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Brazil Meets Markets
Henrique de Campos Meirelles
June 2004
1
I. Economic Activity
II. Inflation
III. External Sector
IV. Fiscal Policy and Debt Management
V. External Solvency Ratios
2
I. Economic Activity
3
GDP After FX Crises
Brazil (2004)
-0.2%
-4.9%
-6.2%
-6.7%
-7.4%
-10.5%
3.5%
Brazil (2003)
Russia (1998)
Mexico (1995)
Korea (1998)
Malaysia (1998)
Thailand (1998)
-10.8%
Uruguay (2002)
-11.0%
Argentina (2002)
-13.3%
Source: IMF, Brazil 2004: Central Bank estimate
Indonesia (1998)
4
GDP Growth
Seasonally Adjusted
1.6
1.4
%
0.5
1Q03
2Q03
3Q03
4Q03
1Q04
-0.9
-1.2
Source: IBGE
5
Industrial Output
110
s.a., 2002 = 100
105
100
95
90
85
Jan
99
Sep
99
May
00
Jan
01
Source: IBGE, May 2004 = BCB estimate
Sep
01
May
02
Jan
03
Sep
03
May
04
6
Industrial Output
%
Apr 04
Apr 03
Jan-Apr 04
Jan-Apr 03
+6.0
+5.1
Capital Goods
+21.1
+20.1
Intermediate Goods
+5.3
+3.6
Consumer Goods
+4.3
+3.6
Durable
+23.4
+19.0
Semi-Durable e Non-Durable
+0.2
+0.2
Total
Source: IBGE
7
Industrial Output by
Categories of Use
Accumulated growth since June 2003, seasonally adjusted
35
Capital Goods
Intermediate Goods
Durable Goods
Non-Durable Goods
30
25
20
%
15
10
5
0
-5
Jun
03
Jul
03
Source: IBGE
Aug
03
Sep
03
Oct
03
Nov
03
Dec
03
Jan
04
Feb
04
Mar
04
Apr
04
8
Industrial Sales x Industrial Output
120
Industrial Sales
Jun 03 = 100
115
Inventories
reduction
110
105
Industrial Output
100
Jun
03
Jul
03
Source: IBGE, CNI
Aug
03
Sep
03
Oct
03
Nov
03
Dec
03
Jan
04
Feb
04
Mar
04
Apr
04
9
Quarterly Industrial Survey:
Level of Inventories
Insufficient
Excessive
Balance
-25
% of Sample
-20
-15
-10
-5
0
5
10
Apr 03
Source: FGV
Jul 03
Oct 03
Jan 04
Apr 04
10
Real Retail Sales
Seasonally Adjusted, 3-Month Moving Average
108
107
Average 2003 = 100
106
105
104
103
102
101
100
99
98
97
Jan
01
May
01
Sep
01
Jan
02
Source: IBGE, Banco Central
May
02
Sep
02
Jan
03
May
03
Sep
03
Jan Apr
04 04
11
Retail Sales
%
Apr 04
Apr 03
Jan-Apr 04
Jan-Apr 03
+10.1
+7.2
Furniture & Electronics
+33.3
+24.5
Fuel and Lubricants
+9.6
+6.8
Supermarket, Food,
Beverage and Tobacco
+6.1
+3.8
Vehicles & Autoparts
+11.8
+10.1
-0.8
-0.4
Total
Clothing
Source: IBGE, Banco Central
12
Retail Sales
Accumulated growth since June 2003, seasonally adjusted
26
22
Furniture & Electronics
Vehicles & Autoparts
18
Clothing
14
%
Supermarket
10
6
2
-2
Jun
03
Jul
03
Aug
03
Sep
03
Source: IBGE, Banco Central
Oct
03
Nov
03
Dec
03
Jan
04
Feb
04
Mar
04
Apr
04
13
Industrial Employment: Brazil
s.a., Jun 2003 = 100
101.0
100.5
100.0
99.5
Jun
03
Source: CNI
Jul
03
Aug
03
Sep
03
Oct
03
Nov
03
Dec
03
Jan
04
Feb
04
Mar
04
Apr
04
14
Formal Employment
104
s.a., Jun 2003 = 100
103
102
101
100
99
Jun
03
Jul
03
Aug
03
Sep
03
Oct
03
Nov Dec
03
03
Source: Ministry of Labor and Employment
Jan
04
Feb
04
Mar
04
Apr
04
15
Industrial Real Wages
108
s.a., Jun 2003 = 100
107
106
105
104
103
102
101
100
99
Jun
03
Source: CNI
Jul
03
Aug Sep
03
03
Oct
03
Nov
03
Dec
03
Jan
04
Feb
04
Mar
04
Apr
04
16
GDP x Domestic Demand
106
2Q03 = 100
104
102
100
98
96
1Q02
2Q02
3Q02
4Q02
1Q03
Domestic Demand
Source: IBGE
2Q03
3Q03
4Q03
1Q04
GDP
17
GDP x Investment Growth
6%
4%
2%
0%
-2%
-4%
-6%
-8%
1Q03
2Q03
3Q03
GDP
Source: IBGE
4Q03
1Q04
Investment
18
Real Interest Rates (360-day swap):
40
36
% p.a.
32
Avg 04
10.1%
28
24 Avg 97/99
21.4%
Avg 01/02
17.6%
20
Avg 03
13.2%
Avg 00
12.3%
16
12
8
Jan
97
Jan
98
Source: Bacen
Jan
99
Jan
00
Jan
01
Jan
02
Jan
03
Jan
04
19
Real Interest Rate
left scale
25
107
106
105
104
103
102
101
100
99
98
97
23
Retail Sales (t+9)
right scale
19
17
15
13
11
May/04
Mar/04
Jan/04
Nov/03
Sep/03
Jul/03
May/03
Mar/03
Jan/03
Nov/02
Sep/02
Jul/02
May/02
Mar/02
9
Jan/02
% p.y.
21
2003=100
Real Interest Rate vs. Retail Sales
20
Packing Paper Shipments
s.a., Jun 2003 = 100
119
115
111
107
103
99
Jun
03
Jul
03
Source: ABPO
Aug Sep
03
03
Oct
03
Nov
03
Dec
03
Jan
04
Feb
04
Mar
04
Apr
04
May
04
21
Power Consumption: São Paulo
116
s.a., Jun 2003 = 100
114
112
110
108
106
104
102
100
98
Jun
Jul
03
03
Aug Sep
03
03
Oct
03
Nov Dec Jan
03
03
Source: São Paulo State Energy Department
04
Feb Mar
04
04
Apr May
04
04
22
Business Confidence
70
60
Net Expectations
50
Future Conditions
40
30
20
10
0
-10
-20
Current Conditions
-30
-40
Jan
02
Apr
02
Jul
02
Oct
02
Source: FGV Industrial Survey
Jan
03
Apr
03
Jul
03
Oct
03
Jan
04
Apr
04
23
In a Nutshell
• 1st quarter GDP growth confirms economic rebound. Result
is consistent with the 3.5% growth estimate for the year.
• Industrial output continued to expand in 2004, with positive
prospects for the near future due to increasing domestic and
external demand.
• Sales have been outpacing production growth, affecting
level of inventories.
• Credit growth and payroll increase explain sales expansion,
still led by durable goods.
• Unemployment rate affected by increase in labor force.
However, formal employment is rising.
24
II. Inflation
25
IPCA Monthly Inflation Rate
3.5
3.0
%
2.5
2.0
1.5
1.0
0.5
0
-0.5
Jan
02
Apr
02
Source: IBGE
Jul
02
Oct
02
Jan
03
Apr
03
Jul
03
Oct
03
Jan
04
May
04
26
IPCA Annual Inflation Rate
18.0
16.5
15.0
%
13.5
12.0
10.5
9.0
7.5
6.0
5.1%
4.5
Jan
02
May
02
Sep
02
Jan
03
May
03
Sep
03
Jan
04
May
04
27
Inflation Expectations: 12-Month
14
13
12
11
10
9
8
7
6.2%
6
5
4
Jan
03
Mar
03
Source: Bacen
May
03
Jul
03
Sep
03
Nov
03
Jan
04
Mar
04
Jun
04
28
III. External Sector
29
Current Account Surplus: 1994/2004
2
0.8
1
1.1
% of GDP
0
-1
-0.3
-2
-3
-4
-5
- 4.7
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004*
*2004: 12-month to April
30
Current Account vs. Trade Balance
6,000
28,000
24,000
0
-6,000
16,000
-12,000
12,000
-18,000
8,000
4,000
-24,000
Trade balance
Current account
20,000
0
-30,000
-36,000
Jan
96
-4,000
-8,000
Dec
96
Nov
97
Oct
98
Sep
99
Aug
00
Jul
01
Jun
02
May Apr
03
04
31
Trade Balance
30
25
May
28.0
US$ billion
20
15
10
5
Highest trade
balance surplus
ever recorded
0
-5
-10
Jan 99 Jul 99 Jan 00 Jul 00 Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 Jan 04
32
Trade Balance
12-Month, Accumulated
80
79.9
75
US$ billion
70
65
Exports
60
55
51.9
Imports
50
45
Jan
99
Jul
99
Jan
00
Jul
00
Jan
01
Jul
01
Jan
02
Jul
02
Jan
03
Source: Ministry of Development, Industry and Foreign Trade
Jul
03
May
04
33
Imports Substitution
Imported Quantum
left scale
135
118
116
114
125
112
120
110
115
108
110
106
104
105
Dec 1995 = 100
Dec 1995 = 100
130
102
100
100
Industrial Output
right scale
95
98
96
90
Dec
95
Dec
96
Dec
97
Dec
98
Dec
99
Dec
00
Dec
01
Dec
02
Dec
03
34
Export Growth Diversification
Contribution by Country to Exports Growth
- last 12 Months Argentina
China
19%
12%
Netherlands
8%
Germany
4%
Italy
4%
United States
Others
3%
50%
35
Brazilian Exports by Market
Last 12 Months
European Community
25.6%
Others
29.3%
Chile
2.7%
Japan
3.2%
Mexico
3.8% China
6.4% Argentina
7.1%
United States
21.9%
36
IV. Fiscal Policy and Debt Management
37
Consolidated Public Sector Primary Surplus
6
5
Apr 04
4.23
% of GDP
4
3
2
1
0
-1
-2
Jul
94
Feb
96
Source: Bacen
Sep
97
Apr
99
Nov
00
Jun
02
Jan
04
38
Debt-to-GDP Ratio
63
% of GDP
54
Apr 04
56.6%
45
36
27
Jan
91
Apr
92
Jul
93
Source: Bacen
Oct
94
Jan
96
Apr
97
Jul
98
Oct
99
Jan
01
Apr
02
Jul
03
39
FX-Linked and Fixed Domestic Debt as a
Share of the Total Debt
FX-Linked Domestic Debt/Total Debt
Fixed Domestic Debt/Total Debt
41
17
36
16.4
13
%
31
9
26
5
21
16.6 1
16
Jan
02
Sep
02
Source: Bacen
May
03
May
04
Jan
02
Sep
02
May
03
May
04
40
V. External Solvency Ratios
41
Total International Reserves
54
US$ billion
50
46
42
38
34
30 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar
02 02 02 02 02 02 03 03 03 03 03 03 04 04
Source: BCB
42
Net International Reserves
(IMF criteria)
28
Central Bank
announces policy
of accumulation of
reserves
26
US$ billion
24
22.4
22
20
18
16
14
12
Jan
02
Apr
02
Source: BCB
Jul
02
Oct
02
Jan
03
Apr
03
Jul
03
Oct
03
Mar
04
43
Net External Debt
260
US$ billion
240
220
200
180
US$192.3 bi
160
140
120
1991
Source: BCB
1993
1995
1997
1999
2001
2003
44
Net External Debt/GDP Ratio
40
35
%
30
25
20
15
10
1996
1997
* 2004: BCB estimate
1998
1999
2000
2001
2002
2003
2004*
45
Interest Payments/Exports Ratio
38
34
%
30
26
22
18
1996
1997
* 2004: BCB estimate
1998
1999
2000
2001
2002
2003
2004*
46
Net External Debt/Exports Ratio
4.0
3.5
3.0
2.5
2.0
1.5
1996
1997
* 2004: BCB estimate
1998
1999
2000
2001
2002
2003
2004*
47
Impact of a 1% FX change on
Debt/GDP ratio
0.35
0.33
0.31
%
0.29
0.27
0.25
0.23
0.21
0.19
0.17
Jan
00
Source: Bacen
Sep
00
May
01
Jan
02
Sep
02
May
03
Apr
04
48
Brazil Meets Markets
Henrique de Campos Meirelles
June 2004
49