Fiscal and monetary policies went sharply into reverse in 2022.
The expansionary fiscal and monetary policies pursued during the pandemic went sharply into reverse in 2022. Central banks in the major developed economies began raising interest rates early in the year, but were obliged to pick up the pace of tightening to enter restrictive territory more quickly. Inflation decelerated in response to monetary tightening and normalization of fiscal policy, and this was additionally favored by the regularization of supply chains. The Russia-Ukraine war did not further disrupt the production and distribution of goods. The prices of several commodities fell back after soaring at the start of the war. The global economy remained resilient for much of 2022 but eventually began showing signs of deceleration. The shift in consumption from goods to services suggests the economy is moving in the right direction, but other indicators, such as the strong demand for labor, cast doubt on whether the deceleration of activity is taking place at the required pace. In Brazil, the monetary tightening cycle begun in 2021 came to an end, but the Central Bank remains vigilant to ensure that inflation continues to converge to the target. The Brazilian economy is also expected to decelerate in 2023, but the outlook for the agricultural sector is favorable. Demand for commodities, especially those exported by Brazil, remains high, above all since China reopened its economy. In the coming years, structural reforms such as tax reform and administrative reform remain decisive for the Brazilian economy to grow sustainably.
We began our transition from home working to hybrid working at the end of 2021. The transition continued for much of 2022, although it was briefly interrupted by the advent of the omicron variant. During the year, it was evident that the hybrid regime gave flexibility to the work environment without impairing the security and efficacy of our processes.
During 2022, we strengthened our corporate commitment to the well-being of our staff, clients and suppliers, as well as the local communities where we operate. We continued to invest in and promote capacity building initiatives that involve education and training to form citizens equipped to surmount the challenges of today’s society, in line with the Sustainable Development Goals (SDGs) adopted by the United Nations. We support several projects of this kind, particularly for the education and training of socially vulnerable people, through donations and sponsorships. Among these projects are Arte Tech, run by the non-governmental organization Gamboa Ação for poor children in Gamboa, a neighborhood of Rio de Janeiro; and 42 | Rio, an innovative school that trains professionals for an increasingly digital world. We also continued to partner with universities and courses that prepare professionals in strategic areas for the bank, such as the University of São Paulo’s Luiz de Queiroz College of Agriculture (ESALQ-USP).
Our Sustainability and Women’s Committees promoted important in-house initiatives during the year, including a series of lectures by women with successful careers in various fields, and distribution of reusable cups in our offices to replace the disposable ones available hitherto.
The bank’s activities and profitability grew thanks to the Brazilian economy’s resilience in the first half of the year, the hard work of all our staff, and our focus on identifying the needs of our clients. Our systematic pursuit of diversification of the products we offer led to a change in the composition of our revenue, thanks to our ability to take advantage of the expansion of the Brazilian capital markets and the use of derivatives for financial protection of our clients. We adjusted our activity in Wealth Management Services to the new market practices with the aim of intensifying our focus on administrative services and settlement of transactions. Accordingly, the distribution of our own products and those of third parties for individual investors is now performed under an exclusivity regime via strategic partners.
We are an Asian bank, and the Asian countries, unlike the other developed countries, have widely differing economic outlooks. In China, the locomotive of the region’s economic growth, mobility restrictions were in place for most of the year due to the zero-COVID policy, but the rules on testing and quarantine were relaxed at the end of 2022. The short-term growth prospects are excellent, thanks to the economic reopening in conjunction with more expansionary fiscal and monetary policies. In the longer term, the deteriorating real estate market and the rebound of consumer and investor confidence pose challenges. The government’s planning and actions aiming at economic development, less inequality and the use of technology for sustainable growth are all the more relevant in this context. In accordance with this vision, we continued to seek opportunities and mechanisms for integration of the Brazilian markets with those of Asia, especially China. For example, we were the first Latin American bank to participate in Bond Connect, the main platform for foreign investment in fixed-income securities on the Chinese market, and we aim to integrate our foreign-exchange settlement mechanisms with the system of the People’s Bank of China.
Monetary tightening in the main developed countries points to the prospect of an economic slowdown in the near future. The pace of the adjustment in the labor market and household financial conditions will be crucial to determine whether these corrections will be sufficient to assure the convergence of inflation to lower levels. Such significant changes occurring simultaneously in several countries pose challenges for states, governments, companies and people. We will take them into account in our work during 2023.