Transcript Brazil Economic Outlook

Brazil: Economic Opportunities
and Challenges
Jorge Arbache
University of Brasilia and Brazilian Development Bank - BNDES
11th Brazil-Taiwan Joint Business Councils Meeting
April 5, 2013
Disclaimer: This presentation does not necessarily represent the views of BNDES and its
Board of Directors
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1. Context: Increasingly complex
world
 Political challenges facing uncertain and complex
economic scenarios
 Crisis in the Euro zone
 Slow recovery in the US and slowdown in China
 Slowdown in emerging economies
 Geopolitical risks in oil countries
 Capital market distortions and uncertainties
associated to highly heterodox policies, e.g. QEs
 Protectionism on the rise
 Risk aversion on the rise
 Slowdown in trade, capital flow and FDI
2
2. Output growth – 2013 (YoY)
Output growth 2013 - WEO IMF (Jan 2013)
9
8
7
6
5
4
3
2
1
0
-1
8,2
5,9
3,7
3,5
3,5
3,5
2,8
Ar
ea
-0,2
Eu
ro
ce
Fr
an
y
0,3
U
ni
te
d
Ki
n
m
an
gd
pa
Ja
0,6
G
er
om
1,0
n
s
no
ec
o
ed
1,2
Ad
va
nc
1,4
m
ie
da
an
a
C
St
a
ni
te
d
1,8
U
So
ut
h
ou
Af
ric
te
s
a
t
tp
u
o
ic
W
or
ld
M
ex
il
Br
az
us
si
a
R
ia
In
d
C
hi
n
a
2,0
IMF’s Brazil growth forecast in 2014: 4.0%
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Brazil: Economic indicators 2013
(YoY)
25
21.5
20.9
Exports
Imports
20
15
10
5
8.5
3.9
4.7
4.6
Final
domestic
demand
Private
consumption
0
Output growth
Source: Citi Research projections
Fixed
investment
4
3. Where did recent growth
come from?
Decomposition of GDP growth
Source: IBGE
5
Falling income inequality is
boosting consumption
Growth rate of per capita income (%) – average 2001-11
Source: IBGE
6
2
fev/13
out/12
jun/12
fev/12
out/11
jun/11
fev/11
out/10
jun/10
fev/10
out/09
jun/09
fev/09
out/08
jun/08
fev/08
out/07
jun/07
fev/07
out/06
jun/06
14
fev/06
out/05
jun/05
fev/05
out/04
jun/04
fev/04
out/03
jun/03
fev/03
out/02
jun/02
fev/02
out/01
Falling unemployment
Unemployment rate -- record lows
There is a shortage of labor in several areas
Unemployment rate (%)
Source: IBGE
12
10
8
6
4
7
An increasing middle class is
feeding the domestic market
Brazilian population (millions)
Based on PNAD (IBGE) data
Brazil: Seventh largest domestic market
8
4. Where will future growth
come from?
• Growth will be geared by domestic demand,
but also by:
– Increasing competitiveness
– Investments
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Competitiveness is on the move
•
•
•
•
•
23 new Innovation Institutes
43 new Technological Centers
Sectorial Innovation Funds
4 million people in vocational training per year
Science without Borders – 100,000+ scholarships
abroad in engineering and other tech. areas
• MNCs state-of-the-art innovation labs
• PISA-OECD – “Brazil, a successful reformer”
–
“The federal government has launched a major effort to improve education, increasing
spending in classrooms and on teacher salaries and providing extra help for poorer families in
order to get children into classrooms. By setting quality targets and leaving schools free to
choose how best to achieve them, its National Education Plan has transformed the country
into a laboratory of best education practices.” OECD
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Other policies that will enhance
competitiveness
•
•
•
•
•
Electricity tax cut and new regulatory framework
Payroll tax cuts
Temporary and targeted business tax cuts
Huge investments in public services
Concessions and PPPs – ports, railways, roads,
airports
• Active exchange rate policy
• SELIC down by 500 b.p.
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• Well regulated financial sector -- banking
system not exposed to toxic assets
• New sources of savings and long-term funding
– New long-term funding instruments,
secondary market, buy out markets
– New public pension fund (FUNPRESP) and
rapid expansion of private pension funds
– FDI has been picking up – US$ 65.3 billion
in 2012 (5% of total)
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Growth Acceleration Program 2 - PAC 2
 Electric Energy
 Ports
 Airports
 Highways/Railways
 Urban Mobility
 2014 World Cup
 2016 Olympic Games
PAC 2 Projects
(US$ bn)
PAC Better City
PAC Citizens' Community
PAC Minha Casa Minha
Vida
PAC Water & Electricity
for All
PAC Transport
PAC Energy
Total
2011 - 2014 After 2014
32.6
-
Total
32.6
13.1
-
13.1
159.0
-
159.0
17.5
-
17.5
59.7
263.8
2.6
358.2
62.3
622.0
545.7
360.8
906.5
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Investment perspectives are firm
Investment outlook 2012-2015
Sectors
Industry
Oil & Gas
Mining
Steel
Chemical
Vehicles
Electronics
Pulp & Paper
Textile and Apparel
Ind. Health Care Complex
Aviation
US$ billion
2007-2010 2012-2015
263
341
136
202
39
33
18
12
14
14
20
32
12
14
11
15
6
8
6
6
2
4
Growth
%
% year
29.5
5.3
48.5
8.2
(13.9)
(2.9)
(33.6)
(7.9)
4.9
1.0
58.8
9.7
17.5
3.3
30.9
5.5
33.3
5.9
9.1
1.8
158.5
20.9
Infrastructure
187
229
22.2
4.3
Housing
341
491
44.2
7.6
TOTAL
791
1062
34.1
6.0
14
Source: BNDES
5. Is future growth sustainable?
Sound fiscal conditions and room to maneuver
65%
62.7%
60.9%
60%
54.3%
55%
60.4%
50%
45%
36.5%
40%
35%
30%
Net public debt
38.5%
Gross public debt
25%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Net public debt excludes assets and
liabilities of Petrobras and Eletrobras
Source: National Treasury
15
Sound external vulnerability
indicators (% GDP)
Source: Central Bank of Brazil
16
Rising investment rate (%)
Investment will keep growing at a stronger pace than GDP
24.0
22.0
20.4
19.5 19.3
19.1
18.1
17.4
16.4
16.1
16
16.4
15.3
17
Source: IBGE. *Projections - Finance Ministry
Social inclusion will keep
enlarging the domestic market
Poverty rate – (%) share of population
Source: FGV
18
6. Risks
• China slowdown
• Stagnation in the US, Europe and Japan
• Protectionism, uncertainties and market
distortions created by unconventional
policies
• International credit tightening
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7. The way forward – challenges
and reform agenda
• Accelerate labor productivity
• Increase savings and investments
• Improve competitiveness in manufacturing
• Tackle infrastructure bottlenecks
• Accelerate the knowledge-based economy
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• Diversify sources of long-term funding
• Foster innovation
• Fiscal reform - ICMS (VAT)
• Pension reform
• Labor legislation reform
• Diversify exports and reduce dependency
on commodities
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8. Conclusions
• Domestic market will enlarge further
• Investments and increasing
competitiveness will also drive growth
• Expanding investment opportunities in
several areas
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• A bumpy road ahead: poor international
environment and uncertainties
• But plenty of room for policy activism at
the Government disposal
• Government is aware of the need to
address a reform agenda to foster
competitiveness and to foment sustained
growth
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Thank You
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