Strategic Solutions in Economics ILPA February 2012 International - PowerPoint PPT Presentation

Strategic Solutions in Economics

ILPA February 2012

 International Outlook  Brazilian Outlook  PE Market

 International Outlook  Brazilian Outlook  PE Market

International Outlook A new year fraught with risks.  USA: surprisingly good economic data; risks  Europe’s quagmire: risks of stemming from unprecedent disruptive events are political divide considerable; subpar growth for years is good scenario  Wrong diagnosis and  China: can it continue to grow pigheadedness of Germany at rapid pace? and ECB  Far from middle income trap  Why the UK pay so low  Moderate risks in housing and interest rates? shadow banking  Room for expansionary fiscal and monetary policy

International Outlook The PIIGS are uncompetitive and General Government Gross Debt % of GDP. Source and Projections: IMF. Chart: LCA. fiscally 130 123 PIIGS (average) 114 120 unsustainable 116 109 110 Brazil 100 economies 100 US 90 80 65 70 63 60 57 50 40 2006 2007 2008 2009 2010 2011* 2012* 2013* 2014* 2015* 2016*

100 150 200 250 300 350 400 450 500 International Outlook 50 market. Higher risk aversion increases the volatility in the financial 0 fev/08 abr/08 jun/08 ago/08 out/08 Source: Bloomberg. Chart: LCA. dez/08 TED Spread: US x Europe fev/09 abr/09 jun/09 ago/09 out/09 dez/09 fev/10 abr/10 jun/10 ago/10 Europe USA out/10 dez/10 fev/11 abr/11 jun/11 ago/11 out/11 dez/11 10 20 30 40 50 60 70 80 90 0 mar/08 mai/08 jul/08 set/08 nov/08 jan/09 Source: CBOE. Chart: LCA. mar/09 VIX: Volatility Index mai/09 jul/09 set/09 nov/09 jan/10 mar/10 mai/10 jul/10 set/10 nov/10 jan/11 mar/11 mai/11 jul/11 set/11 nov/11

International Outlook Europe: PMI Services Europe: PMI Manufacturing >50 = growth. Source: Bloomberg. >50 = growth. Source: Bloomberg. 65 65 60 60 55 55 50 50 45 45 40 40 35 35 30 30 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Activity data in the Eurozone has weakened in recent months.

International Outlook The US economy recovery appears reasonably well established when compared with the rest of the world: recent economic prints on jobs, industrial production and confidence have posited positive surprises.

International Outlook USA: Gross Domestic Product % QoQ ann. Seasonally Adjusted. Source: BEA. 3.9 3.8 3.8 2.5 2.3 2.0 1.7 1.3 1.3 0.4 -0.7 -3.7 -6.7 -8.9 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011

International Outlook GDP: Fixed Investments GDP: Household Consumption % QoQ ann. Seasonally Adjusted. Source: BEA. % QoQ ann. Seasonally Adjusrted. Source: BEA. 3.6 2.9 19.5 2.7 2.6 2.3 2.3 2.1 12.3 9.2 7.5 0.7 0.4 2.3 1.1 1.2 0.7 -0.1 -3.7 -5.2 -1.5 -1.9 -12.3 -17.0 -3.8 -25.2 -32.2 -5.1 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011

creation. expected job stronger than finally displaying Labor market International Outlook *Last data observed in December/11 nov/09 -34 dez/09 -102 jan/10 -42 fev/10 -21 mar/10 144 abr/10 229 Thousand workers (Private Sector). Source: BLS. mai/10 48 jun/10 65 USA: Change in NonFarm Payroll jul/10 93 ago/10 110 set/10 109 out/10 143 nov/10 128 dez/10 167 jan/11 94 fev/11 261 mar/11 219 abr/11 241 mai/11 99 jun/11 75 jul/11 173 ago/11 72 set/11 220 out/11 117 nov/11 140 dez/11 209

International Outlook USA: Unemployment Rate %. Seasonally Adjusted. Source: BLS. 11% 10.1% 10% 9% 8.5% 8% 7% 6% 5% 4% 3% Apr-06 Aug-06 Dec-06 Apr-07 Aug-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 *Last data observed in December/11

International Outlook 3Q 2007 11.5 soft landing The Chinese economy has lost some steam, but it looks like a 4Q 2007 11.2 1Q 2008 11.3 2Q 2008 10.1 China: Gross Domestic Product 3Q 2008 9.0 4Q 2008 6.8 % YoY. Source: NBSC. 1Q 2009 6.2 2Q 2009 7.9 3Q 2009 9.1 4Q 2009 10.7 1Q 2010 11.9 2Q 2010 10.3 3Q 2010 9.6 4Q 2010 9.8 1Q 2011 9.7 2Q 2011 9.5 3Q 2011 9.1 Jan-10 15.7 Feb-10 12.8 Mar-10 18.1 Apr-10 17.8 May-10 16.5 Jun-10 13.7 Jul-10 13.4 China: Industrial Production Aug-10 13.9 % YoY. Source: NBSC Sep-10 13.3 Oct-10 13.1 Nov-10 13.3 Dec-10 13.5 MA-3m Jan-11 14.2 Feb-11 14.9 Mar-11 14.8 Apr-11 13.4 May-11 13.3 Jun-11 15.1 Jul-11 14.0 Aug-11 13.5 Sep-11 13.8 Oct-11 13.2 Nov-11 12.4

International Outlook Share of Exports from China Correlation between GDP growth rates %. Source: Bloomberg. Chart: LCA. Source: IMF. Chart: LCA. 23% 0.8 22% 0.6 21% 0.4 20% 0.2 19% 0.0 18% -0.2 17% -0.4 China-USA 16% -0.6 China-Europe 15% -0.8 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011(p) Feb-10 Mar-10 Apr-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Dec-10 Feb-11 Mar-11 Apr-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Jan-10 May-10 Nov-10 Jan-11 May-11 Nov-11 Point of concern: European markets account for a significant share of Chinese exports.

International Outlook China: General Government Gross Debt % of GDP. Source: IMF. China: Consumer Price Index % YoY. Source: NBSC 33.8 10.0 8.0 26.9 6.0 22.2 18.4 4.0 17.7 17.0 15.5 2.0 0.0 -2.0 -4.0 Jul/08 Sep/08 Nov/08 Jan/09 Jul/09 Sep/09 Nov/09 Jan/10 Jul/10 Sep/10 Nov/10 Jan/11 Jul/11 Sep/11 Nov/11 May/08 Mar/09 May/09 Mar/10 May/10 Mar/11 May/11 2008 2009 2010 2011 2012 2013 2014 *Last data observed in November/11 (i) Deceleration in inflation rates and (ii) low public debt as percentage of GDP: there is scope for the government to estimulate economic activity.

 International Outlook  Brazilian Outlook  PE Market

Brazilian Outlook – GDP Lower than expected In the 2011 first  Relevant storm at the end of 2010: commodities adverse shocks and excessive domestic demand growth: inflation semester, the rates spiked economic policy  Fiscal and monetary and credit policy were tightened, focus was on economic activity decelerated in the second semester and in the final quarter inflation decelerated more markedly inflation.  In the first semester of 2012 growth will be moderate, acelerating later in the year due to relaxation of monetary policy already in course and diminished international uncertainties  Government is pledging toughness in fiscal policy in order to achieve lower interest rates without stoking inflation Medium term prospects: there are hindrances, but we see reasons to be optimistic.

Brazilian Outlook – GDP Lower than expected The slowdown of the GDP: Market Forecasts* vs. Observed Data Brazilian economy % YoY. Source: BCB & IBGE. Charts: LCA. was stronger than 5.3 4.9 4.8 expected: monetary 4.3 4.2 4.1 and fiscal tightening in 3.3 the first semester coupled with the 2.1 worsening of the international outlook 4Q 2010 1Q 2011 2Q 2011 3Q 2011 are the culprits. Forecasts Observed Data *Market forecasts is represented by the median of market expectations collected by the Brazilian Central Bank with more than 90 banks and non- financial intitutions six months before the data official release.

Brazilian Outlook – GDP Lower than expected Monetary tightening and macroprudential GDP: Quarterly Domestic Demand measures contributed (Household Consumption + Fixed Investments + Government Spending) % QoQ annualized. Seasonally Adjusted. Source: IBGE. Chart: LCA. to moderate credit 15.1 expansion. European 11.2 10.6 10.2 9.7 9.6 7.7 7.2 6.2 crisis adversely 4.8 3.9 2.5 affected expectations -0.9 of consumers and -4.4 businesses and also -14.9 helped to slowdown 1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 the fixed investments.

Brazilian Outlook – GDP Lower than expected Businesses Confidence (MA-3m) Source: FGV. Chart: LCA. 120 115 110 105 100 95 90 85 80 75 70 jan/06 jan/07 jan/08 jan/09 jan/10 jan/11 mai/06 set/06 mai/07 set/07 mai/08 set/08 mai/09 set/09 mai/10 set/10 mai/11 set/11 *Last data observed in December/11

Brazilian Outlook Monetary Policy BCB is likely to Selic target (% per year) cut the Selic rate Source: BCB. Chart & Forecasts: LCA. 15.0 by 50 basis points 14.0 per meeting 13.0 (January, March 12.0 and April) to reach 11.0 10.0 9,50%. 9.0 8.0 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12