The Brazilian econom y: Recent perform ance and im pact on the m - - PowerPoint PPT Presentation

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The Brazilian econom y: Recent perform ance and im pact on the m - - PowerPoint PPT Presentation

Dec 26, 2023 46 likes •357 views

The Brazilian econom y: Recent perform ance and im pact on the m anufacturing industry DEPECON 1 1 The Brazilian economy has a low growth rate in comparison with other emerging countries Average Annual GDP Growth 10% 9% 8,5% 8,4% 8%

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The Brazilian econom y: Recent perform ance and im pact

  • n the m anufacturing industry

DEPECON

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The Brazilian economy has a low growth rate in comparison with other emerging countries

Source: World Economic Outlook – IMF * 2007-2008 IMF forecast

Average Annual GDP Growth

7,5% 2,8% 5,1% 4,2% 8,5% 7,4% 2,7% 4,9% 3,3% 8,4% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% RIC Emerging Developed World Brazil

Em %

2004 - 2008 2003 - 2006

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Source: IBGE

Real GDP (per capita) has been increasing only 1,3% per year on average

Average growth 0,9% Average growth 1,26%

9.000 9.500 10.000 10.500 11.000 11.500 12.000 12.500 13.000 1998 1999 2000 2001 2002 2003 2004 2005 2006

R$ constant prices of 2006 Old methodology New methodology

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Changes in GDP methodology have reduced the share of

  • industry. Among its four segments, only utilities has increased its

share.

Source: IBGE prepared by FIESP Old Methodology (A) New Methodology (B) % (B)/(A) Old Methodology (C) New Methodology (D) % (D)/(C) Agriculture 75.222 57.212

  • 23,9

7,7 5,6

  • 26,9

Industry 354.180 282.996

  • 20,1

36,1 27,7

  • 23,2

Mining 24.289 16.346

  • 32,7

2,5 1,6

  • 35,3

Manufacturing 211.679 175.723

  • 17,0

21,6 17,2

  • 20,2

Utilities 32.749 34.736 6,1 3,3 3,4 1,9 Construction 85.463 56.191

  • 34,3

8,7 5,5

  • 36,8

Services 552.459 681.439 23,3 56,3 66,7 18,5

Added Value 981.861 1.021.648 4,1 100,0 100,0

Taxes on products 119.394 157.834 32,2 12,2 15,4 27,0 GDP 1.101.255 1.179.482 7,1 112,2 115,4 2,9 Agriculture 162.315 102.891

  • 36,6

8,4 5,1

  • 38,6

Industry 734.242 617.965

  • 15,8

37,9 30,9

  • 18,5

Mining 91.637 58.688

  • 36,0

4,7 2,9

  • 38,0

Manufacturing 440.703 368.101

  • 16,5

22,8 18,4

  • 19,1

Utilities 136.663 108.732

  • 20,4

7,1 5,4

  • 22,9

Construction 65.239 82.443 26,4 3,4 4,1 22,4 Services 1.040.594 1.278.771 22,9 53,7 64,0 19,0 Added Value 1.937.151 1.999.627 3,2 100,0 100,0

Finance Dummy (96.613)

  • 5,0

0,0

Taxes on products 221.431 323.191 46,0 11,4 16,2 41,4 GDP 2.061.968 2.322.818 12,7 106,4 116,2 9,1 2006 R$ millions 2000 GDP Structure (%)

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Manufacturing GDP growth rate

0.7% 2.4% 1.9% 1.1% 1.6% 8.5%

0% 2% 4% 6% 8% 10% 2001 2002 2003 2004 2005 2006

In recent years manufacturing has performed poorly

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Since 2003 current interest rate has been higher than the neutral to arbitrage

Selic & neutral-to-arbitrage Selic

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 Jan/98 Jul/98 Jan/99 Jul/99 Jan/00 Jul/00 Jan/01 Jul/01 Jan/02 Jul/02 Jan/03 Jul/03 Jan/04 Jul/04 Jan/05 Jul/05 Jan/06 Jul/06 Jan/07 %

Selic target Neutral-to-arbitrage Selic

Floating exchange rate

Source: Central Bank of Brazil, FED St. Louis, JP Morgan

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Current exchange rate is 23% below the 1980-2007 average, and 16% below the 1996-2007 average

Source: MCMConsultores

Real effective exchange rate - R$ / US$

(basket of 17 currencies) 1.98

0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 R$ / US$

Average (1980-2007): 2,58 R$ / US$

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Other primary goods exporting countries have experienced strong export growth with little currency appreciation

Has export performance resulted in the strong appreciation of the R$?

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From 2003 to 2006, other currencies appreciated less than 10%, while the R$ rose more than 25%

Countries Change in exports Change in exchange rate Australia 70.0% 5.2% Canada 42.5% 9.8% New Zeland 37.7% 7.9% South Africa 63.8%

  • 5.0%

Brazil 87.7% 26.0%

Source: WTO, IMF and SECEX

Exchange rate and exports (2003 – 2006)

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Manufacturing is mainly a tradeable industry

Industrial value-added structure

59.6% 9.5% 17.6% 13.3%

0% 20% 40% 60% 80% 100%

%

Tradeables Non- Tradeables

Manufacturing Mining Construction Electricity, water and gas

Source: IBGE; prepared by FIESP

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Currency appreciation results in poor performance of the manufacturing industry

  • 6.0
  • 4.0
  • 2.0

0.0 2.0 4.0 6.0 8.0 10.0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Manufacturing GDP growth (%) 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Real exchange rate (R$/US$) Manufacturing GDP growth Real effective exchange rate

Source: IBGE, MCM Constultores

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Source: IBGE

Retail sales have been growing faster than industrial production

12-month growth

7.6%

2.6%

  • 4%
  • 2%

0% 2% 4% 6% 8% 10% Jan-04 Mar-04 May-04 Jul-04 Sep-04 Nov-04 Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 Retail Sales Industrial Production

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Volume of industrial production (manufacturing, mining and oil) has been slowing down since 2004

Source: IBGE Prepared by FIESP.

6.6% 1.6% 2.7% 0.1% 8.3% 3.1% 2.8% 0.0% 2.0% 4.0% 6.0% 8.0% 2000 2001 2002 2003 2004 2005 2006 Sector 2005 2006 2007.I Industry 3,09 2,82 3,78 Mining 10,19 7,35 5,65 Manufacturing 2,72 2,57 3,68 Food 0,61 1,80 4,83 Beverage 6,36 7,08 6,39 Tobacco

  • 0,89

3,94 1,24 Textile

  • 2,11

1,55 0,46 Clothing

  • 5,05
  • 5,11
  • 3,10

Leather articles and footwear

  • 3,20
  • 2,72
  • 6,38

Wood

  • 4,46
  • 6,85
  • 5,49

Pulp and paper 3,10 2,16 0,47 Printing and related support activities 11,30 1,73

  • 2,52

Oil and gas extraction 1,48 1,62

  • 1,17

Pharmaceutical products 14,44 4,39

  • 4,75

Perfum, soaps, detergents 3,73 1,96 9,22 Other Chemical products

  • 1,25
  • 0,90

3,75 Rubber and plastic products

  • 1,20

2,15

  • 0,03

Nonmetallic mineral products 2,82 2,57 3,60 Metallurgy

  • 1,96

2,84 9,14 Metal products - exclusive machines

  • 0,15
  • 1,28

1,15 Machines and equipment

  • 1,35

4,00 14,37 Office machine and computer 17,26 51,57 30,55 Electric machines 7,88 8,71 7,24 Electronic machines 14,22 0,00

  • 10,85

Medical and optical machines 2,56 9,37

  • 1,94

Vehicles 6,84 1,28 6,00 Other transport equipment 5,54 2,10 12,89 Furniture and related products 0,54 8,43 11,48 Others 8,45

  • 1,28
  • 0,07

Growth (%yoy)

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Share in the growth of the manufacturing production (2006)

Electric equipment 8% Others 47% Oil and mining 14% Machines and tractors 9% Office machines and computers 22%

In 2006 four industries alone accounted for 53% of total manufacturing growth

Source: IBGE; prepared by FIESP

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Employment in selected industries (2006)

Others 86.8% Electric equipment 1.4% Office machines and computers 1.1% Machines and tractors 7.3% Oil and mining 3.5%

The same four industries accounted for only 13.2% of total employment in manufacturing

Source: IBGE; prepared by FIESP

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Manufacturing ratio between value added and production value is diminishing in time

Source: IBGE - Pesquisa Industrial Anual; prepared by IEDI (new).

Brazilian manufacturing ratio: Value added / gross production value

44.4 44.4 41.3 41.3 43.4 45.3 42.5

39 40 41 42 43 44 45 46 2000 2001 2002 2003 2004 2005* 2006*

In %

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Technology-intensive segments experienced sharper fall in VA / Production Value ratio

Ratio value added / gross production value Segmented by technological intensity, according to OECD

50 46 37 43 45 45 41 42

35 37 39 41 43 45 47 49 51 53 2000 2001 2002 2003 2004

%

Mid-high intensity High intensity Mid-low intensity Low intensity

Source: IBGE; prepared by IEDI

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Industrial production by technological intensity (2002 = 100; last 12 months)

92 100 108 116 124 132 140 Dec/02 Feb/03 Apr/03 Jun/03 Aug/03 Oct/03 Dec/03 Feb/04 Apr/04 Jun/04 Aug/04 Oct/04 Dec/04 Feb/05 Apr/05 Jun/05 Aug/05 Oct/05 Dec/05 Feb/06 Apr/06 Jun/06 Aug/06 Oct/06 Dec/06 Manufacturing High Mid-High

  • Mid-Low
  • Low

Source: IBGE; prepared by IEDI

Industrial production has been growing faster in technology-intensive industries

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Industrial production and trade balance grew hand in hand until 2005

Source: SECEX and IBGE; prepared by IEDI

Industrial production and trade balance

114 100 108 99 111 29.5 23.9 16.6 6.9 30.9 90 95 100 105 110 115 120

2002 2003 2004 2005 2006

Output (Index 2002=100) 5.0 10.0 15.0 20.0 25.0 30.0 35.0 US$ billion Industrial production Trade balance

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High-technology segment: increasing production with decreasing trade balance

Source: SECEX and IBGE; prepared by IEDI

High technological intensity: industrial production and trade balance

135 124 99 111 100

  • 11.8
  • 8.4
  • 4.5
  • 5.3
  • 7.5

90 100 110 120 130 140

2002 2003 2004 2005 2006

Production (Index 2002=100)

  • 14.0
  • 12.0
  • 10.0
  • 8.0
  • 6.0
  • 4.0

US$ billion Industrial production Trade balance

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In 2006 mid-high technology segment experienced a trade-balance deficit with increasing production

Source: SECEX and IBGE; prepared by IEDI

Mid-high technological intensity: industrial production and trade balance

104 123 126 100 120

  • 1.0
  • 2.6
  • 3.4
  • 7.0

0.4 100 104 108 112 116 120 124 128 132 2002 2003 2004 2005 2006 Production (Index 2002=100)

  • 7.0
  • 6.0
  • 5.0
  • 4.0
  • 3.0
  • 2.0
  • 1.0

0.0 1.0 US$ billion Industrial production Trade balance

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In 2006 mid-low technology experienced increasing production with steady trade balance

Source: SECEX and IBGE; prepared by IEDI

Mid-low technological intensity: industrial production and trade balance

104 106 99 104 100 10.5 10.2 3.1 5.5 8.8 98 100 102 104 106 108

2002 2003 2004 2005 2006

Production (Index 2002=100) 2.0 4.0 6.0 8.0 10.0 12.0 US$ billion Industrial production Trade balance

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Only the low-technology segment had rising production and a trade balance surplus

Source: SECEX and IBGE; prepared by IEDI

Low technological intensity: industrial production and trade balance

105 107 100 103 98 31.8 25.1 19.8 15.3 28.7 96 98 100 102 104 106 108

2002 2003 2004 2005 2006

Production (Index 2002=100) 14.0 18.0 22.0 26.0 30.0 34.0 US$ billion Industrial production Trade balance

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Only the low and mid-low intensity technology segments had a trade balance surplus in 2006

Source: MDIC, SECEX, ONU and OCDE; prepared by IEDI

Manufacturing trade balance by technological intensity

  • 24,000
  • 8,000

8,000 24,000 40,000 56,000 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

US$ Millions (FOB)

Low Mid-Low Mid-High High Trade Balance

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  • Growing: employment AND production

growth greater than average.

  • Stagnated: employment OR production

growth greater than average.

  • Falling: employment AND production

growth lower than average.

Criteria for performance evaluation of industrial production and employment

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Industrial imports accelerate, impacts on employment and production vary

Source: IBGE. Prepared by FIESP

Sector Import growth (SECEX) Industrial employment growth (PIMES) Industrial production growth (PIM)

Mining 23.4% 1.0% 7.4% Food and drink 25.0% 8.2% 4.5% Metallurgy 51.3% 2.0% 2.8% Office machine and computer 34.1% ND 51.6% Electric machines 22.0% 4.3% 8.7% Precision and optic equipment 21.8% ND 9.4% Oil and gas extraction 42.5% 14.0% 1.6% Tobacco

  • 1.3%
  • 4.7%

3.9% Chemical 13.9% 1.5% 1.8% Metal products 24.8% 0.2%

  • 1.3%

Machines and equipment 12.5%

  • 6.2%

4.0% Vehicles 30.6% 2.6% 1.3% Furniture and related products 34.1%

  • 0.9%

3.1% Electronic machines 23.1% ND 0.0% Transport equipment 23.9% ND 2.1% Printing and related support activities 12.0% ND 1.7% Textile 44.6%

  • 1.2%

1.6% Clothing 55.4%

  • 5.4%
  • 5.0%

Leather articles and footwear 27.3%

  • 13.0%
  • 2.7%

Wood products 36.4%

  • 7.5%
  • 6.8%

Pulp and paper 27.8%

  • 1.2%

2.2% Rubber and plastic products 14.6%

  • 2.2%

2.2% Nonmetallic mineral 11.8%

  • 1.4%

2.6% Manufacturing 23.31% 0.0% 2.6% Industry 23,32% 0,0% 2.8% Stagnated Falling Growing

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Most of the employment is in falling sectors

Employment distribution according to previous sector classification (Manufacturing + Mining) Growing 28.4% Falling 52.4% Stagnated 19.2%

Source: IBGE; prepared by FIESP

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Source: Secretaria da Receita Federal e IBGE; prepared by FIESP

One third of Brazilian exports has lower volume with higher prices. These sectors account for 22%

  • f industrial employment

Sectors with falling exported value 33.5% 22.40% Vegetable oil

  • 13.29%

1.14% 2.8% 0.47% Textile

  • 9.37%

6.34% 1.4% 5.22% Vehicles

  • 8.45%

12.61% 5.2% 2.79% Wood and furniture

  • 7.81%

10.74% 3.1% 5.42% Improvement of vegetal products

  • 5.47%

21.21% 2.8% 1.09% Machines and tractors

  • 5.15%

12.10% 5.1% 2.79% Meat production

  • 1.76%

6.14% 6.3% 3.97% Siderurgy

  • 0.14%

3.94% 6.8% 0.64% Other sectors 66.5% 77.60% Total economic activities 3.62% 12.46% 100.00% 100.00% Share of industrial employment Sector Quantity index (2005-2006) Price index (2005-2006) Share of exports

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Growth in imports will decrease GDP growth in 2.2 pp in 2007

Source: IBGE and FIESP Prepared by FIESP

2007 b Contribution to GDP growth (2007)

Agriculture 4.1 5.2 0.3 Industry 2.8 3.7 1.1

Oil and mining 6.0 6.0 0.2 Manufacturing 1.6 2.5 0.5 Construction 4.6 5.4 0.3 Electricity, water and gas 3.6 5.3 0.2

Services 3.7 4.1 2.6

GDP 3.7 4.0 4.0

Family consuption 4.3 4.5 2.7 Government consuption 3.6 3.9 0.8 Gross fixed capital formation 8.7 11.8 2.0 Export of goods and services 4.6 5.2 0.8 Import of goods and services 18.1 18.5

  • 2.2

GDP 3.7 4.0 4.0

% growth 2007* % growth 2006

Demand Supply

FIESP forecasts

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Growing public expenditure will require increases in taxes or in public debt

Source: Central Bank of Brazil.

2,1% 1,7% 2,3% 2,6% 2,7% 2,2% 2,2% 1,7% 0,5%

  • 0,3%

30,7% 31,8% 38,9% 45,5% 48,4% 52,4% 47,0% 46,5% 44,9% 19,1% 18,1% 17,9% 16,5% 15,8% 18,8% 17,4% 17,2% 16,4% 14,3% 15,3% 14,8% 15,7% 15,4% 17,4% 16,2% 15,2% 15,5% 14,3% 14,6% 50,5%

  • 5%

5% 15% 25% 35% 45% 55% 65% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 % of GDP Primary Balance Net Receipts Expenditure Public debt

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  • This is a transition phase for the better; some sectors hire

some lay off, net result is more jobs. The manufacturing industry is facing a transition for the worse. The future will be worse than the present.

  • Competitive adjustment.

Competitive adjustment in some sectors, together with loss of manufacturing in others. Net result is less industries, less jobs, less economic vigor.

  • External leaks because of demand higher than supply.

Because of overvalued currency, domestic supply cannot keep up with growth of aggregated demand.

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