Brazil Economic Outlook London Alexandre Tombini Governor October - - PowerPoint PPT Presentation

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Alexandre Tombini Governor

October 2013

Brazil Economic Outlook

London

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Main topics

Inflation Growth UMP Exit

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6.1 10.5 4.7 3 6 9 12 15 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 YoY %

CPI Food and Beverages CPI ex-Food and Beverages

1st supply shock (commodities) 2nd supply shock (fresh food)

Source: IBGE

Inflation adversely affected by supply shocks

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5 10 15 20 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

7.0 7.4 7.8 8.2 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 %

Source: BCB/BM&F

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 Communication ↓ Policy rate

5

Source: IBGE / BCB (Focus)

Inflation is receding

Jun 13 6.7 Aug 13 6.1 Dec 13 5.8 2 3 4 5 6 7 8 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 YoY % CPI Expected CPI (Focus)

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Other CPIs also decelerating

Source: FGV / Fipe

IPC-M Sep 13 5.37% IPC-C1 Aug 13 5.36% IPC-Fipe Sep 13 4.58%

Chained series of IPC-10, IPC-M and IPC-Br; Chained series of IPC-Fipe weekly data

4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 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 YoY % IPC-10, IPC-M and IPC-Br IPC-C1 IPC-Fipe

7

Source: IBGE / BCB

Inflation within target bands

Ten consecutive years of inflation in target zone in 2013

2 4 6 8 10 12 14 16 18 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 YoY % CPI Inflation Report (Sep 13)

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Source: Bloomberg

* qoq sa

• 0.6
• 0.4
• 0.3
• 0.2
• 0.2

0.0 0.0 0.2 0.2 0.3 0.3 0.3 0.5 0.5 0.6 0.8 0.8 1.0 1.5 1.6

• 1

1 2 Italy Spain Russia Euro Area France Germany Mexico Poland South Africa US Colombia UK Australia Canada Brazil Chile South Korea Japan Turkey China Real GDP QoQ Growth in 1Q13

• 0.7
• 0.3
• 0.3
• 0.1

0.3 0.4 0.4 0.5 0.5 0.6 0.6 0.7 0.7 0.7 0.9 1.1 1.5 1.7 2.1 2.2

• 1

1 2 3 Mexico Italy Russia Spain Euro Area Poland Canada Chile France Australia US UK Germany South Africa Japan South Korea Brazil China Turkey Colombia Real GDP QoQ Growth in 2Q13

Growth dynamics in 2013

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Source: IMF (WEO forecasts, April and July 2013)

Economic growth is expected to gather pace

* April.

• 1.8
• 1.6
• 0.6
• 0.2

0.3 0.9 1.7 1.7 2.0 2.0 2.5 2.5 2.8 2.9 3.0 3.1 5.6 7.8

• 5

5 10 Italy Spain Euro Area France Germany UK US Canada Japan South Africa Russia Brazil South Korea* Mexico Australia* World India China

2013

0.0 0.7 0.8 0.9 1.2 1.3 1.5 2.2 2.7 2.9 3.2 3.2 3.3 3.3 3.8 3.9 6.3 7.7 5 10 Spain Italy France Euro Area Japan Germany UK Canada US South Africa Brazil Mexico Russia Australia* World South Korea* India China

2014

10

Source: IBGE

• 2.4
• 1.9
• 1.4

1.5 4.7 3.6

• 3.0
• 2.0
• 1.0

0.0 1.0 2.0 3.0 4.0 5.0 1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13 QoQ S.A (%)

Gross Fixed Capital Formation

Stronger investment

11 1.8 2.4 4.2 1 2 3 4 5 6 7 Feb 12 May 12 Aug 12 Nov 12 Feb 13 May 13 Aug 13 YoY % Employment Real Income Real Payroll 4 6 8 10 12 14 Aug 02 Aug 03 Aug 04 Aug 05 Aug 06 Aug 07 Aug 08 Aug 09 Aug 10 Aug 11 Aug 12 Aug 13 MoM % sa 55 75 95 115 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

Retail Sales Retail Sales (including automobiles and construction materials)

2007 = 100 5.4% (YoY) 5.8% (YoY)

Source: BCB/IBGE

Support for domestic demand

Unemployment Rate Employment and Labor Income Credit Outstanding Retail Sales 16.1 7.7 5 10 15 20 25 30 35 40 Feb 08 Aug 08 Feb 09 Aug 09 Feb 10 Aug 10 Feb 11 Aug 11 Feb 12 Aug 12 Feb 13 Aug 13 YoY % Total Households (nonearmarked credit)

12

160.1 161.9 187.3 120 125 130 135 140 145 150 155 160 165 170 175 180 185 190 2007 2008 2009 2010 2011 2012 2013* million tons

production of grains

Source: IBGE

2013/2012 ∆ = 15.7%

Estimated in August 2013

Record grain harvest expected in 2013

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Reforms to boost growth

• Tax reforms to simplify the tax system and reduce costs

− Tax incentives for infrastructure and R&D investment bonds − Payroll tax cuts

• 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

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Source: IMF /FSI (latest available data)

Brazil has a sound financial system

11 12 13 13 14 14 14 14 14 15 15 16 16 17 17 18 10 12 14 16 18 20 Spain Australia Italy Russia India Japan Korea France United States Canada South Africa United Kingdom Mexico Brazil Turkey Germany

Regulatory Capital to Risk-Weighted Assets

• 74
• 28
• 22
• 21
• 16
• 15
• 15
• 12
• 10
• 6
• 3
• 3

9 10

• 100
• 50

Italy Spain South Africa Japan United Kingdom Australia United States India Russian … Canada Turkey Korea, Republic of Mexico Brazil

( Provisions – NPL) / Capital

28 36 38 44 47 48 51 76 77 80 88 111 141 183 50 100 150 200 India South Africa United Kingdom Australia Mexico Canada Japan Turkey United States Italy Russian … Korea, … Germany Brazil

Liquid Assets to Short Term Liabilities

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Source: BCB

Banks have a low share of external funding

Jul 13

Origin of Bank Funding 95.7 88.8 82.1 90.6 4.3 11.2 17.9 9.4 0% 20% 40% 60% 80% 100%

Public-owned Private-owned Foreign-controlled Total

Domestic External

16 376.0

50 100 150 200 250 300 350 400 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013*

US$ billion

Source: BCB

International Reserves Net External Creditor

*Aug 2013

Brazil – Net External Creditor

as of Oct 1st

• 81.8
• 110
• 70
• 30

10 50 90 130 170 210 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013*

US$ billion

17

External Debt of EMEs

Source: Datastream / IIF

21.4 21.4 27.9 29.6 29.8 31.4 34.9 44.7 48.8 20.9 21.4 28.7 25.6 30.2 29.5 32.7 43.9 48.3

15 25 35 45 55

India Colombia Indonesia Brazil Mexico Peru South Africa Chile Turkey External Debt / GDP 2012 2013*

*IIF forecast.

9.4 13.6 13.6 16.1 16.6 23.9 25.9 26.0 27.7 9.4 13.3 13.5 16.2 19.4 22.5 25.2 24.1 27.1

5 10 15 20 25 30 Brazil Peru Colombia South Africa Chile Mexico India Indonesia Turkey

Short Term External Debt / Total

2012 2013*

*IIF forecast. * Brazil data includes intercompany debt transactions and domestic debt in hands of foreign investors

18

Source: IMF (Fiscal Monitor April 2013)

Low nonresident holdings of Gov. debt

6.7 8.9 14.3 17.6 19.4 23.5 29.1 29.6 31.9 32.0 32.1 33.2 35.1 61.3 63.5 72.2

20 40 60 80 India Japan South Korea Brazil Russian … Canada Spain Turkey UK South Africa US Mexico Italy Germany France Australia 2012 (% of Total Debt)

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Source: UNCTAD

Brazil is leading recipient of FDI

197.9 114.7 85.7 82.7 50.6 48.6 48.5 46.9 43.3 42.8 40.8 35.2 32.5 30.6 29.2 50 100 150 200 USA China Belgium Hong Kong UK Singapore Brazil Germany Russian … Ireland Spain Australia Switzerland France Saudi Arabia

2010

226.9 124.0 103.3 96.1 66.7 65.8 64.0 52.9 51.1 41.4 40.9 40.4 34.3 31.6 29.5 50 100 150 200 USA China Belgium Hong Kong Brazil Australia Singapore Russian … UK Canada France Germany Italy India Spain

2011

146.7 119.7 72.5 65.3 62.5 58.9 54.4 48.5 47.2 44.1 39.6 27.3 26.4 22.6 19.3 50 100 150 USA China Hong Kong Brazil UK France Singapore Australia Canada Russian … Ireland India Chile Luxembourg Belgium

2012

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Source: UNCTAD

19.0 26.3 27.9 82.5 111.0 120.3 138.6 171.5 319.3 100 200 300 400 South Africa Turkey India Indonesia Mexico Brazil Colombia Peru Chile FDI / CAD (in %, 2012)

• 6.6
• 6.5
• 5.1
• 4.0
• 3.5
• 3.5
• 3.3
• 3.2
• 1.3
• 8
• 6
• 4
• 2

Turkey South Africa India Chile Peru Colombia Indonesia Brazil Mexico CAD (12M Acc., %GDP)*

* June 2013

CAD comfortably financed by FDI

21

5 10 15 20 25 30 35 40

Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13

• accum. 12 months (US$ billion)

Equities Fixed Income

Source: BCB

Capital flows

Flows increased even after tapering talk (May 22 2013)

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• FX interest rate swaps and FX repo program (launched on

Aug 22)

−

Goal: provide hedge to economic agents, liquidity to domestic FX market and reduce excessive market volatility

−

Measures (weekly auctions during 2013):

• FX interest rate swap auctions: USD2 billion
• FX Repo: USD1 billion
• The program succeeded in taming ER volatility and

providing FX hedge and liquidity

• USD100 billion (equivalent) until the end of 2013,

considering issues before the program announcement

Timely Central Bank action to mitigate risks

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Source: BCB

Efforts to reduce risks are successful

* From Aug 22 through Oct 2. 1/ The Bloomberg U.S. Dollar Index tracks the performance of a basket of ten leading global currencies versus the U.S. Dollar (JPY, MXN, AUD, GBP, CAD, SGD, CHF, CNH, KRW and EUR).

• 17.9
• 16.5
• 15.9
• 9.1
• 7.8
• 7.5
• 6.7
• 5.5
• 3.7

8.6

• 25 -15
• 5

5 15 Indonesian Rupiah Australian Dollar Brazilian Real Indian Rupee Czech Koruna Mexican Peso Polish Zloty Turkish Lira South African Rand Russian Ruble

% Change in 1M ATM Implied Volatility*

• 4.2
• 1.9
• 0.2

0.0 1.4 1.4 1.6 1.7 1.7 2.2 2.2 2.3 2.5 2.6 2.6 3.5 4.1 4.2 6.4 11.1 Indonesian Rupiah Bloomberg USD Index 1/ Mexican Peso Turkish Lira Yen Colombian peso Norwegian Krone Euro Canadian Dollar Chilean Peso Swedish Krona Swiss Franc Poland Zloty Russian Ruble South African Rand Indian Rupee Sterling pound Australian Dollar New Zealand Dollar Real

BRL leads appreciation since the FX program*

• 24.4
• 21.9
• 18.6
• 18.0
• 16.9
• 12.5
• 11.8
• 11.4
• 9.3
• 7.9
• 7.4
• 6.3
• 5.9
• 5.2
• 4.4
• 3.0

3.8 5.6

• 40
• 20

20 South Africa China Brazil Germany Russia Chile United Kingdom Turkey Mexico Belgium Japan France Peru Spain Colombia Ireland Portugal Italy

CDS USD SR 5Y Corp - % Change since BCB's Announcement of Regular FX Intervention in 2013*

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Alexandre Tombini Governor

October 2013

Brazil Economic Outlook

London

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BCB Central Bank of Brazil BM&F Brazilian Exchange Company CAD Current Account Deficit EME Emerging countries FDI Foreign Direct Investment FGV Getúlio Vargas Foundation Focus Brazilian Market Survey sponsored by BCB IBGE Brazilian Institute of Geography and Statistics IMF International Monetary Fund UMP Unconventional Monetary Policy UNCTAD United Nations Conference on Trade and Development

Glossary