macro outlook · 2020. 8. 5. · brazil: fiscal source: bcb, bocom bbm fiscal measures to mitigate...
TRANSCRIPT
MACRO OUTLOOK
July 2020
MACRO OUTLOOK
Fernanda GuardadoChief-Economist
August 2020
MACRO OUTLOOK
Covid epidemic continues to spread in Latin America and the USA
Global economy embarks on recovery as economies reopen
Governments deepen fiscal and monetary expansions to reduce the economic costs of the pandemic
Brazil: GDP could fall close to 6%; end of year inflation below the target’s lower-bound
Interest rates should remain low in a recovery marked by controlled inflation
Covid-19 Pandemic
Source: ECDC, Bocom BBM
Epidemic advances in Brazil
0
600
1200
1800
2400
3000
3600
4200
0
200
400
600
800
1000
1200
1400
1 11 21 31 41 51 61 71 81 91 101 111 121 131 141 151 161 171
Deaths (MA7D) - After 10 deaths
China Korea Italy Brazil Spain UK
France India Mexico Indonesia US (rhs)
Global Growth
Source: OECD
Global economy enters a recession
-3,5-4
-3
-2
-1
0
1
2
3
4
5
6
1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020
World - Real GDP, Annual growth
China: Activity
Chinese economy shows recovery, with a pick-up that is slower in consumption and services
Source: CEIC, Bocom BBM
25
30
35
40
45
50
55
60
65
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
China - PMIs
Manufacturing Non-manuf
US: Activity
Source: BEA
American GDP suffers steepest decline in post-war history
US: Labor Market
Source: BLS
Labor market shows a faster than expected recovery, but the number of lost jobs remains high
128000
133000
138000
143000
148000
153000
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
US -Total Nonfarm Payroll (Thousands)
US: QE
Source: FED St Louis
FED’s balance sheet expansion sharper than post-GFC
0,0
1,0
2,0
3,0
4,0
5,0
6,0
7,0
8,0
2007 2009 2011 2013 2015 2017 2019
Federal Reserve Balance Sheet: Total Assets (USD Trillions)
Global Interest Rates
Source: Bloomberg, BOCOM BBM
Interest rates should remain at extremely low levels for a considerable time
-1,0
0,0
1,0
2,0
3,0
4,0
5,0
2014 2015 2016 2017 2018 2019 2020
10 Year Interest Rates
US Germany Japan China
Sovereign Debt
Source: IIF, BOCOM BBM
0
2
4
6
8
10
12
14
16
18
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Global Negative Yielding Debt - Market Value - US$ Trillion
Brazil: Forecasts
Source: BOCOM BBM
ECONOMIC FORECASTS 2016 2017 2018 2019 2020F 2021F
GDP Growth (%) -3.3% 1.3% 1.3% 1.1% -5.8% 3.8%
Inflation (%) 6.3% 2.9% 3.7% 4.3% 1.8% 3.0%
Unemployment Rate, SA (eoy ,%) 12.6% 12.4% 12.2% 11.7% 14.8% 12.5%
Policy Rate (eoy, %) 13.8% 7.0% 6.5% 4.5% 2.0% 4.0%
External Accounts
Trade Balance (US$ bn) 48 67 53 39 56 34
Current Account Balance (US$ bn) -23 -10 -42 -51 1 -19
Current Account Balance (% of GDP) -1.3% -0.7% -2.2% -2.8% 0.1% -1.3%
Fiscal Policy
Fiscal Primary Balance (% of GDP) -2.5% -1.8% -1.6% -0.9% -11.5% -3.1%
Government Gross Debt (% of GDP) 69.4% 73.7% 77.2% 75.9% 95.0% 95.0%
Activity seems to have bottomed in April; but great uncertainty remains, mainly with regards to the recoveryin consumption and new infection waves
Brazil: Growth
Source: BOCOM BBM
-0.3%
-13.2%
-5.7%
-2.7%
-1.0%
12.2%
4.0%
1.1%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21
Brazil GDP - 2020 Forecast, YoY
Services will recover more slowly
Brazil: Growth
Source: BOCOM BBM
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
Brazil GDP - Supply side forecasts, YoY
Agriculture Industry Services
Forecasts
Brazil: Labor Market
Source: BOCOM BBM
Unemployment rate should go up, but will revert part of the increase throughout the last quarter
14,8
4,0
6,0
8,0
10,0
12,0
14,0
16,0
18,0
2012 2014 2016 2018 2020
%
Brazil - Unemployment Rate (SA)
Brazil: Uncertainty
Source: FGV, BOCOM BBM
80
100
120
140
160
180
200
220
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Brazil - Economic Uncertainty Index
Index 3MMA Historic Mean 12MMA
Uncertainty diminished but remains well above norm
Brazil: Inflation
Source: BCB, BOCOM BBM
Deflationary bias in the short term, even with recovery of gasoline prices
CPI Regulated Non-Regulated
19 Q1 4,6% 6,3% 4,0%
19 Q2 3,4% 3,8% 3,2%
19 Q3 2,9% 2,9% 2,9%
19 Q4 4,3% 5,5% 3,9%
20 Q1 3,3% 4,8% 2,9%
20 Q2 2,1% 0,1% 2,8%
20 Q3 2,7% 1,4% 3,1%
20 Q4 1,8% 0,8% 2,2%
21 Q1 1,9% 1,3% 2,1%
21 Q2 3,3% 6,6% 2,2%
21 Q3 3,1% 6,0% 2,1%
21 Q4 3,0% 4,9% 2,4%
Baseline Scenario
Brazil: Inflation
Source: BCB, BOCOM BBM
Inflation should remain below the target’s midpoint, leaving space for low interest rate levels
1,8%
3,0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
jan-12 jan-13 jan-14 jan-15 jan-16 jan-17 jan-18 jan-19 jan-20 jan-21
CPI and Inflation Targets
CPI Target - Midpoint Lower Limit Upper Limit
BOCOM BBMForecast
BRAZIL: MONETARY POLICY
Source: BCB, BOCOM BBM
Selic rate should remain at 2% until the end of the year, with normalization starting in mid 2021
1.8%3.0%
2.00%4.0%
0.2%
1.0%
-2.5%
0.0%
2.5%
5.0%
7.5%
10.0%
12.5%
15.0%
17.5%
20.0%
Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21
CPI, Selic Rate and Real Ex-post Interest Rate
CPI Selic Real rate
BOCOM BBM Forecast
Brazil: Fiscal
Fonte: STN, BOCOM BBM
Measures to mitigate economic impacts from the pandemic should result in a primary deficit above 11% ofGDP in 2020, returning to around 3% of GDP in 2021 if the spending cap remains in place
Covid-19 Policy Response R$ Bilions %GDP
Federal Government
Taxes Defferal 352 4,9%
Emergencial aid for the vulnerable population 180 2,5%
Healthcare 28 0,4%
Emergencial aid for states and municipalities 171 2,4%
Labor support 350 4,8%
Total 1080 15,0%
Total ex-taxes defferal 729 10,1%
BCB
Liquidity Support 1216 -
Capital Support 1157 -
Special Credit Line for small and medium-sized companies (LTEL) 40 -
Federal Public Banks
BNDES 86 1,2%
CAIXA 111 1,5%
Brazil: Fiscal
Source: BCB, BOCOM BBM
Fiscal measures to mitigate economic fallouts will result in a sharp rise in the Debt/GDP ratio
It is essential to keep the fiscal deterioration contained to 2020
75,80%
94,9%
50%
60%
70%
80%
90%
100%
110%
2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027
Brazil - Gross Debt as share of GDP
Gross Debt BBM forecast
Brazil: Trade Balance
Source: BCB, BOCOM BBM
Trade balance surprises upward with stronger exports to Asia and sharp decline in imports
-10
0
10
20
30
40
50
60
70
80
0
50
100
150
200
250
300
2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Trade Balance (US$ Bi - 12m)
Exports Imports Net Forecast
Brazil: Trade Balance
Source: BCB, BOCOM BBM
Leading to reversal of the current account deficit
4
11 14 13
0
-31-26
-76 -77-74 -75
-104
-59
-23
-10
-42
-51
1
-19
-120
-100
-80
-60
-40
-20
0
20
40
2003 2005 2007 2009 2011 2013 2015 2017 2019 2021
Current Account Balance - USD Billion
Forecast
ADDRESSES
www.bocombbm.com.brOmbudsman | Phone.: 0800 724 8448 | Fax: 0800 724 8449
E-mail: [email protected]
Rio de Janeiro, RJ
Avenida Barão de Tefé, 34 – 20th and 21st floors
Zip Code 20220-460 Tel.: +55 (21) 2514-8448 Fax: +55 (21) 2514-8293
São Paulo, SP Av. Brigadeiro Faria Lima, 3311 – 15th floorZip Code 04538-133 Tel.: +55 (11) 3704-0667 +55 (11) 4064-4867 Fax: +55 (11) 3704-0502
Salvador, BA Rua Miguel Calmon, 398 – 2nd floor Zip Code 40015-010 Tel.: +55 (71) 3326-4721 +55 (71) 3326-5583 Fax: +55 (71) 3254-2703
Nassau, Bahamas Shirley House | Shirley House Street, 50, 2nd floor P.O. N-7507 Tel.: (1) (242) 356-6584 Fax: (1) (242) 356-6015
This presentation was prepared by Banco BOCOM BBM. The information contained herein should not be interpreted asinvestment advice or recommendation. Although the information contained herein was prepared with utmost care anddiligence, in order to reflect the data at the time in which they were collected, Banco BOCOM BBM cannot guarantee theaccuracy thereof. Banco BOCOM BBM cannot be held responsible for any loss directly or indirectly derived from the use ofthis presentation or its contents. This report cannot be reproduced, distributed or published by the recipient or used forany purpose whatsoever without the prior written consent of Banco BOCOM BBM.