors that send text messages when they’re full. They enable cities and colleges to cut costs on garbage collection by up to 75 percent. Sales of the $4,000 units, which are made in the U.S., doubled every year between 2008 and 2010.

But financial failure in the U.S. gets worked out much more quickly than it does elsewhere. GM and Chrysler each spent a mere 40 days in Chapter 11 after filing for bankruptcy in the spring of 2009. In their brief sojourns in Chapter 11, they ripped up contracts, shucked benefits, lopped off $109 billion in liabilities, and established new, profitable business models. The third member of the Big Three, Ford, was more impressive—and exemplary. Eschewing a bailout, Ford ground out a recovery by embracing foreign markets, aggressively cutting costs, investing for growth, and paying down billions of dollars in debt. After hitting a nadir of $1.59 in February 2009, its stock rallied to $18 in January 2011—an 11-fold rise. By the end of 2011, Ford had reinstituted its dividend and stood on the cusp of regaining an investment-grade rating.

For U.S. companies, focusing on efficiency and productivity has been the equivalent of a runner strengthening her core. But companies now run farther and faster because of their ability to engage external forces. Declinists believe that the structural forces transforming the global economy are arrayed against us. But in fact, many of them work in America’s favor.

The U.S. remains the largest, richest, most secure market in the world, full of valuable resources. That’s why it continues to lead the world in foreign direct investment (FDI). In 2010, FDI rose to $194.5 billion from $135 billion in 2009, and stood at $155 billion through the first three quarters of 2011. The Japanese retailer Uniqlo in October 2011 opened its three-story, 89,000-square-foot flagship store on the corner of Fifth Avenue and 53rd Street in Manhattan. The lease it signed—$300 million for 15 years—is the most expensive retail lease in New York’s history. When news broke in December 2011 that former Citigroup CEO Sandy Weill had sold his apartment at 15 Central Park West for the unprecedented price of $88 million, experts wondered which Russian oligarch was behind the purchase. It was fertilizer magnate Dmitry Rybolovlev, who bought it for his 22-year-old daughter.

To hear declinists tell it, the U.S. doesn’t make anything anymore. Well, yes, except for the $180 billion in goods and services Americans export every month. Outside the U.S., there are 6.6 billion people with generally rising living standards who are willing and eager to buy what Americans are selling. Since bottoming in April 2009 at $124 billion, monthly exports have risen nearly 50 percent. In 2010, when the economy added 1.03 million new jobs, the number of jobs supported by exports rose by 500,000, from 8.7 million to 9.2 million.

More people around the world are eating better, which is good, because the U.S. is to food what Saudi Arabia is to oil. Agricultural exports hit a record $115.8 billion in 2010, and in 2011 soared to $136 billion—nearly double the 2007 total. In a modern-day analogue of carrying coals to Newcastle, the U.S. ships beef to Brazil, rice to Japan, and soybeans to China ($9.19 billion worth in 2009 alone). Total exports to China soared from $41.2 billion in 2005 to $104 billion in 2011.

“Every unit that gets manufactured in this site this year is going to be exported,” General Electric CEO Jeff Immelt told employees at the company’s gas-turbine plant in Greenville, S.C., in the spring of 2011. I accompanied Immelt as he walked through the immaculate factory. The 2011 production schedule called for 90 such electricity-generating units, at about $25 million each. Small companies have transformed into export powerhouses, as well. Wallquest, a family-owned high-end wallpaper company outside Philadelphia, saw exports rise from 35 percent of sales in 2009 to 65 percent in 2010, as orders streamed in from Russia, Saudi Arabia, and China.

Increasingly, foreigners don’t just buy the stuff Americans make. They buy only-in-America experiences—like higher education. Since 1972 the number of foreign students has risen every year, with the exception of the three years after 9/11. A record 690,923 foreign students enrolled in the 2009–10 academic year, according to the Institute of International Education. “In the countries that are thriving, there’s increasing interest from families who want access to the American higher-education system and are in a position to pay for it,” said Stephen Schutt, president of Lake Forest College, a small liberal-arts college near Chicago (tuition: $38,320). Schutt spent his 2011 spring break in China, visiting secondary schools. Of the 410 students who matriculated in the fall of 2011, 63 (or 15 percent) hailed from 33 countries. Every tuition dollar is an export.

Tourism has boomed in the age of decline, too. Those lines of people with funny accents clogging up the lines at Disneyland? They represent exports just as valuable as the bushels of grain being loaded onto container ships in Los Angeles. In 2010, a record 59.8 million international visitors came to the U.S., up 8.7 percent from 2009. That year, tourism was a $134.5 billion export industry.

Increasingly, U.S. companies are meeting global consumers where they live. Whether it is Starbucks in Turkey, Mary Kay in China, Taco Bell in India, or an American medical school in the Persian Gulf, U.S. business concepts travel remarkably well. In 2010, for the firms in the S&P 500 stock index that broke out such results separately, 46.3 percent of revenues came from outside the U.S., up from 43.5 percent in 2006.

By 2015, market-research company J.D. Power projects, the world’s drivers will purchase 103 million light vehicles per year, and 84 percent of those sales will take place outside U.S. borders. Last November, I went to Shanghai to visit a car plant that wouldn’t seem out of place in Ohio. It belongs to GM Shanghai, a joint venture of General Motors and the Chinese car company SAIC. Here the revived car company is reviving a brand, Buick, that has been left for dead in America. Buick is tapping into a long legacy in China; it is commonly noted that the last emperor owned one. The Buick Excelle, a small vehicle modeled on the Chevrolet Cruze, is a high-volume product: 200,000 are made each year in China. “We’re fully loaded here,” plant manager David Gibbons told me. In the third quarter of 2011 GM sold 620,000 vehicles in China, compared with 555,000 in the U.S.

The ways in which U.S. companies continue to gain traction—even at a time when the economic prospects of the U.S. seem dim—was driven home to me by my experience at the World Economic Forum in Davos, Switzerland, in January. I attended a luncheon and a dinner where the elites hung on every word uttered by Sheryl Sandberg, the chief operating officer at Facebook. At the hottest ticket—the Google party—the crowd was entranced. Once past the velvet ropes, status-hungry attendees were alternately checking out the name tags that hung around people’s necks and looking lovingly … into their iPhones.

High in the Alps, at a confab where American decline is a perennial theme, where new models of dynamism are thought to emerge from everywhere but America, the most significant presences were U.S. companies. Apple and Google are the nation’s second- and ninth-largest companies by market capitalization, with a combined value of nearly $600 billion. Facebook has been valued at more than $100 billion. Yet in 2002, none of these companies existed in anything like their current form. Their combined market cap was a few billion dollars, consisting mostly of Apple, an also-ran personal-computer maker. Google was a piece of code. Mark Zuckerberg was just entering Harvard.

All three gained mass and scale during the long expansion of the 2000s, but took off in the years after the Lehman crash. Today, they are iconic magnets of human capital. They represent American economic dynamism the way Chevrolet and McDonald’s once did. Sure, they employ relatively modest numbers of people. But their economic significance lies in the fact that they’ve created platforms for other businesses, industries, and entrepreneurs to create new economic arrangements. Think of what iTunes has done for the publishing, music, and entertainment industries.

The U.S. is losing primacy in geopolitics, but it remains the indispensable economic nation. The systems that American companies have invented are being put to vital use. Egypt’s pro-democracy activists organized on Facebook. Syrian dissidents make videos of clashes with the Army on iPhones and upload them for the world to see on YouTube. Highly productive American farmers are feeding the world. Planes manufactured by Boeing provide mobility to people in Africa.

It’s easy to look at the record of the past few years and despair. The U.S. has a very long way to go to make up for lost ground in housing and, especially, in jobs. The resurgence of the corporate sector, which provides ample reason for optimism, hasn’t translated into new positions for the legions of unemployed. But here, too, there’s positive news. Since February 2010, the private sector, which accounts for 83 percent of all employment, has added nearly 4.1 million jobs, or about 160,000 per month. That’s not sufficient, but it’s a sign that the jobs machine is clearly working again. The public sector has been the sole source of job loss: austerity-minded government entities have cut a million jobs since 2010. But the sharp reductions have come to a halt.

In the months since the Lehman debacle, the U.S. has no more lost its ability to grow and innovate than reality-TV producers have lost their ability to coax skanky behavior out of New Jersey’s youth. And despite all the headwinds, there’s no reason the expansion that started in July 2009 can’t go on as long as the previous three, which lasted 73 months, 120 months, and 92 months, respectively. When the definitive history of this period is written, it is possible—no, likely—that this post-bust era will go down not as a time of economic decline, but as one of regeneration.

Daniel Gross is one of the most widely read financial and economic writers working today. He is a senior editor at Newsweek, where he writes the “Contrary Indicator” column. He writes the twice-weekly “Moneybox” column for Slate, which also appears on

Before joining Newsweek in the spring of 2007, Mr. Gross wrote the “Economic View” column in the New York Times, was a contributing writer to New York, and contributed regularly to magazines such as Fortune and Wired. From 1998-2007, Gross served as the editor of STERNBusiness, a semi-annual academic magazine on economics and management published by the New York University Stern School of Business.

A native of East Lansing, Michigan, Mr. Gross graduated from Cornell University in 1989, with degrees in government and history, and holds an A.M. in American history from Harvard University (1991). He worked as a reporter at The New Republic and Bloomberg News, and has contributed hundreds of features, news articles, book reviews and opinion pieces to over 60 magazines and newspapers. Areas of expertise include: economic and tax policy, the links between business and politics, the rise of the investor class, the culture of Wall Street, and business history.

He is the author of four books: “Forbes Greatest Business Stories of All Time” (Wiley, 1996), which was a New York Times Business bestseller and a finalist for the Financial Times “Lex” award, given to the best business history book of 1996. Translations have been published in Spanish, German, Czech, Polish, Portuguese, Bulgarian, Chinese, Turkish, and Japanese; “Bull Run: Wall Street, the Democrats, and the New Politics of Personal Finance” (PublicAffairs, 2000); “The Generations of Corning: The Life and Times of an American Company,” co-authored with Davis Dyer, (Oxford University Press, 20010; and “Pop! Why Bubbles Are Great for the Economy,” (HarperCollins, May 2007).

Mr. Gross appears frequently in the media. A regular guest on CNBC, MSNBC, and National Public Radio, he has also appeared on CNN, Fox News Channel, The Newshour with Jim Lehrer, Bloomberg Television, C-SPAN, BBC, and Reuters TV, and on more than 50 radio programs and talk shows.

Mr. Gross lives in Westport, Conn., with his wife and two children.

Source: The Daily Beast

Guest post: Brazil! Miracle or mirage?

The enthusiasm with which much of the world has viewed the Brazilian economy in recent years seems to have added an exclamation mark to the country’s name. Whenever someone in a foreign country asks where you are from and you say you’re Brazilian, your questioner will cheerfully exclaim: “Brazil!”.

No surprise then that Paul Krugman, a Nobel laureate in economics, affirmed during a conference in São Paulo a few days ago that Brazil “is the darling of global financial markets”.

This “Brazilmania” is due to a variety of reasons: Brazil’s competency in biofuels and its prospects of becoming an energy superpower with the pre-salt oil; conservatively responsible macroeconomic management; minimum wage policies that have improved the lives of millions; thriving agribusiness; its membership of the Brics group of emerging 21st century nations; a GDP ranking that places it among the world’s largest economies (turbo-powered by its overvalued exchange rate); and the country’s resilience during the twin crises of 2008 and 2011.

Brazilmania has been good for Brazil. It has strengthened national self-confidence. Brazilians rejoice in the certainty that “we are on the right road”; that from now on “no one is holding this country back”.

Nonetheless, perceptions of Brazil around the world have already begun to change. In recent months Brazil’s growth has been close to zero. This weak performance has been influenced by the effects of the severe 2011 European crisis. Yet it is indicative of the limitations of the present development model pursued by Brazil.

Let there be no mistake. The emergence of the Brazilian economy, though unfortunately falling short of its potential, is real and it is here to stay. It is no “mirage”. The period from 2003 to the present has been one of great achievements.  But nor are these sufficient to characterize it as a “second Brazilian miracle”, as some would have it.

If truth be told, the “first” miracle, of 1968 to 1973, a period in which average annual growth in Brazil was greater than 11 per cent, should not have been called a “miracle” either.

At that time, as now, domestic savings in Brazil were low (under 20 per cent of GDP). The country depended then, as it does today, on abundant flows of financial capital and foreign direct investment (FDI) to sustain growth.

In times when the international economy expanded amid a cheap and abundant supply of credit, as in the transition from the 1960s to the 70s, it was easy to borrow money and finance growth.

On the domestic market, repressed demand powered along by solid inflows of capital worked together splendidly to produce an artificial impression of prosperity. The first oil shock in 1973, as we call it, broke the spell of the “miracle”.

Nowadays foreign credit is also available at low prices, as it was 40 years ago – though for different reasons. The mega-crises of 2008 and 2011 have forced the central banks of the northern hemisphere to lower their interest rates to zero.

With a comparatively high money market yield and a protected (though increasingly porous) domestic market formed under a reinterpretation of the import substitution policies of the past, Brazil once again ranks high among the preferred desintations for portfolio investment and FDI.

But in 2012 Brazil’s share of the global economy is essentially the same as the one it held in 2002 (2.9 per cent), when Brazil’s risk premium [the amount of interest it had to pay to borrow, above the rate for US Treasuries] exceeded 2,400 basis points and the world feared the country might follow the same path as Argentina in its socially and economically tragic currency crisis of 2001.

Brazil’s growth has been lower than the average achieved over the past decade by India, Russia and China or by its Latin American neighbours which, like Brazil, increasingly – and unfortunately – have also been characterized by the low labour productivity and by an “oligoculture” of a few agricultural and mineral commodities for export.

Brazil accounts for little more than 1 per cent of international trade (it was 2 per cent in 1950) and for the past two decades has found itself stalled with investment of only 1 per cent of GDP in research & development, an essential element in fulfilling the innovation imperative.

The social and economic accomplishments of the past decade are undeniable, particularly when it comes to social inclusion and the fight against poverty.

But Brazil’s rise is most impressive when compared with its own recent past or with its Latin American cousins. It is much less so when the comparison is with other global growth players, such as the Asian countries.

Brazil’s current local content policies, if not followed by the necessary parallel investments in training, education and R&D, will have less to do with enhancing an endogenous capacity to compete and more to do with protectionism plain and simple. While there has certainly been improvement in the lives of the poorest, the low productivity of the Brazilian worker is setting lower ceilings for future income gains.

As competitiveness is lost and the country deindustrialises faster than it reindustrialises (in sectors where local content rules have fostered investment) a high level of employment can only be maintained with new paternalist protection for local industries. Even more so as prices and production costs are absurdly high.

If nothing is done about the nightmare taxes, equal to nearly 40 per cent of GDP, and parochial labour regulations, they will continue to stifle Brazilian competitiveness and hold back the country’s potential for years to come. And there is obviously a limit to the the flow of FDI into Brazil geared towards setting up local operations, so that companies can gain the credentials needed to sell to the Brazilian government or to companies in which the government is a shareholder.

Consequently, Brazil ends up hailing itself for making the most out of an economy driven by domestic consumption (for how long?) and not by a trend toward savings and investment as a growing percentage of GDP.

As in the past, Brazil is using high interest rates and the overheated domestic market as countercyclical advantages. Recently, industrial policies based on ”local-contentism”, the hosting of mega-events such as the FIFA World Cup and the Olympics and its status as an energy superpower-to-be have added to the Brazilmania hype. They allow for more than simply a mirage of economic growth. But they are certainly not the magic ingredients of a miracle.

Marcos Troyjo is director of the BRICLab at Columbia University, where he teaches international affairs

Source: Financial Times


Brazil tech sector aims higher after Instagram success

Facebook’s $1-billion purchase of Instagram this month crowned a new poster child for the tech boom and made a hometown hero out of Mike Krieger, the Brazilian cofounder of the picture-sharing app.

The next challenge for Krieger’s aspiring cohort of local tech entrepreneurs: to hit it big without leaving Brazil for Silicon Valley or an Ivy League dorm room.

Their task is getting easier. Brazil’s buzzing tech sector has venture capital funds snapping up stakes in local web startups at an unprecedented pace.

The main draw for investors is Latin America’s biggest consumer market. Brazil already spends $13-billion a year online with just 40 per cent of the country using the Internet – about half the U.S. rate, but rising quickly.

The Internet’s biggest names have been ramping up their presence in Brazil even as broad investment has stagnated in recent months as economic growth slowed.

Facebook tripled its users last year in Brazil, now its third largest market. Netflix launched a streaming service in the country and Amazon is expected to enter the market this year, according to industry sources.

Venture capital investments in Brazil nearly tripled last year by informal estimates. The flood of new capital has turbocharged the valuations of local startups to levels that has some observers warning of a bubble.

Ground zero for Brazil’s tech sector is cosmopolitan Sao Paulo. But smaller hubs have formed in second-tier cities such as Recife, Campinas and Belo Horizonte, an old mining city where faded downtown buildings have been converted into lofts filled with Internet startups.

There is no official data available for venture capital funding in Brazil. But a database compiled by Diogo Gomes, an online entrepreneur and blogger, shows that Brazilian tech startups landed just six venture capital investments in 2009. In 2010 he registered 17 capital injections and by last year the number had climbed to 45.

“At the beginning of 2012, no foreign venture capital fund had yet invested in Brazil. Now there are more than a dozen, the biggest funds in the world, desperately looking for investments here,” said Julio Vasconcellos, chief executive of deal website Peixe Urbano, one of Brazil’s most successful startups.

In January, Morgan Stanley Investment Management and T. Rowe Price Associates made an undisclosed investment in Mr. Vasconcellos’s company. It was the startup’s third cash injection in just over a year.

Shortage of qualified workers

Still, some analysts warn that the same bottlenecks throttling other industries could threaten Brazil’s nascent tech boom, which already confronts a lack of skilled workers, suffocating bureaucracy and a soaring cost of living.

Brazil also lacks a strong entrepreneurial ecosystem with inexpensive legal services, easy promotion and young talent, according to Dave Goldberg, who runs online survey company SurveyMonkey.

“If there is a lot of capital coming in without all of these other (elements) in place, you’ll inflate the value of things,” said Mr. Goldberg, who was in Sao Paulo from Palo Alto to establish a Brazilian foothold for his company.

“Some people think it’s already happening, that valuations are starting to get out of control,” he said.

Capital is coming from U.S.-based funds such as Benchmark Capital, Tiger Global and Redpoint Ventures, Europeans such as Atomico and even regional ones like Argentina’s Kaszek Ventures or Brazil’s Monashees Capital.

Over the last 12 months, Redpoint poured $19-million into the travel site ViajaNet, Atomico raised $8.7-million for the auto parts retailer Connectparts and Tiger and Monashees put $4.4-million into

All that cash has set off warning bells.

“The excessive liquidity is causing problems for the industry. Companies have started to lose focus in their business and focus instead on readying themselves for investments,” said Mariano Gomide, an entrepreneur who organizes the country’s top e-commerce conference, E-merging.

“There is a bubble,” he said, estimating Brazilian Internet assets could be overvalued by 30 per cent to 40 per cent.

Maturing industry

But others say the venture capital industry has learned its lesson from the Internet bubble of the 1990’s.

“Nobody is willing to pay prices way higher than the value of the assets and risk not getting returns,” said Clovis Meurer, the head of Brazil’s Venture Capital Association.

Kaszek Capital, a $100-million fund that has invested in 16 startups in Latin America, more than half of them in Brazil, says prices are still reasonable.

“In general we see good opportunities to invest in companies with fair valuations,” said Nicolas Szekasy, a partner at Kaszek. “We find excellent entrepreneurs that are going after interesting markets.”

Investors seem more worried about a shortage of talented programmers, trained engineers and seasoned entrepreneurs.

“It is not enough to just have money. You need people who have done it before and can guide the new guys,” said Mr. Goldberg of SurveyMonkey.

Source: The Globe and Mail

Brazil has room to test lower interest rates – BNDES

Brazil has “a window of opportunity” to test lower interest rates this year, given the deflationary forces currently at play in the global economy, the president of the country’s state development bank said on Monday.

“There is no reason in Brazil not to test lower interest rates and that’s what the central bank is doing carefully,” BNDES President Luciano Coutinho told investors in New York.

Brazil’s central bank last week lowered its base Selic interest rate to 9 percent, near an all-time low, and surprised markets by signaling more cuts were possible.

Analysts forecast Brazil’s inflation to stand at 5 percent this year and 5.5 percent in 2013, above the government target of 4.5 percent.

But Coutinho is more upbeat.

“Brazil’s growth will be higher than markets expect, and inflation will be lower than markets expect this year,” he said at a conference organized by the Brazilian American Chamber of Commerce.

A deceleration in the world economy, particularly in China, which translates in lower commodities prices, will contribute to lower global inflation this year, Coutinho said.

“We see a deceleration in China as a benign scenario, because it mitigates the exaggeration in commodity prices,” he said, adding that he does not see a hard landing for the Chinese economy.

Talking to reporters after his presentation, Coutinho stressed he was not recommending that the central bank cut interest rates below its current level of 9 percent.

“How low interest rates go in Brazil is a central bank decision and it’s not up to me to comment or make any recommendation about that.”

Source: Reuters


Nestle to buy Pfizer’s infant nutrition unit for $11.9bn


The Swiss food giant Nestlé agreed on Monday to buy Pfizer’s infant nutrition business for $11.9 billion in a move to expand the company’s presence in the global baby food market.  

The deal will help Nestlé tap into the growth of the emerging markets. Nestlé, which already has a large infant nutrition business in Latin America, will add operations in the Asia-Pacific region and the Middle East. Pfizer’s nutrition business currently generates 85 percent of its revenue from emerging markets.  

“Pfizer Nutrition is an excellent strategic fit, and this acquisition underlines our commitment to be the world’s leading nutrition, health and wellness company,” Nestlé’s chief executive, Paul Bulcke, said in a statement.  

Nestlé’s share price fell 2.71 percent in late morning trading in Zurich.  

Under the terms of the deal, Nestlé, which outmuscled Danone, will pay cash for the Pfizer unit. The group was put up for sale in July along with the Pfizer’s animal health business as the pharmaceutical company looked to focus on its core drug-making operations.  

Nestlé said it expected $160 million of annual cost savings by the fourth year after the deal closed, adding that implementation costs would be approximately $300 million. The company said it would pay for the deal through cash reserves and existing credit facilities. 

Nestlé said it was paying 19.8 times the Pfizer unit’s estimated pretax profit for 2012. That compares with 10 to 12 times for other recent acquisitions in the food industry, according Jon Cox, an analyst at Kepler Capital Markets in Zurich.  

“The company is paying a strategic price to get the deal done,” Mr. Cox said. “In the long term, it makes sense for Nestlé to buy the business. It looks pricey, but it gives them greater exposure to the fast-growing Asian markets.”  

Last year, the Pfizer unit reported revenue of approximately $2.1 billion, a 15 percent increase compared with that of 2010. Nestlé said it expected the unit to generate revenue of $2.4 billion this year.  

The nutrition unit is big enough that the deal will present some tough antitrust challenges for Nestlé, which could mean it may have to make some divestitures to win regulatory approval.  

The transaction also will allow Pfizer to offload the nutrition business that it acquired through its $68 billion takeover of Wyeth in 2009. Last spring, Pfizer also sold a division that makes capsule coatings for drugs to Kohlberg Kravis Roberts for about $2.4 billion.  

“The sale of the nutrition business to Nestlé is consistent with Pfizer’s intention to generate the greatest value for shareholders by maximizing the value-creation potential of our businesses and prudently managing our capital allocation,” Pfizer’s chief executive, Ian Read, said in a statement.  

The transaction is expected to close by June 2013, pending regulatory approval.  

Morgan Stanley, Centerview Advisors and the law firms Skadden, Arps, Slate, Meagher & Flom, Clifford Chance and DLA Piper advised Pfizer on the deal, while Rothschild advised Nestlé.

Source: Migalhas