Text written by Bruno de Queiroz - Executive Director of Galeazzi & Associados

Turning of the year and its perspectives. Market expectations for the first semester of 2024 indicate a scenario that remains largely unchanged from 2023. Regarding interest rates, the expectation is that the downward trend in rates, initiated in the second half of 2023, will continue at the same pace observed in the recent COPOM meetings. Inflation expectations suggest neither good nor bad news. In other words, we are expected to maintain a level similar to that observed in 2023. Significant volatility in the exchange rate is not anticipated, unless an unforeseen event materializes on the horizon.

Similarly, expectations for economic activity are not promising; hence, we should expect economic growth well below its potential, though appropriate given existing market conditions and the current political environment. I still anticipate significant movements in the debt restructuring market, as the volume of indebted companies remains relevant.

Another crucial point to observe is consumer debt behavior, a variable that directly affects sectors such as retail and services, which experienced considerably negative performances in 2023. It's time to align management.

Regarding the cash position of companies, I believe those with disciplined cash management have a greater chance of maximizing their resources. The effectiveness of this discipline will come from rigorous control of costs and expenses, a measure that is entirely within the control of managers.

Investment plans should be executed with great caution and, if possible, carried out with a larger share of equity, as the cost of capital is still quite high. Companies need to adopt a strategy of austerity in spending and a grounded approach to investments. Although seemingly less volatile, the scenario still requires careful consideration.

In my view, rather than betting on an improvement in results and the market, managers should make decisions after the results have materialized. Boards also need to act sternly and diligently, holding managers accountable for delivering results as per the budget plans discussed and approved for 2024. Multidisciplinary boards, in theory, will be better prepared to deal with a constantly changing environment.

I believe that companies able to execute an austere cash management strategy—controlling expenses while achieving the objectives set in the budget plan—will be in a position to finish the year with cash reserves and in a more stable condition for bigger leaps.

Close attention to variables is crucial. In my view, 2023 was a year that presented a balance very close to zero. The changes implemented had a more cosmetic and media-oriented nature than effective. Many of the much-talked-about reforms still require regulation, and their effects will be felt in the long term, depending on legislative action. The recent experiences are not encouraging.

Additionally, we concluded the year with executive decisions bringing significant uncertainty to companies and their managers (I addressed this issue in a recent post). One example was the provisional measure altering payroll tax relief. Therefore, 2024 will be a year to watch the movements of the executive, legislative, and, especially, the judiciary, which should ultimately be the balancing force.

In 2024, in addition to all the known variables, we will have municipal elections, a factor that brings some volatility, especially in the second semester when the elections take place. It is important for companies to thoroughly evaluate strategic plans to overcome any adversities that may arise, as they can come unexpectedly at any moment.