macroeconomic perspectives after the crisis nelson barbosa secretary of economic policy

Ministério da Fazenda

1

Macroeconomic Perspectives after

the Crisis

Nelson BarbosaSecretary of Economic Policy

New York, 4 November 2009


2

ECONOMIC RECOVERY AND THE “DDD” SYNDROME


3 Source: IBGE. Ellaborated by: MF/SPE

INDUSTRIAL PRODUCTIONSeas. Adjust. Index (jan/2007 = 100)

111.5

89.0

101.9

80

85

90

95

100

105

110

115

4Q 2008


4

Unemployment rate

Source: IBGE. Elaborated by: MF/SPE

6

7

8

9

10

11

12

13

14unemployment rate

seasonally adjusted


5 Source: IBGE. Ellaborated by: MF/SPE.

GDP GROWTH (SAAR)

-13.0

-3.8

7.8

-15

-10

-5

0

5

10

15

II.03

IV.0

3

II.04

IV.0

4

II.05

IV.0

5

II.06

IV.0

6

II.07

IV.0

7

II.08

IV.0

8

II.09


6

Evolution of the Macroeconomic Debate

(The DDD Syndrome) Decoupling: the economy will not be hardly hit

by the crisis, this time is different. Disaster: the economy will not recover, this time

is not different and there will be recession, current account deficits and high unemployment

Deficit: the economy recovered, but the fiscal and current-account deficits generated by economic policy will become a problem.


7

An Old Look on Fiscal Policy and Debt:

“'At every stage in the growth of the debt it has been seriously asserted by wise men that bankruptcy and ruin were at hand. Yet still the debt went on growing, and still bankruptcy and ruin were as remote as ever."

Lord Thomas Macaulay


8

Back to the structural questions: Inflation and monetary policy:

How low can the real interest rate go? Is it sustainable?

Budget balance and public debt:What is the trend? Is it sustainable?

Exchange rate:How low can the BRL/USD exchange

rate go? Is it sustainable?


9

INTEREST RATE, INFLATION AND GROWTH


10*/ Up to October 23rd/2009Sources: BM&F e BCB. Ellaborated by: MF/SPE

ANNUAL INTEREST RATES

8.75

5.40

-

5

10

15

20

25

30 Selic rate target end of month Real ex-ante rate

(*)


11

10 years of inflation targetting

* Market forecasts (Focus 10/30/09 )Sources: IBGE e BCB Ellaborated by: MF/SPE

8.9

6.0

7.7

12.5

9.3

7.6

5.7

3.1 4.5

5.9 4.3 4.5 4.5

0

2

4

6

8

10

12

14

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009* 2010* 2011*

CONSUMERS PRICE INDEX, (% change accum. in 12 months)


12

GDP ANNUAL GROWTH RATE

2.1

3.4

1.0

4.5 4.9

0

12

34

56

Average (1999-02) Average (2003-05) Average (2006-08)

*/ Government forecasts. Source: IBGE Ellaborated by: MF/SPE.


13

FISCAL POLICY AND PUBLIC DEBT


14

Fiscal Targets and Fiscal Space in 2009-10

Primary balance in 2009: 2.50% of GDP before investment; and 1.56% of GDP after investment

Primary balance in 2010: 3.30% of GDP, before investment; and 2.65% of GDP, after investment.

Sovereign Wealth Fund: +0.50% of GDP in primary revenues when necessary.

Allocation of PAC expenditures: part of the 2009 budget can be transferred to the 2010 budget.


1515 Source: BCB Ellaborated by: MF/SPE

Primary and Total Budget balancein % of GDP

(*) 12 months up to Sep/09

3.2 3.3 3.8 3.9 3.2 3.5 3.7

1.2

(4.4)(5.1)

(2.8) (3.4) (3.5)(2.8)

(2.0)

(4.3)

2002 2003 2004 2005 2006 2007 2008 2009 *

Nominal Primary


1616 Source: BCB Ellaborated by: MF/SPE

RATIO OF NET PUBLIC DEBT TO GDP

43.9

43.1 43.3

42.642.2 42.1 41.8 42.0 41.8

40.0

38.6

37.7

38.8

39.640.0

40.6

41.4

42.643.3

44.0 44.0

44.9


17

Net Borrowing by Institutional Sector(in % of GDP, 12-month average)

Source: BCB Ellaborated by: MF/SPE

2003

.01

2003

.04

2003

.07

2003

.10

2004

.01

2004

.04

2004

.07

2004

.10

2005

.01

2005

.04

2005

.07

2005

.10

2006

.01

2006

.04

2006

.07

2006

.10

2007

.01

2007

.04

2007

.07

2007

.10

2008

.01

2008

.04

2008

.07

2008

.10

2009

.01

2009

.04

2009

.07-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0 BR EXTERNAL SECTOR BR PUBLIC ADM.BR PRIVATE SECTOR


18

FEDERAL GOVERNMENT: PRIMARY BALANCE

*/ 12 months up to Sep/09 Source: STN/MF Elaborado: SPE/MF

% of GDP 2002 2003 2004 2005 2006 2007 2008 2009 (*)

NET PRIMARY REVENUES 17.9% 17.4% 18.1% 18.8% 19.0% 19.8% 20.2% 19.4%

PRIMARY EXPENDITURES 15.7% 15.1% 15.6% 16.4% 17.0% 17.5% 17.2% 18.7% - Government payroll 4.8% 4.5% 4.3% 4.3% 4.5% 4.5% 4.5% 5.0% - Income transfers 6.9% 7.2% 7.6% 8.1% 8.4% 8.7% 8.6% 9.2% - Investments 0.8% 0.3% 0.5% 0.5% 0.6% 0.7% 0.9% 1.0% - Other expenditures 3.2% 3.1% 3.2% 3.5% 3.4% 3.6% 3.3% 3.5%

PRIMARY BALANCE 2.2% 2.3% 2.5% 2.5% 2.1% 2.2% 3.0% 0.7%


17.9 17.4

18.1 18.8 19.0

19.8 20.2 19.4

11.0 10.2 10.5 10.8 10.6 11.0

11.7

10.2

8

10

12

14

16

18

20

22

2002 2003 2004 2005 2006 2007 2008 2009*

NET PRIMARY REVENUES

NET PRIMARY REVENUES LESS INCOME TRANSFERS

AS % OF GDP

FEDERAL GOVERNMENT: PRIMARY SURPLUS

*/ 12 months up to Sep/09 Source: MF/STN Ellaborated by: MF/SPE

19


20

Central Government Primary Expenditures Composition2002-2009

• * 12 months up to Sep/09• **/ Includes Bolsa Família expendituresSource: MF/STN Ellaborated by: MF/SPE

Government payroll; 30.6%

Income Transfers**;

43.9%

Investments; 5.3%

Current expenditures;

20.3%Government

payroll; 26.7%

Income Transfers**;

49.2%

Investments; 5.2%

Current Expenditures;

18.9%2002 2009*


21

Long-Term Policy to Control Fiscal Primary Expenditures

Income transfers and payroll expenditures comprise 76% of the federal primary expenditures.

Payroll management: annual ceiling for the real growth rate of expenditures

Social-security challenges: minimum-wage policy, minimum age limits, requirements for risk benefits, and public employment.


22

Central Government Expenditures Composition2002-2009

* 12 months up to Sep/09Source: MF/STN Ellaborated by: MF/SPE

Total Primary Expenditure;

66.2%

Expenditures on interest ;

33.8%

Total Primary Expenditure;

82.2%

Expenditures on interest ;

17.8%2002 2009*


23

EXCHANGE RATE AND BALANCE OF PAYMENTS


Trade Balance(US$ bilions)

73

96 119

138 161

198

152

48 63

74 91

121

173

126

2003 2004 2005 2006 2007 2008 2009 Forecast

Exports ImportsMarket

expectations*

*/ FOCUS – (10/30/2009). Source: MDIC and BCB Elaborated by: MF/SPE


14.1 9.9 8.3 12.5

-9.4

27.5 22.0 26.0

-7.6

4.2 11.714.0

13.6

1.6

-24.5 -16.9

2002 2003 2004 2005 2006 2007 2008 2009*

Current Account NetFDI-Net

Market expectations

for 2009

Foreign Direct Investment (net) xCurrent account

(US$ billion)

*/ Focus (10/30/09). Source: BCB Ellaborated by: MF/SPE


26

Monthly foreign currency flow* (US$ billion)

*/ Up to October 23rd/2009Source: BCB. Ellaborated by: MF/SPE

Total financial outflow: $27 billions

Total financial inflow: $22.3 billion

7.0

1.6 3.1-0.1 0.5

2.9 3.1 4.91.6

-0.1 -2.81.3

-3.20.8

-4.2-6.2

-10.3-6.3

-3.5 -2.0 -3.9 -3.5

1.6 1.2 4.1 1.6 4.6

12.0Net financialNet commercial


27

INTERNATIONAL RESERVES(US$ billion)

(*) Up to October 29th /2009.Source: BCB. Ellaborated by: MF/SPE.

233.0

30

80

130

180

230

Oct-06 Feb-07 Jun-07 Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09(*)


28

Nominal BRL/USD exchange rate

Source: BCB. Ellaborated by: MF/SPE.

1.5

1.8

2.0

2.3

2.5

2.8

3.0

3.3 R$/US$


29

Effective real exchange rate (*)(Index: Jun/94 = 100)

(*) Average of brazilian currency related to the currencies of 15 countries, weighted by the participation of these countries in brazilian exports Source:BCB. Ellaborated by: MF/SPE.

40

60

80

100

120

140

160

180

macroeconomic perspectives after the crisis nelson barbosa secretary of economic policy

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