brazilian economic outlook what's next after the pension...
TRANSCRIPT
Fernando Honorato Barbosa Chief Economist, Director [email protected]
August 2019
Brazilian economic outlook What's next after the pension reform?
Brazil ins undergoing its most important economic
transition in decades…
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6.13%
-0.20%
-7%
-2%
3%
8%
13%
18%
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Despesa real, %CENTRAL GOVERNMENT REAL EXPENDITURE % annual
3
Source: STN, Bradesco
FEDERAL DEBT/GDP Alternative scenarios
4
59
52
66
83
60
66
82
71
53
50
55
60
65
70
75
80
85
90
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
GDP 3 / Interest Rate 4 GDP 2,5 / Interest Rate 3,5
GDP 2 / Interest Rate 3 GDP 3 / Interest Rate 3
Source: BCB, Bradesco
NOMINAL INTEREST RATES – 10 YEARS Selected emerging markets
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Source: Bloomberg, Bradesco
2008 2010 2015 2017 2018 2019 CPItarget
Brazil 12.5 12.3 13.7 10.3 10.6 7.2 3.8
South Africa 9.1 8.5 8.2 8.7 8.7 8.7 4.5
Russia 7.9 7.8 11.3 7.8 7.9 7.4 4.0
Chile 6.7 4.8 4.5 4.2 4.6 3.3 3.0
Colombia 10.8 7.9 7.5 6.6 6.7 6.0 3.0
Peru 7.3 5.9 6.4 5.6 5.4 4.5 2.0
Mexico 8.4 7.0 6.0 7.2 7.9 7.6 3.0
Average (ex-Brazil) 8.9 7.7 8.2 7.2 7.4 6.4 3.3
Source: Bloomberg, Bradesco
REAL INTEREST RATE 2050 % Annual
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3.7%3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Aug-18 Feb-19 Aug-19
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CREDIT – INTERNATIONAL COMPARISON Dec-18, % of GDP
Source: BIS, BCB, Bradesco
7
135.4
65.2
95.5
40.0
70.5
47.842.2
27.0
0
20
40
60
80
100
120
140
Credit to the private sector Credit to the government Credit to non-financialcompanies
Credit to households
Emerging markets
Brazil
The economy is gradually improving…
8
EMPLOYMENT AND LABOR FORCE Seasonally adjusted, millions, includes non-formal workers
Source: IBGE, Bradesco
9
93,5
106,1
88,0
90,0
92,0
94,0
96,0
98,0
100,0
102,0
104,0
106,0
108,0
12 13 14 15 16 17 18 19
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Labor force
Employment
UNEMPLOYMENT RATE Annual average
Source: IBGE, Bradesco
10
6,8%
11,5% 12,7% 12,3% 12,7%
8,2%
9,4%
11,1% 12,0% 12,5%15,1%
20,9%
23,9% 24,3%25,2%
0,0%
5,0%
10,0%
15,0%
20,0%
25,0%
30,0%
pre crisis 2016 2017 2018 2019
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Unemployment rate
Discouraged Workers
NON-PERFORMING LOANS Seasonally adjusted
Source: BCB, Bradesco
11
2.6
4.8
3.8
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
10 11 12 13 14 15 16 17 18 19
Inadimplência PF e PJ livres - dessaz
Corporate credit Household credit Total credit
Retrofitted series
Fonte: BCB, Bradesco
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CREDIT TO HOUSEHOLDS AND COMPANIES YoY, % 3 month-moving average
13,9%
15,5%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
14 15 16 17 18 19
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Household credit Total corporate credit (ex-BNDES)
Source: IBGE, Bradesco
BRAZILIAN REAL RETAIL SALES Credit and income-related retail sales, level
80
100
120
140
160
180
200
90
110
130
150
170
190
210
230
250
270
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
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Credit-linked retail (left axis, 51%)
Income-linked retail (right axis, 49%)
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SAO PAULO HOUSING MARKET Housing starts and sales
Source: Secovi, Bradesco
Housing Starts and New Home Sales (units in 12 months) Supply runoff time (months of sales)
14
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
May-05 May-07 May-09 May-11 May-13 May-15 May-17 May-19
Lançamentos
Vendas
Housing Starts
Sales
8.7
16.3 16.4
15.4
7.7 7.5
mai/14 mai/15 mai/16 mai/17 mai/18 mai/19 May-14 May-15 May-16 May-17 May-18 May-19
Markets are pricing-in this positive
outlook...
15
BRAZILIAN RISK: 5 YEAR CDS b.p.
Source: Bloomberg, Bradesco
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109,7
138,5
321,2
234,3
140,7
0
50
100
150
200
250
300
350
One year beforeinvestment-grade
Investment-gradeperiod (excluding
global crisis)
Global crisis One year beforedowngrade to junk
Today
Título do Gráfico
Source: S&P, Bradesco
BRAZIL: EXTERNAL FUNDAMENTALS External indicators
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Sample
mean
AAA to A-
mean
BBB+ to BBB-
mean
Speculative
grade meanBrazil
Total external debt / GDP 52% 68% 46% 48% 27%
Net external liabilities / GDP 15% -27% 31% 59% 32%
International Reserves (US$ bi) 149 245 100 45 383
International Reserves (months of import) 8.6 8.1 7.8 9.0 24.8
Current account / GDP (*) -2.3% -1.1% -2.5% -2.8% -0.7%
External financing needs / (Reserves + Exports) (**) 147% 193% 115% 126% 61%
Sample: 81 countries
* Mean of deficit countries
** Current account + Debt servicing maturing in 12 months
Investment grade Speculative grade
BRAZILIAN RATINGS Rating agencies
Fonte: Bradesco
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GLOBAL STOCK MARKETS 12-month, %, local currency
Source: Bloomberg, Bradesco
19
31,4%
18,6%
7,8%0,1%
-5,2% -8,3%-19,6%-25%
-5%
15%
35%
55%
Bra
zil
Ru
ssia
Arg
enti
na
Gre
ece
Ind
on
esi
a
Swit
zerl
and
Turk
ey
Au
stra
lia
Do
w J
on
es I
nd
Ave
rage
S&P
50
0
Nas
daq
Ch
ina
Ca
nad
a
De
nm
ark
Bra
de
sco
Wo
rld
Ind
ex
Fran
ce
Euro
pe
50
Ital
y
Taiw
an
Ne
ther
lan
ds
Po
lan
d
Un
ite
d K
ingd
om
Swe
de
n
Sou
th A
fric
a
Ger
man
y
Po
rtu
gal
Ind
ia
No
rway
Egyp
t
Ho
ng
Ko
ng
Bel
giu
m
Spai
n
Fin
lan
d
Mal
ays
ia
Jap
an
Au
stri
a
Ire
lan
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Sou
th K
ore
a
Me
xico
Última atualização:
14/08/2019
EXCHANGE RATE: BRL vs EMERGING MARKETS BRL accumulated variation versus median and percentiles of 22 emerging
20
Source: Bloomberg, Bradesco
3,60
4,00
3,00
3,20
3,40
3,60
3,80
4,00
4,20
4,40
jan/2018 abr/2018 jul/2018 out/2018 jan/2019 abr/2019 jul/2019 out/2019
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90% 75% 25% 10% mediana BRL
To strengthen growth, however, the private sector must be the protagonist of
the economy...
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POST-PENSION REFORM AGENDA Summary
Source: Bradesco
22
Topics Reforms
Business environmentTax reform, Economic Freedom Bill, Law of Gas and Sanitation, Regulatory Mark of Regulatory Agencies, BC+
Outlook
Privatization and concessions BRL 204 billions in projects
Openness of economy Mercosul-EU Deal, unilateral reduction of CET, new deals
Demand boost FGTS, Bolsa Família Programme Christmas Bonus, monetary policy
Macro and fiscal reformsTransfer of Rights (Petrobras), Central Bank Independence, aid to states and municipalities, administrative
reform
Implemented reformsSpending cap bill, TLP, labor reform, public credit downsizing, social security and anti-fraud, reduction of
inflation target, home equity credit, positive credit bureau, LIG, eletronic bonds
CORE CPI Seasonally adjusted, 12 months
Source: IBGE, Bradesco
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0%
2%
4%
6%
8%
10%
12%
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
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SELIC POLICY RATE Selic, %
12,75%
8,75%
12,50%
10,50%
7,25%
11,00%
14,25%
11,25%
7,50%
6,50% 6,00%
5,00%
3,0%
5,0%
7,0%
9,0%
11,0%
13,0%
15,0%
09 10 11 12 13 14 15 16 17 18 19 20
Source: BCB, Bradesco
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(*) voluntary membership of states
Goods and Services
Federal VAT
(IPI, Cofins, PIS)
or
Dual VAT*
(ICMS, ISS)
Income and Profits
Reduce corporate tax (IRPJ and CSLL)
Reduce personal income tax (IRPF)
Remove/limit tax deductions
Tax dividends
Payroll
Reduce payroll tax
Create financial transactions tax
BRAZILIAN TAX REFORM Summary
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Aviation (41 airports)10,3 Waterway (12 ports)
4,2
Roads (16 mil km)131,0
Railroads (15 mil km)58,9
CONCESSIONS AND PRIVATIZATION PROGRAMS Details
R$ 204 billions by 2022
Source: Min. Infraestrutura, Bradesco
R$ 10 billion of investment: + 0,15 p.p. GDP
26
27,4
26,5
8,0
14,8
12,7
20,3
6,0
0 5 10 15 20 25 30
2021 3ºQ
2020 4ºQ
2020 3ºQ
2020 2ºQ
2020 1ºQ
2019 4ºQ
2019 3ºQ
TRADE OPENNESS Exports + imports % of GDP, 2017
Source: EIU, Bradesco
27
117.1%
114.9%
65.7%
54.3%
46.6%
40.5%
40.4%
39.0%
37.3%
27.3%
23.1%
0% 20% 40% 60% 80% 100% 120% 140%
Asia
Europe
Canada
South Africa
Russia
Latam
Australia
India
China
USA
Brazil
1,4
3,0
4,1
0,4
1,0
2,3
0,00
0,50
1,00
1,50
2,00
2,50
3,00
3,50
4,00
4,50
1980s crisis (1981-1992)
"Real Plan" and FHCII Ajustment
Micro Reforms,Commodities, Lula
(2003-2010)
New economicmatrix and 2010s
excess. Dilma (2011-2016)
Resumption of macroequilibrium (2017-
2019)
2019-2022*
BRAZILIAN GROWTH Good economic policies enhance growth
28
Source: Bradesco
Medium-term challenges and risks…
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RISKS Main risks
Fonte: Bradesco
o Global environment
o Drop in public investment not being compensated by private investments
o Fiscal solvency of subnational governments
o Political volatility
o Education, productivity and absorption of new technologies
Main risks / negative drivers
30
DOING BUSINESS AND EDUCATION Ease of doing business and mathematics performance PISA Test
Source: OECD, World Bank, Bradesco
31
556538 534
493
401
378 376
332
300
350
400
450
500
550
600
1 Singapore 2 Canada 3 Hong Kong OECD 63 Brazil 68 Algeria 69 Lebanon 70 Kosovo
Título do Gráfico
Country #
New Zealand 1
Singapura 2
Denmark 3
United Kingdom 9
Turkey 43
China 46
Mexico 54
Brazil 109
Argentina 119
Venezuela 188
Eritrea 189
Somalia 190
Doing Business 2019 PISA Mathematics 2015
Source: IFR, Bradesco
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ROBOTS STOCK BY COUNTRY Thousand units
473.429
297.215 273.101 262.104
200.634
64.356 35.204
12.373
-
50.000
100.000
150.000
200.000
250.000
300.000
350.000
400.000
450.000
500.000
China (1º) Japan (2º) Korea (3º) USA (4º) Germany(5º)
Italy (6º) France (7º) Brazil (18º)
Título do Gráfico
Source: Bradesco
OUR FORECASTS...
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Bradesco economic forecasts are revised at the beginning of each month. During moments of greater volatility, the level of uncertainty and error margins naturally rise, especially between revisions. Our forecasts are based on the assumption that the adjustments necessary to ensure the sustainability of Brazil’s macroeconomic framework will be implemented over the next few years. If these adjustments do not materialize or are better than expected, the forecast could be altered significantly. Last revised on August 08, 2019.
2017 2018 2019 2020
Consumer inflation - IPCA (%) 2,95 3,75 3,50 3,9
GDP growth (%) 1,1 1,1 0,8 2,2
Industrial Production (%) 2,5 1,1 0,6 2,5
Retail Sales (%) 4,0 5,0 4,5 4,5
Job Creation (in thousands) 264 1316 368 1016
Unemployment Rate (% of labor force, avg) 12,7 12,3 12,9 12,8
Outstanding Credit Growth (%) -0,5 5,0 7,5 9,4
Trade Balance (USD bn) 64,0 53,6 51,7 47,4
Current Account (USD bn) -7,2 -14,5 -22,1 -38,6
Exchange Rate (BRL/USD, eop) 3,31 3,87 3,80 3,80
Selic Rate (%, eop) 7,00 6,50 5,00 5,00
Primary Balance (BRL bn) -111 -108,3 -130 -89,4
Gross Debt (% of GDP) 74,1 76,7 77,8 79,4
International Reserves (USD bn) 382,0 388,1 388,1 388,1
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