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BrazilEconomic Prospects
May 2017
Apresentação do presidente Ilan Goldfajn sobre economia brasileira promovida pela Embaixada do Brasil em Tóquio em 09 de maio de 2017.
Outline
• The economic policy in the right direction
• Inflation on target and lower interest rates
• Resilience to external shocks
• Economic recovery
• The BC+ Agenda
The economic policy in the right direction
• Reforms and adjustments
• Brazilian CDS fell from around 500 bps to below half of
that level
• Increased confidence:
• implementation of reforms
• Inflation on target, and
• recovery of the economic activity.
• Fiscal reforms will be pivotal to the future performance of
the Brazilian economy:
• spending ceiling constitutional amendment
• pension system reform
Outline
• The economic policy in the right direction
• Inflation on target and lower interest rates
• Resilience to external shocks
• Economic recovery
• The BC+ Agenda
% p
.a.
8,9
6,0
7,7
12,5
9,3
7,6
5,7
3,1
4,5
5,9
4,3
5,96,5
5,8 5,96,4
10,7
6,3
4,0 4,3
0
3
6
9
12
151
99
9
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
tolerance intervals targets IPCA IPCA expectations **medians of Market expectations as of April 28th
Sources: BCB / IBGE
Inflation Targeting
Anchoring Inflation Expectation
3
4
5
6
7
8
9
10
11
Jan 13 Sep 13 May 14 Jan 15 Sep 15 May 16 Jan 17 Sep 17 May 18 Jan 19 Sep 19
YoY
(%
)
Market-based measure (January 29, 2016) Market-based measure (July 29, 2016)
Market-based measure (April 26, 2017) IPCA
Source: IBGE
IPCA Diffusion IndexThe disinflation process is widespread
%
50
55
60
65
70
75
80m
ar 1
3
set
13
mar
14
set
14
mar
15
set
15
mar
16
set
16
mar
17
monthly 12-month average
9/23/20159,6
4/27/20174,5
3,5
4,5
5,5
6,5
7,5
8,5
9,5
10,5
Jan 1
5
Ma
r 15
Ma
y 1
5
Jul 15
Sep 1
5
No
v 1
5
Jan 1
6
Ma
r 16
Ma
y 1
6
Jul 16
Sep 1
6
No
v 1
6
Jan 1
7
Ma
r 17
Annual in
tere
st
rate
CDS and real interest rate are falling
Falling interest rates...
CDS ex-ante real interest rate12/22/2015
507
4/27/2017220
150
200
250
300
350
400
450
500
550
Jan 1
5
Ma
r 15
Ma
y 1
5
Jul 15
Sep 1
5
No
v 1
5
Jan 1
6
Ma
r 16
Ma
y 1
6
Jul 16
Sep 1
6
No
v 1
6
Jan 1
7
Ma
r 17
basis
poin
ts
• Source: Bloomberg / BCB
Source: BCB / Focus Survey
Selic Rate%
p.a
.
11,25
8,50
7
8
9
10
11
12
13
14
15o
ut
11
abr
12
out
12
abr
13
out
13
abr
14
out
14
abr
15
out
15
abr
16
out
16
abr
17
out
17
abr
18
out
18
Focus Survey
market expectations
Outline
• The economic policy in the right direction
• Inflation on target and lower interest rates
• Resilience to external shocks
• Economic recovery
• The BC+ Agenda
Resilience to External Shocks
• Floating FX regime
• Comfortable balance of payment position*
• Current account deficit in twelve months reached 1.1% of GDP
• Direct investment reached 4.6% of GDP
• Trade balance surplus of US$ 7 billion in April**
• International reserves stock exceeds US$370billion• around 20% of the GDP
• Reduction in the stock of FX swaps:• From US$108 billion to a current level of US$18 billion
* - March 2017** - Preliminary data: Ministry of Industry
Source: BCB
Current Account%
of
GD
P
US$
bill
ion
From 1995 on, methodology according to BPM6
* BCB forecast
-0,5
1,4
0,3
-0,8
-0,4
1,6
-0,2-0,3
-2,4
-2,8
-3,5
-3,9
-4,3
-3,8
-4,2
-1,6
0,7
1,71,5
1,2
0,0
-1,8-1,6
-3,4
-3,0 -3,0 -3,0
-4,3
-3,3
-1,3-1,5
-120
-100
-80
-60
-40
-20
0
20
-5
-4
-3
-2
-1
0
1
21
98
7
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
20
07
20
09
20
11
20
13
20
15
20
17
*
current account/GDP(LHS) current account(RHS)
Source: BCB
Foreign Direct Investment U
S$ b
illio
n
From 1995 on, methodology according to BPM6
* BCB forecast
78,975,0
-10
0
10
20
30
40
50
60
70
80
90
100
1101
98
7
198
8
198
9
199
0
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
20
12
201
3
201
4
201
5
201
6
201
7*
Sources: MDIC / BCB (Focus)
Trade Balance – Exports and ImportsU
S$ b
illio
n
*12 months until Mar 17; **as of April 28th (refers to BPM6)
BCB forecast for 2017 trade balance: US$ 51.0 billion
2017:
203.0
2017:
149.1
0
30
60
90
120
150
180
210
240
2702
00
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7*
201
7**
201
8**
201
9**
202
0**
202
1**
exports imports
**market expectations2017 to 2021
Source: BCB
International Reserves and FX SwapU
S$ b
illio
n
376.1
-17.8
-150
-100
-50
0
50
100
150
200
250
300
350
4002
00
3
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
international reserves FX swap position
*through April 27th
Outline
• The economic policy in the right direction
• Inflation on target and lower interest rates
• Resilience to external shocks
• Economic recovery
• The BC+ Agenda
Economic Recovery
• Economic activity: stabilization in the short run
• Gradual recovery during the course of 2017
• Last quarter: growth of 2.5% over the same quarter of 2016
• Monetary policy will contribute to the economic
recovery
• Favorable inflation developments, allowing for the current pace of
easing
• Economic growth depends on increasing levels of
productivity
Economic Recovery (cont.)
• Macroeconomic reforms are essential
• Fiscal reforms
• Microeconomic reforms related to efficiency gains
• Higher flexibility of the economy
• Improvement of the business environment
• Tax reform and labor reform
• Investments in infrastructure through concessions
and other mechanisms
Source: FGV
FGV Confidence IndicesFe
b/1
3=1
00
, s.
a.
Apr 17:
79,7
86,7
82,6
75,4
87,3
55
60
65
70
75
80
85
90
95
100
105ab
r 1
4
ou
t 1
4
abr
15
ou
t 1
5
abr
16
ou
t 1
6
abr
17
ICC (consumer)
ICI (manufacturing)
ICS (services)
ICST (construction)
ICOM (commerce)
Source: IBGE
Retail Sales2
00
8 =
10
0
seasonally adjusted
*observed data
90
100
110
120
130
140
150fe
v
09
fev
10
fev
11
fev
12
fev
13
fev
14
fev
15
fev
16
fev
17
retail sales broad retail sales (incl. vehicles and building materials)
Feb 17 / Jan 17
-0.2%
Feb 17 / Jan 17
1.4%
Retail sales -5.4%
Broad retail sales -7.4%
12 months through Feb 17 /12 months through Feb 16*
Source: IBGE
Industrial Production2
01
2 =
10
0
*observed data
seasonally adjusted
50
60
70
80
90
100
110
120ag
o 1
0
fev
11
ago
1
1
fev
12
ago
1
2
fev
13
ago
1
3
fev
14
ago
1
4
fev
15
ago
1
5
fev
16
ago
1
6
fev
17
industrial production capital goods
Feb 17/Jan 17
0.1%
Feb 17/Jan 17
6.5%
Industrial Production -4.7%
Capital Goods -5.2%
12 months through Feb 17 / 12 months through Feb 16*
Sources: BCB / IBGE
GDP Real Growth%
*BCB forecasts (Inflation Report – Mar 17)
-0,5
4,9
5,9
4,2
2,2
3,4
0,3 0,5
4,4
1,4
3,1
1,1
5,8
3,24,0
6,1
5,1
-0,1
7,5
4,0
1,9
3,0
0,5
-3,8 -3,6
0,5
2,5
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
*
20
18
*
Outline
• The economic policy in the right direction
• Inflation on target and lower interest rates
• Resilience to external shocks
• Economic recovery
• The BC+ Agenda
BC+ AgendaMicroeconomic reforms
More Financial Citizenship More Modern Legislation
More Efficient SFN More inexpensive credit
The BC+ agenda
• Sustainable Reduction of Credit Cost
• encouraging good payment performances and
provision of guarantees
• reducing administrative costs increasing competition in
the financial system, and
• reducing subsidized lending
Brazil
Economic Prospects
May 2017
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