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Economic Outlook Macro Research – Itaú Unibanco. July, 2013. Agenda. International. Global economy at a new stage. Better growth perspectives in the U.S., emerging economies decelerate. - PowerPoint PPT Presentation
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July, 2013
Economic OutlookMacro Research – Itaú Unibanco
2
AgendaInternational
Brazil
Global economy at a new stage. Better growth perspectives in the U.S., emerging economies decelerate.
The expectation of the Fed´s policy normalization has caused a sell-off in the emerging markets. The impact depends on each country´s fundamentals.
Markets’ adjustment to the Fed and popular demonstrations have produced a relevant chance in the macroeconomic scenario.
The Real has depreciated along with other currencies, but it has lost more value against the dollar than its more than its pairs.
Weaker Real leads to worse inflation perspectives in 2013 and stronger need to raise interest rates.
Fiscal stance is likely to become less expansionary, but popular demonstrations have reduced the probability of a deeper public spending adjustment.
More uncertain environment and higher interest rate affect negatively the growth perspectives.
3
U.S.: Payroll Surprises Again in June
Labor market in the U.S. remains strong. The payroll has gained 195k in June (BBG survey: 165k) and was revised at 70k in the two
previous months. The unemployment rate remained stable, at 7.6%.
Source: Itaú Unibanco, BLS
Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-130
50
100
150
200
250
300
350
1M 3M
2009 2010 2011 2012 20137.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
10.5%
Unemployment Rate – %Payroll – seasonally adjusted, thousands
4
Exchange Rates% change, May-to-Date
5-year Nominal Ratesbps change, May-to-Date
The Fed Signals Stumili Reduction: Sell-Off in the Emerging Markets
Source: Itaú Unibanco, Bloomberg
U.S.
Chile
Mexico
Peru
Colombia
Brazil
0.77
0.18
1.17
1.27
1.48
1.91
Colombia
Peru
Mexico
Chile
Brazil
4.9
5.2
6.3
6.5
13.0
We believe the Fed will reduce it´s asset purchases pace in the September meeting.
5
China: Focus on Reforms, Lower Growth
Source: Itaú Unibanco, CEIC
Recent policy signaling reflects less concern about short term growth and more focus on structural reforms that can lead to long run sustainable growth .
GDP – Growth YoY, %
2007
2007
2007
2007
2008
2008
2008
2008
2009
2009
2009
2009
2010
2010
2010
2010
2011
2011
2011
2011
2012
2012
2012
2012
2013
2013
2013
2013
2014
2014
2014
2014
5.0%
7.5%
10.0%
12.5%
15.0%
6
Countries: Brazil, Mexico, Chile, Colombia, South Korea, Singapore, Taiwan, Indonesia, Malaysia, Thailand, Russia, Ukraine, Poland, Hungary, Czech Republic, Turkey, South Africa
Emerging Economies Decelerate
GDP Growth – Emerging EconomiesQoQ, SAAR
Source: Itaú Unibanco, Haver Analytics, FMI
3.3%
1.7%
Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13
7
World: Our Expectations for the Next Years
Source: Haver, CEIC, Bloomberg, Itaú Unibanco
2004-2007 2012 2013 2014 2015-2020
World 5.1 3.2 2.8 3.4 3.5
USA 2.8 2.2 1.9 2.5 2.3
Eurozone 2.5 -0.5 -0.7 0.7 1.4
Japan 1.9 1.9 1.5 1.3 1.0
China 12.1 7.8 7.5 7.2 6.8
8Source: Itaú Unibanco
Itaú Unibanco Commodities Index
Commodities: Our Expectations for the Short Term
2000
2000
2001
2001
2002
2002
2003
2003
2004
2004
2005
2005
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2011
2011
2012
2012
2013
2013
0
50
100
150
200
250
300
350
9
Peru Mexico 2013 2014 2013 2014
GDP - % 6.0 5.8 GDP - % 2.5 3.6
PEN / USD (YE) 2.70 2.70 MXN / USD (YE) 12.2 12.0
Interest Rate - (YE) - % 4.25 4.25 Interest Rate - (YE) - % 4.00 4.00
CPI - % 2.7 2.5 CPI - % 3.6 3.5
Colombia Chile
2013 2014 2013 2014
GDP - % 3.8 4.7 GDP - % 4.5 4.7
COP / USD (YE) 1900 1850 CLP / USD (YE) 510 525
Interest Rate - (YE) - % 3.25 4.00 Interest Rate - (YE) - % 4.50 4.25
CPI - % 2.8 3.0 CPI - % 2.2 2.8
Argentina
2013 2014
GDP - % 2.0 0.0
ARS / USD (YE) 5.9 7.7
BADLAR - (YE) - % 21.0 25.0
CPI - % (Private estimates) 30.0 35.0
Latin America: Growth Divergence
Source: Itaú Unibanco
10
Growth in Brazil Disappointed
GDP Forecasts for 2012 (%)
Source: Latin Focus Consensus Forecasts
2010 2011 2012 20131
2
3
4
5
6
Brazil MexicoColombia Chile
2010 2011 20121
2
3
4
5
6
Brazil MexicoColombia Chile
GDP Forecasts for 2013 (%)
11
Brazil: Our Expectations for the Short Term
Source: Itaú Unibanco and BCB
2012 2013 2014
Economic Activity
GDP % 0.9 2.2 2.3
InflationIPCA % 5.8 6.1 5.9
Monetary PolicySelic Rate % 7.25 9.75 9.75
FiscalPrimary Surplus 2.4 1.7 1.1
Balance of PaymentsExchange Rate (eop) 2.08 2.18 2.18
Current Account (% GDP) -2.4 -3.3 -2.9
12
What Explains the Weak GDP in the Last Few Years?
GDP Growth BreakdownQoQ, SAAR
2009.IV
2010.I
2010.II
2010.III
2010.IV
2011.I
2011.II
2011.III
2011.IV
2012.I
2012.II
2012.III
2012.IV
2013.I
-2%
-1%
0%
1%
2%
3%
4%
5%
Consumption Gov. ExpenditureInvestment Exports - importsInventories & residual GDP
Deleveraging: Higher real interest rates (+150 bps) Macroprudential measures (reserve + capital
requirements) Reduction in government current expenditure
growth (to 0% from 10%-15%) Reduced BNDES disbursements Global risk aversion (VIX up to 40) High inventories, decelerating growth and
imports
Supply Issues: Fiscal expansion and interest rate cuts;
economy reacts slowly Excessive interventionism creates higher
economic policy risk Productivity deceleration seems stronger than
cyclical factors; lower potential growth With low productivity growth, rising wages
reduce margins and become a limitation on investment
Inflation accelerates, affecting real income and consumption
Signs of growing net imports
Source: Itaú Unibanco, IBGE
13
Gradual Recovery Reflects Lower Potential GDP
GDP (% Change, QoQ/sa)
Source: Itaú Unibanco, BCB
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
0.6%
0.8%
0.5%0.4%
200320042005200620072008200920102011201220132014-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
1.2%
5.7%
3.2%
3.9%
6.1%
5.2%
-0.3%
7.5%
2.7%
0.9%
2.3%2.2%
GDP – Annual Growth
14
2007 2008 2009 2010 2011 2012 2013100
105
110
115
120
125
130
135
2007 2008 2009 2010 2011 2012 201370
80
90
100
110
120
130 Gross fixed capital formationCapital goods consumption proxyCivil construction
Volatile Industrial Production Data, Investment Shows Signs of Weakness Again
The industrial production has dropped in May, after a sharp rise in the previous month. The fall was widespread and has reached most subsectors.
The capital goods production had an important fallback. High interest rates, weaker Real and higher uncertainty are likely to cause a longer cool down in investment.
Source: Itaú Unibanco and IBGE
Industrial Production – seasonally ajusted Investment – seasonally ajusted
15
Confidence Remains Weak
Industry Confidence Index (FGV)
Source: Itaú Unibanco , FGV
Consumer Confidence Index (FGV)
2010 2011 2012 2013100
105
110
115
120
2010 2011 2012 2013105
110
115
120
125
130
16
Growth Diffusion Points to Weak Activity Ahead
GDP vs. Diffusion Index Broad Data Set - Diffusion
2009 2010 2011 2012 201320%
30%
40%
50%
60%
70%
80%
90%
month 3MMAhistorical average
Source: Itaú Unibanco
1995 1998 2001 2004 2007 2010 201335%
45%
55%
65%
75%
-4%
-2%
0%
2%
4%
6%
8%
10%
Difusão dados (-2) PIB 4T (direita)
17
Will the Labor Market Remain Tight?
Source: IBGE, Itaú Unibanco
Unemployment Rate%, sa
Average Real Wagessa (2003=100)
2007 2009 2011 20134
5
6
7
8
9
10
11
2007 2009 2011 201385
90
95
100
105
110
115
120
Year average2011 6.62012 5.52013 5.4
Annual change2011 2.7%2012 4.2%2013 1.2%
18Source: Itaú Unibanco, Ministry of Labor
Risk: Jobs Creation Slowing Down
Formal jobs creation (Caged) was well below expectations in May.
Gradual activity recovery is likely to increase the hiring pace, but the persistence of weak data in the next months may lead to a less favorable labor market perspective
2001 2003 2005 2007 2009 2011 2013-175
-125
-75
-25
25
75
125
175
225
275
2005 2007 2009 2011 2013-2%
0%
2%
4%
6%
8%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Caged (rhs) PME/IBGE
New Jobs (CAGED)seasonally adjusted, thousands
Occupied Population annual change
19Source: Itaú Unibanco, BCB, Bloomberg
More Depreciated Exchange Rate, but there Is Overshooting
Exchange Rate – Reais per Dollar
Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-131.90
1.95
2.00
2.05
2.10
2.15
2.20
2.25
2.30
1.90
1.95
2.00
2.05
2.10
2.15
2.20
2.25
2.30
Dollar Sales
Dollar Purchases
Capital Controls Loosening
20
IPCA – Consumer Price Index
Source: Itaú Unibanco , IBGE
Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-130.00%
0.15%
0.30%
0.45%
0.60%
0.75%
0.90%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
6.2%
4.9%
6.2%
6.6%6.7%
6.3%
6.1%
Monthly 12-month (rhs)
Exchange Rate Causes Higher Inflation
21
Impact of Further Depreciation on Inflation
Source: Itaú Unibanco
Exchange Rate 2.18 2.38 2.58
IPCA 2013 6.1% 6.5% 7.0%
IPCA 2014 5.9% 6.1% 6.3%
1 2 3 40.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
0.1%
0.5%
0.6%
0.7%
Exchange Rate Pass-Through – 10% Devaluation of the Brazilian Real
Number of Quarters After Devaluation
22Source: Itaú Unibanco, Bloomberg
Apr-11 Oct-11 Apr-12 Oct-12 Apr-13350.0%
400.0%
450.0%
500.0%
550.0%
600.0%
650.0%
572.0%
Real Interest Rates – Long-Term Bonds(NTN-B 50)
Stronger Need to Raise Interest Rates…
Yield-Curve Pricing of Selic Rate
2008
2009
2009
2009
2009
2009
2009
2009
2009
2010
2010
2010
2010
2010
2010
2010
2010
2011
2011
2011
2011
2011
2011
2011
2011
2012
2012
2012
2012
2012
2012
2012
2012
2013
2013
2013
2013
2013
2013
2013
2013
2014
2014
2014
2014
2014
2014
2014
2014
6%
7%
8%
9%
10%
11%
12%
13%
14%
23Source: Itaú Unibanco, BCB
…and Less Expansionary Fiscal Stance
Primary Surplus - % GDP Net Debt - % GDP
2010 2012 2014 2016 2018 20200.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2010 2012 2014 2016 2018 202030
32
34
36
38
40
42
24
Challenges – Relatively High Labor Costs
Source: U.S. Bureau of Labor Statistics
Manufacturing Sector –Hourly Compensation Costs in 2011 (USD)
Change in Unit Labor Costs in USD Terms (2005-10)
Brazil Hungary Poland Mexico Phillippines
0
2
4
6
8
10
12
China South Korea
Israel Mexico Poland Brazil-20%
0%
20%
40%
60%
80%
100%
26%
-8%
20%-3% 12%
42%
9%
-1%
10%
2%
4%
36%
Real exchange rate changeNet costs
25Source: Heritage Foundation, International Energy Agency (2011); Design: Itaú Unibanco
Challenges – Heavy Tax Burden
Tax Burden – % of GDP
Swed
en
Fran
ce
Ger
man
y
Hung
ary
Ukra
ine
Pola
nd
Braz
il
Russ
ia
Spai
n
Autra
lia
USA
Sout
h Ko
rea
Arge
ntin
a
Turk
ey
Colo
mbi
a
Chile
Indi
a
Chin
a
Vene
zuel
a
Mex
ico
Arab
Em
irate
s0%
10%
20%
30%
40%
50%
60%
34%
26
Challenges: Infrastructure, Productivity
Infrastructure Ranking (World Economic Forum)
Ease of Doing Business 2012 Ranking(World Bank)
Source: World Economic Forum, World Bank
Hong KongSin-
gapore
Germany
Chile
Russia
China
Turkey
Mexico
Brazil
India
Peru
1
2
3
45
47
48
51
68
70
84
89
Chile
Peru
Colombia
Mexico
Uruguay
Paraguay
Argentina
Brazil
37
43
45
48
89
103
124
130
27Source: IBGE, Itaú Unibanco and U.S. Bureau of Labor Statistics
Challenges - Less Labor, Need More Investment
Decreasing Labor ContributionGDP Growth
Labor contribution decreases. Growth depends on increasing investments and productivity.
201020112012201320142015201620172018201920200%
1%
2%
3%
4%
5%
6%
7%
8%
2.7%
0.9%
2.3%2.2%
2008-2011 2012-2015 2016-2020
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0% Labor Capital Productivity
28
Challenges – Lack of Domestic Savings
Source: IBGE and Itaú Unibanco
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
5% 10% 15% 20% 25% 30%
Population aged 65+ (% total)
Mexico
Brazil
Poland
Italy
USA
Japan
Colombia
Spen
ding
on
soci
al s
ecur
ity (%
GD
P)
Public Spending on Social Security
29Source: IMF and Itaú Unibanco
Chi
na
Japa
n
Mex
ico
Peru
Chi
le
Arg
entin
a
Col
ombi
a
Can
ada
Bra
zil
Sout
h A
fric
a
UK
USA
54
2423 23
22 22
19
1716
13
1110
Challenges - Domestic Savings Must Increase to Enable Investments to Grow
Domestic Savings (%, 2011) Investment Rate
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 202015%
16%
17%
18%
19%
20%
21%
22%
30
Conclusion
World: news from the American economy have increased markets volatility in the short term, but the U.S. recovery is positive for the medium term.
Higher interest rates in the U.S. are here to stay, but some correction in the asset prices is likely to happen after the sell-off in the emerging markets is finished.
ü
ü Brazil: weaker Real leads to higher inflation, higher interest rates and less expansionary fiscal stance.
ü More uncertain environment (internal and external) is likely to reduce growth. The labor market is a risk.
ü
31
Long-Term Scenario
Source: Itaú Unibanco