Tokyo - Banco Central Do Brasil...2012/12/15 · −External: agricultural commodities due to...

1

Alexandre Tombini

Governor

October 15, 2012

Brazil Economic Overview

Tokyo

2

• Brazil is among the largest countries in

terms of territory, population and GDP

• Brazil has vast natural resources,

including recently discovered large

offshore oil fields, a diverse industrial

base, a dynamic and sophisticated

private sector, and a well-structured

public sector

• Brazil is a vigorous democracy, with free

multiparty elections and a stable political

system

• Brazil has good relations with all its

neighbors and has increased its ties with

all regions of the world

Source: IBGE

Brazil

• 6th largest GDP: US$ 2,475 billion (2011)

• Continental country: 5th largest area

8,514,877 km2

• 5th largest population: 191 million people

(2010)

3

Executive Summary

• Macroeconomic and financial stability, sustainable

economic growth and targeted social policies have all

contributed to poverty reduction and better income

distribution

• Economic growth is accelerating in the second half of

2012, with inflation under control

• The outlook is for sustainable economic growth over

the coming years, with substantial investment

opportunities, particularly in infrastructure

4

Economic and Social

Achievements

5

• The main features of the macroeconomic policy

framework are inflation targeting, fiscal responsibility, and

exchange rate flexibility

Macroeconomic Policy

• The macroeconomic fundamentals, combined with strong

prudential policy and intensive bank supervision, have

led to macroeconomic and financial stability and

sustainable economic growth

• Economic growth and stability, together with inclusive

social policies, have reduced poverty and inequality and

helped 40 million people join the middle class

6 Source: BCB

Achieved Inflation Target Eight Years in a Row

0

2

4

6

8

10

12

14

16

18

jan 0

0

jan 0

1

jan 0

2

jan 0

3

jan 0

4

jan 0

5

jan 0

6

jan 0

7

jan 0

8

jan 0

9

jan 1

0

jan 1

1

jan 1

2

% Y

oY

5.3%

7 Source: BCB

Declining Net Public Debt

*Aug 12

52,0

60,4

54,8

50,6

48,4 47,3

45,5

38,5

42,1

39,2

36,4 35,1

30

33

36

39

42

45

48

51

54

57

60

63

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012*

% o

f G

DP

-25.2 p.p.

of GDP

8 Source: BCB

Robust International Reserves

US

$ b

illio

n

4 5 12 12 7 7 9 10 10 9

24 32 39

52 60

52 45

36 33 36 38 49 53 54

86

180 194

239

289

352

378

0

50

100

150

200

250

300

350

400 1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012*

*Oct 9th

9 Source: BCB

Brazil Has Become a Net External Creditor U

S$ b

illio

n

*Aug 12 estimate

79 87 88 92

103 106 96 97

105 108 100 99

88 92 101

131

182 190 190

163 165

151

136

101

75

-12

-28

-62 -51

-73

-95 -110

-70

-30

10

50

90

130

170

210 1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012*

10

Improvements Reflected in Sovereign Credit Ratings

Source: Moody’s / S&P / Fitch

5

6

7

8

9

10

11

12

13

14 1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Moody's S&P Fitch

Investment grade

upgrades in 2011:

• April: Fitch

• June: Moody’s

• November: S&P

A3 / A-

Baa1 / BBB+

Baa2 / BBB

Baa3 / BBB-

Ba1 / BB+

Ba2 / BB

Ba3 / BB-

B1 / B+

B2 / B

B3 / B-

11 Source: IPEA

Declining Poverty and Inequality

0,50

0,51

0,52

0,53

0,54

0,55

0,56

0,57

0,58

0,59

0,60

0,61

0,62

0,63

0,64

0,65

0

2

4

6

8

10

12

14

16

18

20

1981

1983

1984

1985

1986

1987

1988

1989

1990

1992

1993

1995

1996

1997

1998

1999

2001

2002

2003

2004

2005

2006

2007

2008

2009

% o

f househ

old

s

Extreme Poverty Gini Index (RHS)

12

Recent Economic

Developments

Activity

Inflation

Credit & Financial System

13

Economic Activity

• Brazil underwent a typical business cycle downturn

• There are consistent signs that growth is accelerating

• Industrial production has grown for three consecutive

months

• Agriculture: record grains crop expected for 2012

• The services sector continues to expand faster than the

overall economy

• Demand is underpinned by a strong labor market and

increasing incomes

14

0,5

1,6

4,3

4,0

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

1Q12 2Q12 2H12* 2013*

%

Source: BCB (Focus)

Growth Will Accelerate in the 2nd half of 2012 Market Forecast

Change over Previous Period (annualized)

*Focus Market Forecast (Sep 28th)

15

Economic Stimulus Measures

• A set of stimulus measures have been introduced since

2011 in order to help the economy resume its growth path

• Stimulus measures in place:

− Lower interest rates

− Improved liquidity conditions for the financial system

− Better financing conditions for households and firms

• These measures impact the real economy with lags

− Fiscal and tax incentives

16

449

353

0

50

100

150

200

250

300

350

400

450

500

Dec 0

6

Dec 0

7

Sep

08

Dec 0

8

Dec 0

9

Dec 1

0

Dec 1

1

Oct 12*

Source: BCB

Monetary and Liquidity Stimulus Measures Policy Interest Rate (% annual) Required Bank Reserves (R$ billion)

*Oct 5th

6,0

7,0

8,0

9,0

10,0

11,0

12,0

13,0

jul/

11

ago/1

1

set/

11

ou

t/11

nov/1

1

dez

/11

jan/1

2

fev/1

2

mar

/12

abr/

12

mai

/12

jun/1

2

jul/

12

ago/1

2

set/

12

ou

t/1

2

17 Source: IBGE

Unemployment Rate at Historical Low

% (

seasonally

adju

ste

d)

5

6

7

8

9

10

11

12

13

14

jan 0

3

jan 0

4

jan 0

5

jan 0

6

jan 0

7

jan 0

8

jan 0

9

jan 1

0

jan 1

1

jan 1

2

Aug 12

5.2%

18 Source: IBGE

Growing Incomes and Payroll

Jan-Aug 12 /

Jan-Aug 11

+5.9%

+4.0%

+1.8%

98

99

100

101

102

103

104

105

106

107

108

109

110 Jan 1

1

Feb

11

Mar

11

Ap

r 11

May 1

1

Jun 1

1

Jul 11

Aug

11

Sep

11

Oct 11

Nov 1

1

Dec 1

1

Jan 1

2

Feb

12

Mar

12

Ap

r 12

May 1

2

Jun 1

2

Jul 12

Aug

12

Jan 1

1 =

100

Employment Real Income Real Payroll

19

Supply

• Industry: consistent indications that a moderate recovery is

under way

− Three consecutive months of output growth

− Growth in industrial employment

− Improving business confidence

− Increased capacity utilization

• Agriculture: 2012 grains crop to be record

• Services: expected to continue to grow faster than overall

economy

− Strong performance reflects structural changes in the

Brazilian economy over the last decade

20

1,5

-2,0

-1,5

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

jan 1

2

fev 1

2

mar

12

ab

r 12

mai 12

jun 1

2

jul 12

ag

o 1

2

%

monthly change

Source: IBGE

Growing Industrial Production seasonally adjusted

21

164

130

135

140

145

150

155

160

165

170

2007 2008 2009 2010 2011 2012*

mill

ion tons

production of grains

Source: BCB

Agriculture: 2012 Grains Crop to be Record

*Sep 12 Estimate

22 Source: IBGE

Services Growing Faster than Overall Economy

1,6 1,5

0,8

0,5

0,0

0,5

1,0

1,5

2,0

1Q 12 2Q 12

% Q

/ Q

-4

Services Total GDP

23 Source: BCB

GDP Coincident Index

5,10%

0,96%

-1,49%

-0,17%

2,63%

1,88%

5,87%

-2,00%

-1,00%

0,00%

1,00%

2,00%

3,00%

4,00%

5,00%

6,00%

7,00%

1 Q 11 2 Q 11 3 Q 11 4 Q 11 1 Q 12 2 Q 12 3 Q 12*

Quarterly Growth (annualized) – Seasonally Adjusted

* July-August average

24

Recent Economic

Developments

Activity

Inflation


25

Inflation is Under Control

• Inflation is converging to the target in a nonlinear fashion

• Short term: adverse supply shock

• In the medium term, the global economy should have a

disinflationary influence on domestic prices

− External: agricultural commodities due to weather

conditions in the United States

• The outlook for inflation, although negatively impacted

in the short term by adverse supply shocks, is favorable

in the medium term

26

100

115

130

145

160

175 ju

n 1

0

ag

o 1

0

out

10

dez 1

0

fev 1

1

ab

r 11

jun 1

1

ag

o 1

1

out

11

dez 1

1

fev 1

2

ab

r 12

jun 1

2

ag

o 1

2

Jun 1

0 =

100

Agricultural Commodities (IC-Br in US$)

Source: BCB

Commodity Price Shock

Increase in Jul-Aug/12: +10.5%

27 Source: BCB

Achieved Inflation Target Eight Years in a Row

-

2,0

4,0

6,0

8,0

10,0

12,0

14,0

16,0

18,0

dez

/99

jun

/00

dez

/00

jun

/01

dez

/01

jun

/02

dez

/02

jun

/03

dez

/03

jun

/04

dez

/04

jun

/05

dez

/05

jun

/06

dez

/06

jun

/07

dez

/07

jun

/08

dez

/08

jun

/09

dez

/09

jun

/10

dez

/10

jun

/11

dez

/11

jun

/12

dez

/12

jun

/13

dez

/13

yoy

%

Reference

Scenario

28

Recent Economic

Developments

Activity

Inflation


29

Credit and Financial System

• The Brazilian financial system is well

capitalized, liquid and holds ample provisions

• Credit is growing at a sustainable pace

• Access to banking services is improving

30 Source: BCB

Credit / GDP

25,8 26,0 24,6 25,7

28,3 30,9

35,2

40,5 43,7

45,2

49,0 51,0

-5

5

15

25

35

45

55

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012*

% o

f G

DP

2009-2011: 18.3% (average growth of nominal credit)

2005-2008: 25.2% (average growth of nominal credit)

*Aug 12

31 Source: BCB

Real Estate Credit is Leading Credit Growth

37.1%

17.0%

up to Aug 2012 / Real Estate up to Jul 12

15.7%

-15

-10

-5

0

5

10

15

20

25

30

35

40

45

50

jan 0

2

jan 0

3

jan 0

4

jan 0

5

jan 0

6

jan 0

7

jan 0

8

jan 0

9

jan 1

0

jan 1

1

jan 1

2

% Y

oY

Total Corporations Households Real Estate Credit

18.5%

32

17,5 17,1 16,5

15,7 15,7 15,5 15,1 14,7 14,7 14,6 14,2 14,0 13,9

12,7 12,7 11,6

0

2

4

6

8

10

12

14

16

18

20

Indonesia

Bra

zil

Turk

ey

United K

ing

dom

Mexic

o

Arg

entina

Canada

United S

tate

s

South

Afr

ica

Russia

Jap

an

South

Kore

a

India

Chin

a

Italy

Austr

alia

%

Source: IMF / FSI - financial sector indicators

Regulatory Capital / Risk-Weighted Assets

2012 Q2 or latest available data

33

111 109

81

73 67

56 52

45 43 43 41 38

32 32

22

3

0

20

40

60

80

100

120 B

razil

Kore

a, …

Russia

n …

Turk

ey

United …

Mexic

o

Jap

an

Canada

Chin

a, …

Arg

entina

Austr

alia

United …

Indonesia

South

…

India

Italy

%

Liquid Assets / Short Term Liabilities



34

Provisions Net of Non-performing Loans / Capital

9 8 4 4

-2 -3 -5 -6

-9 -10

-16 -18 -18 -22

-30

-65 -70

-60

-50

-40

-30

-20

-10

0

10

20

Mexic

o

Bra

zil

Arg

entina

Chin

a

Turk

ey

South

Kore

a

Indonesia

Canada

Russia

India

United K

ing

dom

United S

tate

s

Austr

alia

Jap

an

South

Afr

ica

Italy

%



35 35

2000 2010

0 (20%)

>0 to 2 (22%)

>2 to 5 (40%)

>5 to 10 (16%)

>10 (2%)

# of points per 10,000 adults

(% of municipalities)

0 (0%)

>0 to 2 (0%)

>2 to 5 (6%)

>5 to 10 (29%)

>10 (65%)

# of points per 10,000 adults

(% of municipalities)

All municipalities have a least one bank branch, outpost or correspondent.

Access to Banking Services

Source: BCB / IBGE

Bank branches, bank advanced outposts (PAA), credit cooperatives

(headquarters and outposts) and bank correspondents

36

Looking Forward

37

Outlook for Brazil

• Demographic bonus until 2025

• Major investment opportunities

− Offshore oil fields (“pre-salt” layer)

• Social gains and expansion of the middle class

− Vast reserves of mineral commodities

− Potential to expand cultivated area and agricultural production

− Major international sports events (FIFA World Cup and Olympics Games)

− Expanding and upgrading infrastructure

• Reforms to increase investment, productivity and

competitiveness

• Sustainable GDP growth in the coming years

38

Population Pyramid (2010)

Source: IBGE / UN

Favorable Demographics

Dependency Ratio

Note: The dependency ratio is the ratio of the sum of the population

aged 0-14 and that aged 65+ to the population aged 15-64

• Brazil’s dependency ratio is still

declining

• Brazilian population is highly

concentrated within the Economically

Active Population range

-10 -5 0 5 10

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

millions of people

men women

25

50

75

100

1950

1960

1970

1980

1990

2000

2010

2020

2030

2040

2050

39

49

25 17

47

39

32

66

105 118

13

23 29

0

50

100

150

200

2003 2011 2014*

E D C A/B

Source: FGV

Growing Middle Class → Expanding Consumer Market m

illio

n p

eop

le

Social Stratification

7.6%

37.6%

26.7%

28.1%

11.8%

55.1%

20.3%

12.9%

14.9%

60.2%

16.4%

8.6%

*FGV forecast

40

Reforms to Boost Growth

• Reduced electricity costs due to lower taxes and

renewal of concessions

• Pro-growth fiscal and tax reforms

− Public sector pension reform

− Tax-advantaged bonds for infrastructure and R&D

investment

− Payroll tax cuts

41

• Increased public and private investment in

infrastructure

Reforms to Boost Growth

• Building a skilled labor force

− “Science without frontiers” – 100 thousand scholarships

for undergraduate and graduate studies abroad

− Pronatec – expansion of professional and technological

education, totaling 8 million trainees over four years

− Initiative for ports and airports to be announced (4 airport

concessions already auctioned)

− Concessions and public-private partnerships for

highways and railways

42 Source: Ministry of Planning and Budget

Major Infrastructure Investments Planned for 2012-2015

Other

Transportation

Oil and Gas

Energy

Affordable Housing R$ 390 billion

R$ 300 billion

R$ 228 billion

R$ 117 billion

R$ 160 billion

Total: R$ 1.2 trillion

43 Source: Federal Government of Brazil

Logistics Investment Program

Total

Investment

US$ 65.3

billion

US$ 17.2 bn within 25 years

US$ 39 bn within 5 years





Highways

US$ 20.6 bn

7,500 km

Railways

US$ 44.7 bn

10,000 km

Exchange Rate on August 31st


Railways

Itaqui

Vila do Conde

Rio Grande

Suape

Salvador

Ilhéus

Vitória

Rio de Janeiro Itaguaí

Santos

Paranaguá

Pecém

Railways

New projects – Under evaluation

Under construction (PAC)

Current railway system

Circular Railway SP – Northbound

Circular Railway SP – Southbound

Access to the Port of Santos

Lucas do Rio Verde – Uruaçu

Uruaçu – Corinto – Campos

Rio de Janeiro – Campos – Vitória

Belo Horizonte – Salvador

Salvador – Recife

Estrela d’Oeste – Panorama – Maracaju

Maracaju – Mafra

São Paulo – Mafra – Rio Grande

Açailândia – Vila do Conde


Highways

Highways Pecém

Rio Grande

Itaqui

Suape

Salvador

Vitória

Rio de Janeiro

Itaguaí Santos

Paranaguá

Under construction (PAC)

Current highway system

BR-060 DF/GO,

BR-153 GO/MG

BR-262 MG

BR-116 MG

BR-040 DF/GO/MG

BR-101 BA

BR-262 ES/MG

BR-153 TO/GO

BR-050 GO/MG

BR-163 MT

BR-163 MS,

BR-262 MS,

BR-267 MS

46 Source: EPE

Energy Investment

269

749

79

Estimated Investment (2012-2021) R$ billion

Supply of electricity

Oil and natural gas

Supply of liquid biofuels

R$ billion

2012-2021

Supply of electricity 269

Generation 213

Transmission 56

Oil and natural gas 749

Exploration and production of oil and natural gas 547

Supply of petroleum products 198

Refining 174

Transportation infrastructure 24

Supply of natural gas 4

Supply of liquid biofuels 79

Ethanol (production plants) 71

Ethanol (pipeline and port infrastructure) 7

Biodiesel (production plants) 1

Total 1097

47

0,0 0,1 0,1 0,2 0,3 0,3 0,3 0,4 0,4

1,8 3,2

3,8 11,2

1,5 1,6 1,7 1,7

2,1 2,5

3,2 3,4

8,4 14,0

São Domingos Batalha

Passo São João Garibaldi

Ferreira Gomes Colíder

Simplício Mauá

Santo Antônio do Jarí Teles Pires

Santo Antônio Jirau

Belo Monte Porto Primavera

Jupiá Foz do Areia

São Simão Itumbiara

Paulo Afonso IV Xingó

Ilha solteira Tucuruí I II

Itaipu (including Paraguay)

0 5 10 15

Potency (GW)

Source: ANEEL

Major Hydroelectric Plants under Construction

Power Plants Under Construction

22 GW

Major Existing Power Plants

86 GW

48 Source: Petrobras

Oil Reserves Set to Grow

0

5

10

15

20

25

30

35

40

45 1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

futu

re*

deepwater offshore fields

(pre-salt layer)

*estimated volume

Tupi and Iracema*

(8 billion boe)

Franco* (4.5 billion boe)

Libra* (8 billion boe)

Iara* (4 billion boe)

Guara* (2 billion boe)

crude oil, LNG and natural gas

bill

ion –

barr

el oil

eq

uiv

ale

nt

(boe)

49

• Macroeconomic stability

Final remarks

− Inflation under control

− Declining net public debt (long term trend)

− Low external vulnerability – net external creditor

Growth is accelerating

• Financial stability

− Financial sector is well capitalized, liquid and provisioned

− Room for credit growth

• Expansion of the middle class (consumer class)

• Multiple investments opportunities

50

Brazil Economic Overview

Alexandre Tombini

Governor

Tokyo - Banco Central Do Brasil...2012/12/15 · −External: agricultural commodities due to...

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