Download Brazilian Economic Outlook

Brazilian Economic Outlook
Minister of Finance
Guido Mantega
Brazil Investment Opportunities
London, 5th July 2011
2
2011: World divided between countries which have and have not
overcome the crisis
GDP forecast,
f
t in
i % YoY
Y Y
* The Economist forecasts (July 2nd, 2011);
for Brazil: Ministry of Finance forecast
Source: The Economist
Produced by: Ministry of Finance
3
Dynamic and non-dynamic countries: emerging and advanced
GDP forecast, in % YoY
* World Economic Outlook forecast (April 2011 update).
Source: IMF
Produced by: Ministry of Finance
4
Strong growth will continue
GDP growth, in % YoY
* Ministry of Finance forecasts
Source: IBGE
Produced by: Ministry of Finance
5
Brazil
in
B il rises
i
i the
h world
ld GDP ranking
ki
Nominal GDP forecasts, in US$ billions
* World Economic Outlook forecast (April 2011 update).
Source: IMF
Produced by: Ministry of Finance
6
Blended
Bl d d world
ld GDP ranking
ki (Brazil
(B il in
i the
h 6th position)
ii )
Combination of current prices (60%) and PPP (40%) GDP forecasts, in % of world GDP
* World Economic Outlook forecasts (April 2011 update).
Source: IMF
Produced by: Ministry of Finance
7
Brazil: Sustainable Growth
 Strong domestic market
 Increasing
I
i iinvestment
t
t rate
t
 Sound fundamentals: fiscal and
monetary
t
8
Domestic demand leads GDP growth
In % YoY
* Ministry of Finance forecast
Source: IBGE
Produced by: Ministry of Finance
9
Brazil has a broad consumer market
Retail sales growth, Monthly Survey of Trade, in % yoy
* Accumulated in 12 months, by April 2011
Fonte: IBGE
Elaboração: Ministério da Fazenda
10
Increasing participation of social classes A/B and C, reducing D and E
In % share of population*
* The household monthly per capita income per classes at 2009 constant prices:
A/B Class:
Cl
more than
th R$ 4,800
4 800
C Class: between R$ 1,115 and R$ 4,800
D Class: between R$ 804 and R$ 1,115
E Class: up to R$ 804
Source: FGV
Produced by: Ministry of Finance
11
Growth deceleration
GDP growth, in % change from the same quarter of the preceding year
*
* Ministry of Finance forecasts
*
*
*
*
*
*
Source: IBGE
Produced by: Ministry of Finance
12
Investment faster than GDP and consumption growth
In % YoY
* Ministry of Finance forecasts
Source: IBGE
Produced by: Ministry of Finance
13
Investments in infrastructure reached record levels in 2010
In US$ billions, 2010 constant prices
* ABDIB forecasts
Source: Brazilian Infrastructure and Heavy Industries Association - ABDIB
Produced by: Ministry of Finance
14
Brazilian investment plan – PAC 1 improved GDP growth
performance
In US$ billion
* PAC – Growth Acceleration Program aims to accelerate of economic growth
pace, increase employment and incomes, reduce social and regional
inequality, overcome infrastructure bottlenecks in the country, as well as
reduce the impacts of international crisis.
* Exchange rate = R$/US$ 1,60 (June 24th, 2011)
Source: Ministry of Planning, Budget
and Management
Produced by: Ministry of Finance
15
Brazilian investment plan – PAC 2 supports future
growth
In US$ billion
* PAC – Growth Acceleration Program aims to accelerate of economic growth
pace, increase employment and incomes, reduce social and regional
inequality, overcome infrastructure bottlenecks in the country, as well as
reduce the impacts of international crisis.
* Exchange rate = R$/US$ 1,60 (June 24th, 2011)
Source: Ministry of Planning, Budget
and Management
Produced by: Ministry of Finance
16
Many investment opportunities from PAC
In US$
Source: Ministry of Planning, Budget
and Management
Produced by: Ministry of Finance
17
More confidence in Brazil
Risk grade for Brazilian government bonds
Fonte: Fitch, S&P e Moody´s
Elaboração: Ministério da Fazenda
18
Brazil has sovereign risk close to developed countries
In 5-year CDS spreads, in basis points
Fonte: Bloomberg
Elaboração: Ministério da Fazenda
19
Is the Brazilian economy overheating?
 Excessive credit expansion – there is no bubble
 Rising
Ri i iinflation
fl i – going
i d
down
 GDP growing faster than the previous ten years – within
potential GDP
 Flood of capital
p inflows - contained
 Low jobless rates – it is good
 Real
R l iinterest
t
t rate
t – helps
h l cooling
li th
the economy
 Current account – stable deficits
 Fiscal policy – counter-cyclical policy
20
Brazilian stock market widens
Brazilian stock market trade, in R$ billion
* Accumulated in 12 months, by July 1st, 2011
Source: BM&F Bovespa
Produced by: Ministry of Finance
21
Banking sector is growing fast in BRICs
In US$ trillions, assets of major 5 domestic banks, by country
Source: Bankscope, in: IIF Capital Markets Monitor, January 2011
Produced by: Ministry of Finance
22
Dynamism of the Brazilian financial market
Annual issuances*, in R$ billion
* Itaú-Unibanco forecasts
Source: Itaú-Unibanco, Anbima, CVM and Bloomberg
Produced by: Ministry of Finance
23
Brazilian economy adjusted to the post-2008
crisis situation
sit ation
 Reversal
R
l off 2009
2009-2010
2010 economic
i stimulus
ti l
 Increasingg primary
p
y surplus
p
 Spending efficiency - Government expenditures
increasing below
b l GDP growth
h ((2008))
24
Robust primary surplus reduces nominal deficit
In % of GDP
* Ministry of Finance forecasts
Source: Brazilian Central Bank
Produced by: Ministry of Finance
25
Public Sector primary result
In R$ billions
Source: National Treasury
Produced by: Ministry of Finance
26
Job formalization reduces social security deficit
Social security annual deficit, in % of GDP, accumulated in 12 months
Source: Ministry of Finance
Produced by: Ministry of Finance
27
Payroll remains stable compared to GDP
In % of GDP
* Ministry of Finance forecast
Source: Ministry of Finance
Produced by: Ministry of Finance
28
Improvement of Federal public debt profile
In % of total debt
* Including SELIC, TR and others
Source: Ministry of Finance
Produced by: Ministry of Finance
29
Sound fiscal situation when compared to other countries
Budget balance forecasts, in % GDP
* The Economist (July 2nd, 2011 Ed.)
for Brazil result: Ministry of Finance forecast
Source: The Economist
Produced by: Ministry of Finance
30
Measures to moderate
growth
d
h and
d contain
inflation
Stimulus to increase the supply of commodities
 Government measures and objectives:
•
•
•
•
•
•
Compulsory requirements increase
Brazilian Central Bank’s macroprudential measures
SELIC interest rate rise
Credit cards indebtedness discouragement
Reduction of activity level and public expenditure
1.5% IOF tax increase in credit operations for households
31
Important adjustment: inflation control
Consumer prices change, 12-month accumulated, in %
* April 2010 and April 2011 data.
** The Economist (July 2nd, 2011 Ed.)
Fonte: The Economist
Elaboração: Ministério da Fazenda
32
Inflation within the bounds set by the targeting regime.
Consumer Price Index (IPCA), in % YoY
*Brazilian Central Bank forecasts
Source: IBGE and Brazilian Central Bank
Produced by: Ministry of Finance
33
Inflation under control
In % change from preceding month
Source: IBGE
Produced by: Ministry of Finance
34
Inflation under control
In % change from preceding month
*Ministry of Finance forecasts
Source: IBGE
Produced by: Ministry of Finance
35
Financial Balance in the Foreign Exchange Market
In US$ billion
* In June 24th, 2011.
Source: Brazilian Central Bank
Produced by: Ministry of Finance
36
Brazilian Real appreciation in relation to selected currencies
Index (June 2010 = 100), exchange rate deflated by inflation differentials
Source: Brazilian Central Bank
Produced by: Ministry of Finance
37
The Brazilian experience: capital management measures
A) Reserve accumulation: US$ 335 billions
B) Tax on Financial Transaction - IOF
C) Monetary Policy Mix
 Interest rate hikes (8,75% in March 2010 to 12,25% now)
 Macroprudential measures (domestic and currency related)
More capital requirement for long term loans
D) Reserve requirements
38
Exchange rate and Brazilian measures
Nominal exchange rate, in R$/US$*
Source: Brazilian Central Bank
Produced by: Ministry of Finance
39
Structural adjustments to increase competitiveness
 Tax agenda
• Credit return
• ICMS (Tax on goods)
• Payroll tax reduction
• Investment tax reduction
 Cost Reduction
• Capital
p
• Infrastructure
• Energy
 Productivity agenda
• Qualification of the working force / education
• Increases in R & D