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SCENARIOS OF THESCENARIOS OF THE
BRAZILIAN ECONOMYBRAZILIAN ECONOMY
Carlos GeraldoCarlos Geraldo LangoniLangoni
September / 2010
PricewaterhouseCoopersPricewaterhouseCoopers
THE ECONOMIST
P R O J E T A
P R O J E T A
STRUCTURAL CHANGES
• WORLD LEVEL: MULTIPOLARITY;
• DOMESTICALLY: MACRO CONSENSUS.
P R O J E T A
MULTIPOLAR WORLD
• RECESSION x DEPRESSION: CENTRAL BANK
POWER / GROWING ROLE OF EMERGING
COUNTRIES;
• CHINA AND INDIA (SLOWDOWN)
BRAZIL (FLAT)
RUSSIA (DEEP RECESSION).
The emerging economies, essential to absorb the crisis, should continue to lead the world
growth . . .
MULTIPOLAR WORLD
WORLD ECONOMY
Region 2004 2005 2006 2007 2008 2009 2010 2011 - 2014
INTERNATIO NAL TRADE 10.7 7.8 9.1 7.2 3.0 -12.2 13.5 6.0
WO RLD 4.9 4.5 5.1 5.2 3.0 -0.6 4.2 4.5
ADVANCED ECONOMIES 3.2 2.6 3.0 2.7 0.6 -3.2 2.3 2.5
UnitedStates 3.6 3.1 2.7 2.1 0.4 -2.4 3.1 2.6
Euro Area 2.2 1.7 2.9 2.7 0.7 -4.1 1.0 1.5
Japan 2.7 1.9 2.0 2.3 -0.7 -5.2 1.9 2.0
EMERGING ECO NOMIES 7.5 7.1 7.9 8.3 6.0 2.4 6.3 6.5
China 10.1 10.4 11.6 13.0 9.0 8.7 10.0 9.5
India 7.9 9.2 9.8 9.4 7.3 5.7 8.8 8.4
Russia 7.2 6.4 7.7 8.1 5.6 -7.9 4.0 3.5
Brazil 5.7 3.2 4.0 6.1 5.1 -0.2 7.8 5.5
P R O J E T A
P R O J E T A
BRICS GDP GROWTH
1992 – 2011 2003 – 2010 *
CHINA 10% 10.6%
INDIA 7.6% 8.4%
RUSSIA ------ 6.0%
BRAZIL 4.3% 4.7%
* excludes 2009.
Despite recent acceleration, Brazilian performance is the lowest among the BRICS . . .
P R O J E T A
BRICS INFLATION
2002 – 2011
CHINA 2.5%
INDIA 6.7%
RUSSIA 11.0%
BRAZIL 6.5%
China has been able to combine high growth with low inflation . . .
P R O J E T A
SUSTAINABILITY
• SOURCE OF GROWTH: LIBERALIZATION;
• EXPORT PLATFORM;
• INTERNAL MARKET;
• HIGH INVESTMENTS / SAVING RATIOS;
• HUMAN CAPITAL;
• INFRASTRUCTURE.
P R O J E T A
BRAZIL’S MAIN FEATURE I
• LATE COMER (AFTER 2004);
• CONSISTENT MACRO ARCHITECTURE (1999 ON);
• STABILIZATION / EXTERNAL VULNERABILITIES;
• STRESS TEST;
• QUICK EXIT OUT OF THE CRISIS;
• CONTRAST WITH OTHER SHOCKS;
• INVESTMENT GRADE.
Recession lasted only 2 quarters and Brazil was one of the first to leave the crisis . . .
REBOUND
GDP GROWTH
(In relation to the last quarter)
Sector 4th Q. 2008 1st Q. 2009 2nd Q. 2009 3rd Q. 2009 4th Q. 2009 1st Q. 2010 2nd Q. 2010
G D P - 2.9 - 1.5 1.5 2.1 2.4 2.7 1.2
Agriculture - 3.1 - 5.9 - 2.3 1.0 2.8 3.8 2.1
Manufacturing - 8.1 - 4.5 1.8 3.3 3.9 4.0 1.9
Services - 2.3 0.9 1.5 1.6 0.8 1.8 1.2
Source: IBGE.
P R O J E T A
Domestic consumption, leveraged by incentives and credit explosion, has led the exit out fromcrisis. The growth in real wage mass sustains the recovery. There is also a healthy acceleration ofinvestment . . .
REBOUND
COMPONENTS OF DEMAND
(In relation to the same quarter of last year)
Sector 2nd Q. 2009 3rd Q. 2009 4th Q. 2009 1st Q. 2010 2nd Q. 2010
G D P - 1.6 - 1.2 4.3 9.0 8.8
Families’ Consumption 3.0 3.9 7.7 9.3 6.7
Government’s Consumption 3.9 1.6 4.9 2.0 5.1
Investment - 16.0 - 12.5 3.6 26.0 26.5
Exports - 11.4 - 10.1 - 4.5 14.5 7.3
Imports - 16.5 - 15.8 2.5 39.5 38.8
Source: IBGE.
P R O J E T A
P R O J E T A
BRAZIL’S MAIN FEATURE II
• CENTRAL BANK AUTONOMY: INFLATION TARGET;
• FISCAL ADJUSTMENT (PRIMARY SURPLUS);
• NET EXTERNAL CREDITOR (BUILDING UP RESERVES);
• A SOLID FINANCIAL SYSTEM: CREDIT EXPANSION;
• THE ROLE OF PUBLIC INSTITUTIONS (BNDES x B.B.).
P R O J E T A
BRAZIL’S MAIN FEATURE III
• COMMODITY BOOM: CHINA IMPACT;
• INCREASING SHARE OF PRIMARY PRODUCTS;
• PRE-SALT IMPACT;
• A DIVERSIFIED / SOPHISTICATED ECONOMY;
• NO CONFLICT BETWEEN COMMODITIES AND INDUSTRIALIZATION;
• POLITICAL STABILITY.
Commodity’s prices are key indicator of the world economy’s activity: even more
influenced by China . . .
COMMODITIES
P R O J E T A
50
75
100
125
150
175
200
225
250
275
20
00
20
02
20
04
20
06
Ja
n./
…
Ma
r
Ma
i
Ju
l
Set
No
v
Ja
n./
…
Ma
r
Ma
i
Ju
l
Set
No
v
Ja
n./
…
Ma
r
Ma
i
Ju
l
Set
COMMODITIES’ INDEX
$ basis 2000 = 100
Total: +16.5% / Food: +12.0% / Metals: +15.1% (% a year).
The rising price of commodities, pushed by China, is changing the composition of
Brazilian exports . . .
COMMODITIES BOOM
P R O J E T A
EXPORT COMPOSITION
January - August (%)
Period Primary Semimanufacturing Industrialized
1991 27.84 16.21 54.94
2010 44.27 13.81 39.74
P R O J E T A
Despite a deep fall in 2009, GDP average growth was higher during Lula government . . .
FHC x LULA
-2
-1
0
1
2
3
4
5
6
7
8
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
GDP GROWTH%
F H C L U L A
P R O J E T A
INFLATION
Inflationary expectations have somehowadjusted, reflecting Central Bank credibility . . .
4,25
4,50
4,75
5,00
5,25
5,50
5,75
Jan
Fev
Mar
Abr
Mai
Jun
Jul
Ag o Set
%
INFLATIONARY EXPECTATIONS(IPCA)
2 0 1 0
2 0 1 1
8
9
10
11
12
13
14
Jan
/08
Mar
Abr
Jun
Jul
Set
Out
Dez
Jan
/09
Mar
Abr
Jun
Ago
Out
Dez
Jan
/10
Mar
Abr
Jun
Jul
Set
%
INTEREST RATES(SELIC)
The Central Bank’s autonomy was crucial to minimize the impact of crisis by cutting compulsory
rates and the SELIC. This year, it had to tighten up again . . .
THE CENTRAL BANK AUTONOMY
2008 2009
P R O J E T A
2010
P R O J E T A
1,50
1,60
1,70
1,80
1,90
2,00
2,10
2,20
2,30
2,40
Jan
/08
Mar
Mai Jul
Set
No
v
Jan
/09
Mar
Mai Jul
Set
No
v
Jan
/10
Mar
Mai Jul
Set
R$ / US$EXCHANGE RATE
In contrast with other shocks, there was no explosion of devaluations due to the cushion of international
reserves. There is a new equilibrium level, more appreciated . . .
20092008
EXCHANGE FLOATING
2010
The external turbulence has not changed the favorable perception of country-risk, that received
from Moody’s the investment grade. With the end of elections and improvement in the fiscal
area, a new upgrade may happen . . .
COUNTRY-RISK
P R O J E T A
150
200
250
300
350
400
450
500
550
Jan /2008
Mar May Jul Set Nov Jan /2009
Mar Mai Jul Set Nov Jan /2010
Mar Mai Jul Set
BRAZILIAN RISKBasis Points
P R O J E T A
SUSTAINABILITY
• STRONG EXPANSION OF INTERNAL DEMAND;
• PRIVATE CONSUMPTION AND INVESTMENT;
• HIGH LEVEL OF CONFIDENCE;
• IT IS NOT A BUBBLE: REAL WAGE MASS / CREDIT;
• INTEREST RATES ARE STILL HIGH.
Brazilian growth should be sustained by the impressive inflow of external investments,
reflecting macro stability and a declining political risk . . .
SUSTAINED GROWTH
0
5
10
15
20
25
30
35
40
45
50
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
US$ billion
FOREIGN DIRECT INVESTMENT
P R O J E T A
15
16
17
18
19
20
21
22
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
% of GDP
INVESTMENT RATE
It should also reflect a fast expansion of investment . . .
SUSTAINED GROWTH
P R O J E T A
P R O J E T A
SOCIAL DIMENSION
• STABILITY AS PRE-CONDITION;
• ACCESS TO EDUCATION;
• GAINS IN REAL WAGES / FORMAL EMPLOYMENT
• POLICIES OF INCOME TRANSFER: MINIMUM WAGE AND
“BOLSA FAMÍLIA”;
• REDUCTION IN INEQUALITY AND POVERTY;
• THE NEW MIDDLE CLASS.
A new pattern of development is being characterized by the systematic fall of inequality
and the increase of social mobility with a growing middle class . . .
SOCIAL DIMENSION
P R O J E T A
0,480
0,490
0,500
0,510
0,520
0,530
0,540
0,550
2002 2003 2004 2005 2006 2007 2008 * 2009 * 2010 *
GINI INDEX
Source: IBGE.
The combination of stability, increasing access to education and programs of income transfer, led
to a strong fall in poverty . . .
SOCIAL DIMENSION
17
19
21
23
25
27
29
31
Mar
/03
Jun
Set
Mar
/04
Jun
Set
Dez
Mar
/05
Jun
Set
Dez
Mar
/06
Jun
Set
Dez
Mar
/07
Jun
Set
Dez
Mar
/08
Jun
Set
Dez
Mar
/09
Jun
Set
Dez
EXTREME MISERY
(Average in 12 Months)
Source: Marcelo Neri, FGV (Centro de Políticas Sociais).
P R O J E T A
P R O J E T A
CHALLENGES
- TRANSITION TO SUSTAINED GROWTH;
- COMPETITIVENESS (REFORMS);
- DUALISM: PUBLIC SECTOR x PRIVATE SECTOR;
- DOMESTIC SAVING x INVESTMENT;
- INFRASTRUCTURE: REGULATORY FRAMEWORK;
- EDUCATION;
- WORLD CUP / OLYMPICS.
P R O J E T A
RISKS
- MACRO MISTAKES (CENTRAL BANK AUTONOMY / FISCAL
POLICY / EXCHANGE CONTROLS);
- THE ROLE OF THE STATE;
- WORLD RECESSION (W).
P R O J E T A
EXTERNAL INTERNAL SCENARIO
SCENARIO
Gradualism Competitiveness Neo-populism
Sustained 5% 6% 2%
Soft Landing 4% 5% 0%
Discontinuity 1% 3% recession
EXPECTED GDP GROWTH