Transcript Slide 1
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.
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.
Brazil
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.
2
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%.
Payroll – seasonally adjusted, thousands
Unemployment Rate – %
350
10.5%
300
10.0%
250
9.5%
200
9.0%
150
8.5%
100
8.0%
50
7.5%
0
Dec-10
Jun-11
Dec-11
1M
Source: Itaú Unibanco, BLS
Jun-12
Dec-12
Jun-13
7.0%
2009
2010
2011
2012
2013
3M
3
The Fed Signals Stumili Reduction: Sell-Off in the
Emerging Markets
We believe the Fed will reduce it´s asset purchases pace in the September meeting.
5-year Nominal Rates
bps change, May-to-Date
U.S.
Chile
Exchange Rates
% change, May-to-Date
0.77
4.9
0.18
Mexico
Peru
Colombia
Brazil
Source: Itaú Unibanco, Bloomberg
5.2
1.17
1.27
1.48
1.91
13.0
Colombia
Peru
6.3
Mexico
6.5
Chile
Brazil
4
China: Focus on Reforms, Lower Growth
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, %
15.0%
12.5%
10.0%
7.5%
5.0%
2007
Source: Itaú Unibanco, CEIC
2008
2009
2010
2011
2012
2013
2014
5
Emerging Economies Decelerate
GDP Growth – Emerging Economies
QoQ, SAAR
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
Countries: Brazil, Mexico, Chile, Colombia, South Korea, Singapore, Taiwan, Indonesia, Malaysia, Thailand, Russia,
Ukraine, Poland, Hungary, Czech Republic, Turkey, South Africa
Source: Itaú Unibanco, Haver Analytics, FMI
6
World: Our Expectations for the Next Years
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
Source: Haver, CEIC, Bloomberg, Itaú Unibanco
7
Commodities: Our Expectations for the Short Term
Itaú Unibanco Commodities Index
350
300
250
200
150
100
50
0
2000
Source: Itaú Unibanco
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
8
Latin America: Growth Divergence
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
2013
2014
GDP - %
4.5
4.7
Colombia
Chile
2013
2014
3.8
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
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
GDP - %
Argentina
Source: Itaú Unibanco
9
Growth in Brazil Disappointed
GDP Forecasts for 2013 (%)
GDP Forecasts for 2012 (%)
6
6
5
5
4
4
3
3
2
2
1
1
2010
2011
Brazil
Mexico
Source: Latin Focus Consensus Forecasts
2012
Colombia
2010
Chile
2011
Brazil
Mexico
2012
Colombia
2013
Chile
10
Brazil: Our Expectations for the Short Term
2012
2013
2014
0.9
2.2
2.3
5.8
6.1
5.9
7.25
9.75
9.75
2.4
1.7
1.1
Exchange Rate (eop)
2.08
2.18
2.18
Current Account (% GDP)
-2.4
-3.3
-2.9
Economic Activity
GDP %
Inflation
IPCA %
Monetary Policy
Selic Rate %
Fiscal
Primary Surplus
Balance of Payments
Source: Itaú Unibanco and BCB
11
What Explains the Weak GDP in the Last Few Years?
GDP Growth Breakdown
QoQ, SAAR
Deleveraging:
Higher real interest rates (+150 bps)
5%
Macroprudential measures (reserve + capital
requirements)
4%
Reduction in government current expenditure
growth (to 0% from 10%-15%)
Reduced BNDES disbursements
3%
Global risk aversion (VIX up to 40)
2%
High inventories, decelerating growth and
imports
1%
Supply Issues:
0%
Fiscal expansion and interest rate cuts;
economy reacts slowly
Excessive interventionism creates higher
economic policy risk
-1%
Productivity deceleration seems stronger than
cyclical factors; lower potential growth
-2%
2009.IV
2010.IV
2011.IV
2012.IV
Consumption
Gov. Expenditure
Investment
Exports - imports
Inventories & residual
GDP
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
12
Gradual Recovery Reflects Lower Potential GDP
GDP – Annual Growth
GDP (% Change, QoQ/sa)
2.5%
8%
7.5%
7%
2.0%
6.1%
6%
5.7%
5.2%
1.5%
5%
3.9%
4%
1.0%
0.8%
0.6% 0.5%
0.4%
0.5%
3.2%
2.7%
3%
2.3%2.2%
2%
1.2%
0.9%
1%
0.0%
0%
-0.5%
2010 Q1
Source: Itaú Unibanco, BCB
-0.3%
-1%
2011 Q1
2012 Q1
2013 Q1
2003
2005
2007
2009
2011
2013
13
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.
Industrial Production – seasonally ajusted
Investment – seasonally ajusted
130
Gross fixed capital formation
Capital goods consumption proxy
Civil construction
135
130
120
125
110
120
100
115
90
110
80
105
100
2007
2008
2009
Source: Itaú Unibanco and IBGE
2010
2011
2012
2013
70
2007
2008
2009
2010
2011
2012
2013
14
Confidence Remains Weak
Consumer Confidence Index (FGV)
Industry Confidence Index (FGV)
120
130
125
115
120
110
115
105
110
105
100
2010
Source: Itaú Unibanco , FGV
2011
2012
2013
2010
2011
2012
2013
15
Growth Diffusion Points to Weak Activity Ahead
Broad Data Set - Diffusion
GDP vs. Diffusion Index
75%
10%
90%
8%
80%
6%
70%
4%
60%
2%
50%
0%
40%
-2%
30%
-4%
20%
2009
65%
55%
45%
35%
1995
1998
2001
2004
Difusão dados (-2)
Source: Itaú Unibanco
2007
2010
2013
PIB 4T (direita)
2010
month
2011
3MMA
2012
2013
historical average
16
Will the Labor Market Remain Tight?
Unemployment Rate
%, sa
Average Real Wages
sa (2003=100)
11
120
10
115
9
110
8
105
7
100
6
95
Year average
5
Annual change
2011
6.6
2011
2.7%
2012
5.5
2012
4.2%
2013
5.4
2013
1.2%
4
2007
Source: IBGE, Itaú Unibanco
2009
90
2011
2013
85
2007
2009
2011
2013
17
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
New Jobs (CAGED)
seasonally adjusted, thousands
Occupied Population
annual change
4.5%
275
8%
4.0%
225
3.5%
175
6%
3.0%
125
2.5%
4%
75
2.0%
1.5%
25
2%
1.0%
-25
0.5%
-75
0%
0.0%
-125
-175
2001
-0.5%
2003
2005
Source: Itaú Unibanco, Ministry of Labor
2007
2009
2011
2013
-2%
2005
-1.0%
2007
2009
Caged (rhs)
2011
2013
PME/IBGE
18
More Depreciated Exchange Rate, but there Is
Overshooting
Exchange Rate – Reais per Dollar
2.30
2.30
Dollar Sales
2.25
2.25
Dollar Purchases
2.20
2.20
Capital Controls Loosening
2.15
2.15
2.10
2.10
2.05
2.05
2.00
2.00
1.95
1.95
1.90
Jul-12
1.90
Sep-12
Source: Itaú Unibanco, BCB, Bloomberg
Nov-12
Jan-13
Mar-13
May-13
Jul-13
19
Exchange Rate Causes Higher Inflation
IPCA – Consumer Price Index
0.90%
7.0%
6.7%
6.6%
0.75%
6.5%
6.3%
6.2%
0.60%
6.2%
6.1%
6.0%
0.45%
5.5%
0.30%
4.9%
0.15%
5.0%
0.00%
4.5%
Jan-12
Apr-12
Jul-12
Oct-12
Monthly
Source: Itaú Unibanco , IBGE
Jan-13
Apr-13
Jul-13
Oct-13
12-month (rhs)
20
Impact of Further Depreciation on Inflation
Exchange Rate Pass-Through – 10% Devaluation of the Brazilian Real
0.8%
0.7%
0.7%
0.6%
0.6%
0.5%
0.5%
0.4%
0.3%
0.2%
0.1%
0.1%
0.0%
1
2
3
4
Number of Quarters After Devaluation
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%
21
Stronger Need to Raise Interest Rates…
Real Interest Rates – Long-Term Bonds
(NTN-B 50)
Yield-Curve Pricing of Selic Rate
Hundreds
14%
13%
6.5%
6.0%
5.7%
12%
5.5%
11%
5.0%
10%
9%
4.5%
8%
4.0%
7%
6%
2008
2010
Source: Itaú Unibanco, Bloomberg
2011
2013
2014
3.5%
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
22
…and Less Expansionary Fiscal Stance
Primary Surplus - % GDP
Net Debt - % GDP
3.5
42
3.0
40
2.5
38
2.0
36
1.5
34
1.0
32
0.5
0.0
30
2010
2012
Source: Itaú Unibanco, BCB
2014
2016
2018
2020
2010
2012
2014
2016
2018
2020
23
Challenges – Relatively High Labor Costs
Manufacturing Sector –
Hourly Compensation Costs in 2011 (USD)
Change in Unit Labor Costs in USD Terms
(2005-10)
12
90%
80%
10
70%
36%
60%
8
50%
40%
6
30%
9%
10%
20%
4
10%
26%
20%
2%
0%
2
-8%
-10%
0
42%
4%
12%
-3%
-1%
-20%
Brazil
Hungary
Poland
Mexico Phillippines
China
South
Korea
Israel
Mexico Poland
Real exchange rate change
Source: U.S. Bureau of Labor Statistics
Brazil
Net costs
24
Challenges – Heavy Tax Burden
Tax Burden – % of GDP
60%
50%
40%
34%
30%
20%
10%
Source: Heritage Foundation, International Energy Agency (2011); Design: Itaú Unibanco
Arab Emirates
Mexico
Venezuela
China
India
Chile
Colombia
Turkey
Argentina
South Korea
USA
Autralia
Spain
Russia
Brazil
Poland
Ukraine
Hungary
Germany
France
Sweden
0%
25
Challenges: Infrastructure, Productivity
Infrastructure Ranking
(World Economic Forum)
Hong Kong
1
Singapore
2
Germany
3
Ease of Doing Business 2012 Ranking
(World Bank)
Chile
Chile
Russia
45
Peru
43
Colombia
45
47
Mexico
China
Turkey
Mexico
Brazil
Peru
Source: World Economic Forum, World Bank
48
48
Uruguay
51
68
Paraguay
89
103
70
Argentina
India
37
124
84
89
Brazil
130
26
Challenges - Less Labor, Need More Investment
Labor contribution decreases. Growth depends on increasing investments and productivity.
GDP Growth
Decreasing Labor Contribution
8%
2.0%
Labor
Capital
Productivity
7%
1.5%
6%
5%
4%
1.0%
2.7%
3%
2.3%2.2%
2%
0.5%
0.9%
1%
0%
0.0%
2010
2012
2014
2016
Source: IBGE, Itaú Unibanco and U.S. Bureau of Labor Statistics
2018
2020
2008-2011
2012-2015
2016-2020
27
Challenges – Lack of Domestic Savings
Public Spending on Social Security
20%
Italy
Spending on social security (% GDP)
18%
16%
Poland
14%
Brazil
12%
10%
Japan
8%
USA
6%
Mexico
4%
Colombia
2%
0%
5%
10%
15%
20%
25%
30%
Population aged 65+ (% total)
Source: IBGE and Itaú Unibanco
28
Challenges - Domestic Savings Must Increase to Enable
Investments to Grow
Domestic Savings (%, 2011)
Investment Rate
22%
54
21%
24
23
23
22
20%
22
19
19%
17
16
18%
13
11
10
17%
16%
Source: IMF and Itaú Unibanco
USA
UK
South Africa
Brazil
Canada
Colombia
Argentina
Chile
Peru
Mexico
Japan
China
15%
2010
2012
2014
2016
2018
2020
29
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.
Brazil: weaker Real leads to higher inflation, higher interest rates and less
expansionary fiscal stance.
More uncertain environment (internal and external) is likely to reduce growth.
The labor market is a risk.
30
Long-Term Scenario
Source: Itaú Unibanco
31