Brazil Economic Outlook London Alexandre Tombini Governor October 2013 1
Main topics Inflation Growth UMP Exit 2
Inflation adversely affected by supply shocks 15 12 10.5 9 YoY % 6.1 6 4.7 2 nd supply 1 st supply shock 3 shock (commodities) (fresh food) 0 Jan 11 Mar 11 May 11 Jul 11 Sep 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13 CPI Food and Beverages CPI ex-Food and Beverages Source: IBGE 3
Monetary policy actions BCB acted in early 2013 to mitigate second order effects of supply shocks. After tapering signaling, BCB mitigate the ER pass-through risk 8.2 Communication 20 7.8 % ↓ 7.4 Policy rate 7.0 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 15 % 10 5 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Policy rate Swap reference rate - 360-day term Source: BCB/BM&F 4
Inflation is receding 8 Jun 13 Aug 13 6.7 7 6.1 Dec 13 5.8 6 YoY % 5 4 3 2 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 CPI Expected CPI (Focus) Source: IBGE / BCB (Focus) 5
Other CPIs also decelerating 7.5 7.0 6.5 6.0 YoY % IPC-M Sep 13 5.37% 5.5 IPC-C1 Aug 13 5.36% 5.0 IPC-Fipe Sep 13 4.58% 4.5 4.0 Dec 10 Feb 11 Apr 11 Jun 11 Aug 11 Oct 11 Dec 11 Feb 12 Apr 12 Jun 12 Aug 12 Oct 12 Dec 12 Feb 13 Apr 13 Jun 13 Aug 13 Oct 13 Dec 13 IPC-10, IPC-M and IPC-Br IPC-C1 IPC-Fipe Chained series of IPC-10, IPC-M and IPC-Br; Chained series of IPC-Fipe weekly data Source: FGV / Fipe 6
Inflation within target bands Ten consecutive years of inflation in target zone in 2013 18 16 14 12 YoY % 10 8 6 4 2 0 Dec 99 Dec 00 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 CPI Inflation Report (Sep 13) Source: IBGE / BCB 7
Growth dynamics in 2013 Real GDP QoQ Growth in 1Q13 Real GDP QoQ Growth in 2Q13 China 1.6 Colombia 2.2 Turkey 1.5 Turkey 2.1 Japan 1.0 China 1.7 South Korea 0.8 Brazil 1.5 Chile 0.8 South Korea 1.1 Brazil 0.6 Japan 0.9 Canada 0.5 South Africa 0.7 Australia 0.5 Germany 0.7 UK 0.3 UK 0.7 Colombia 0.3 US 0.6 US 0.3 Australia 0.6 South Africa 0.2 France 0.5 Poland 0.2 Chile 0.5 Mexico 0.0 Canada 0.4 Germany 0.0 Poland 0.4 France Euro Area -0.2 0.3 Euro Area -0.2 Spain -0.1 Russia Russia -0.3 -0.3 Spain Italy -0.3 -0.4 Mexico Italy -0.6 -0.7 -1 0 1 2 3 -1 0 1 2 * qoq sa Source: Bloomberg 8
Economic growth is expected to gather pace 2013 2014 China 7.8 China 7.7 India 5.6 India 6.3 World 3.1 South Korea* 3.9 Australia* 3.0 World 3.8 Mexico 2.9 Australia* 3.3 South Korea* 2.8 Russia 3.3 Brazil 2.5 Mexico 3.2 Russia 2.5 Brazil 3.2 South Africa 2.0 South Africa 2.9 Japan US 2.0 2.7 Canada Canada 2.2 1.7 US 1.7 UK 1.5 Germany UK 0.9 1.3 Germany Japan 1.2 0.3 Euro Area France 0.9 -0.2 France 0.8 Euro Area -0.6 Italy 0.7 Spain -1.6 Spain Italy 0.0 -1.8 0 5 10 * April. -5 0 5 10 Source: IMF (WEO forecasts, April and July 2013) 9
Stronger investment Gross Fixed Capital Formation 4.7 5.0 4.0 3.6 3.0 QoQ S.A (%) 2.0 1.5 1.0 0.0 -1.0 -1.4 -2.0 -1.9 -2.4 -3.0 1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13 Source: IBGE 10
Support for domestic demand Retail Sales Credit Outstanding 40 115 35 5.4% 30 YoY % (YoY) 25 95 2007 = 100 20 16.1 15 75 10 5.8% 7.7 5 (YoY) 0 55 Feb 08 Aug 08 Feb 09 Aug 09 Feb 10 Aug 10 Feb 11 Aug 11 Feb 12 Aug 12 Feb 13 Aug 13 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Total Households (nonearmarked credit) Retail Sales Retail Sales (including automobiles and construction materials) 14 Unemployment Rate Employment and Labor Income 7 12 6 MoM % sa 5 YoY % 10 4.2 4 8 3 2.4 2 1.8 6 1 Feb 12 Aug 12 Nov 12 Feb 13 Aug 13 May 12 May 13 4 Aug 02 Aug 03 Aug 04 Aug 05 Aug 06 Aug 07 Aug 08 Aug 09 Aug 10 Aug 11 Aug 12 Aug 13 Employment Real Income Real Payroll Source: BCB/IBGE 11
Record grain harvest expected in 2013 production of grains 187.3 190 185 2013/2012 180 ∆ = 15.7% 175 170 165 161.9 million tons 160.1 160 155 150 145 140 135 130 125 120 2007 2008 2009 2010 2011 2012 2013* Estimated in August 2013 Source: IBGE 12
Reforms to boost growth • Tax reforms to simplify the tax system and reduce costs − Payroll tax cuts − Tax incentives for infrastructure and R&D investment bonds • Measures to increase competitiveness and investments − Building a skilled labor force (Science without Frontiers and Pronatec Programs) − Concessions program revamped Highways, railroads, ports and airports Oil & gas 13
Brazil has a sound financial system ( Provisions – NPL) / Capital Regulatory Capital to Risk-Weighted Liquid Assets to Short Term Assets Liabilities Brazil 10 18 Germany Brazil 183 17 Mexico 9 Turkey Germany 141 17 Korea, Republic of Brazil -3 … Korea, 111 16 Mexico Turkey -3 … Russian 88 16 United Kingdom Canada -6 Italy 80 15 South Africa … Russian -10 United States 77 15 Canada India -12 14 Turkey 76 United States 14 United States -15 France Japan 51 14 Australia Korea -15 Canada 48 14 Japan United Kingdom -16 Mexico 47 14 India Japan -21 Australia 44 13 Russia South Africa -22 United Kingdom 38 13 Italy Spain -28 South Africa 36 12 Australia 11 Italy -74 India 28 Spain -100 -50 0 0 50 100 150 200 10 12 14 16 18 20 Source: IMF /FSI (latest available data) 14
Banks have a low share of external funding Origin of Bank Funding 100% 4.3 9.4 11.2 17.9 80% 60% 95.7 90.6 88.8 82.1 40% 20% 0% Public-owned Private-owned Foreign-controlled Total Domestic External Jul 13 Source: BCB 15
Brazil – Net External Creditor International Reserves Net External Creditor 400 210 376.0 350 170 300 130 250 90 US$ billion US$ billion 200 50 150 10 100 -30 50 -70 -81.8 0 -110 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013* 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013* as of Oct 1 st *Aug 2013 Source: BCB 16
External Debt of EMEs External Debt / GDP Short Term External Debt / Total 48.3 27.1 Turkey Turkey 48.8 27.7 43.9 24.1 Chile Indonesia 44.7 26.0 32.7 25.2 South Africa India 34.9 25.9 29.5 22.5 Peru Mexico 31.4 23.9 30.2 19.4 Mexico Chile 29.8 16.6 25.6 16.2 Brazil South Africa 29.6 16.1 28.7 13.5 Indonesia Colombia 27.9 13.6 21.4 13.3 Colombia Peru 21.4 13.6 20.9 9.4 India Brazil 21.4 9.4 5 10 15 20 25 30 15 25 35 45 55 *IIF forecast. *IIF forecast. 2012 2013* 2012 2013* * Brazil data includes intercompany debt transactions and domestic debt in Source: Datastream / IIF 17 hands of foreign investors
Low nonresident holdings of Gov. debt 2012 (% of Total Debt) Australia 72.2 France 63.5 Germany 61.3 Italy 35.1 Mexico 33.2 US 32.1 South Africa 32.0 UK 31.9 Turkey 29.6 Spain 29.1 Canada 23.5 … Russian 19.4 Brazil 17.6 South Korea 14.3 Japan 8.9 India 6.7 0 20 40 60 80 Source: IMF (Fiscal Monitor April 2013) 18
Brazil is leading recipient of FDI 2010 2011 2012 USA 197.9 USA 226.9 USA 146.7 China 114.7 China 124.0 China 119.7 Belgium Belgium Hong Kong 85.7 103.3 72.5 Hong Kong 82.7 Hong Kong 96.1 Brazil 65.3 UK 50.6 Brazil 66.7 UK 62.5 Singapore Australia France 48.6 65.8 58.9 Brazil 48.5 Singapore 64.0 Singapore 54.4 … Germany 46.9 Russian 52.9 Australia 48.5 … Russian UK Canada 43.3 51.1 47.2 … Ireland 42.8 Canada 41.4 Russian 44.1 Spain 40.8 France 40.9 Ireland 39.6 Australia Germany India 35.2 40.4 27.3 Switzerland 32.5 Italy 34.3 Chile 26.4 France 30.6 India 31.6 Luxembourg 22.6 Saudi Arabia Spain Belgium 29.2 29.5 19.3 0 50 100 150 200 0 50 100 150 200 0 50 100 150 Source: UNCTAD 19
CAD comfortably financed by FDI FDI / CAD (in %, 2012) CAD (12M Acc., %GDP)* Mexico -1.3 Chile 319.3 -3.2 Brazil Peru 171.5 Indonesia -3.3 Colombia 138.6 Colombia -3.5 Brazil 120.3 Peru -3.5 Mexico 111.0 -4.0 Chile Indonesia 82.5 India -5.1 India 27.9 South Africa -6.5 Turkey 26.3 Turkey -6.6 South Africa 19.0 * June 2013 0 100 200 300 400 -8 -6 -4 -2 0 Source: UNCTAD 20
Source: BCB Capital flows accum. 12 months (US$ billion) 10 15 20 25 30 35 40 0 5 Jan 12 Flows increased even after tapering talk (May 22 2013) Feb 12 Mar 12 Apr 12 May 12 Jun 12 Equities Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Fixed Income Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 21
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