Brazil Economic Overview Brazilian American Chamber of Commerce of Florida
Alexandre Tombini Governor March 26, 2012
1
Brazil • 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
• 6th largest GDP: US$ 2,475 billion (2011) • Continental country: 8,514,877 km2
5th
largest
area
• 5th largest population: 191 million people (2010)
Source: IBGE
2
Executive Summary • Macroeconomic and financial stability, sustainable economic growth and targeted social policies have all contributed to poverty reduction and better income distribution
• Inflation is converging to the target and economic growth will accelerate throughout 2012
• Outlook is for sustainable economic growth over the coming years, with substantial particularly in infrastructure
investments,
3
Index
• Economic and Social Achievements • Recent Economic Developments • Looking Forward
4
Economic and Social Achievements
5
Macroeconomic Policy • Main features of the macroeconomic policy framework: - Inflation targeting - Fiscal responsibility - Exchange rate flexibility
• The macroeconomic fundamentals, combined with adequate prudential policy and strong bank supervision, resulted in: - Capacity to absorb internal and external shocks - Macroeconomic and financial stability - Sustainable economic growth - Credit and capital market development - Investment growth 6
Source: BCB
dez 11
dez 10
dez 09
dez 08
dez 07
dez 06
dez 05
dez 04
dez 03
dez 02
dez 01
dez 00
dez 99
% yoy
Achieved Inflation Target for 8th Year in a Row 18
16
14
12
10
8
6
4
2
0
7
Declining Real Interest Rate 25
20
% annual
15
10
5 Mar 16th 3.5%
jan 12
jan 11
jan 10
jan 09
jan 08
jan 07
jan 06
jan 05
jan 04
jan 03
jan 02
0
360-day market rate discounted by the IPCA expected for the next 12 months
Source: BCB
8
Commitment to Fiscal Targets 4,0% 3,5%
3,7%
3,2%
3,3%
3,8%
Primary fiscal surplus 3,2%
3,3%
3,4%
3,3% 3,1%
3,0%
2,7%
% of GDP
2,5% 2,0%
2,0%
1,5% 1,0% 0,5% 0,0% 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011 2012* *Jan 12
Source: BCB
9
Declining Net Public Debt 65 60
60,4
54,8
% of GDP
55
50,6
50
48,4
- 23.2 p.p. 47,3 45,5
45 42,1
40
39,2
38,5
36,5
37,2
2012*
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
35
*Jan 12
Source: BCB
10
Robust International Reserves 400 352 357
350 289
250
239
200
180
194
150 100
86
2012*
2010
49 53 54
2008
36
33 36 38
2004
45
2002
52
2000
60
1998
52
1996
24
1994
9 10 10 9
1990
7
1988
1986
1984
1982
0
4
12 12 7 5
1992
50
32 39
2006
US$ billion
300
as of Mar 8th
Source: BCB
11
Brazil Has Become a Net External Creditor 200
190 182190 163 165 151
150
US$ billion
100
136
131 103 106 79
87 88 92
96 97
105 108
100 99
88 92
101
101
75
50
0 -12 -28
-50
-51 -62
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
2012*
-79 -79
-100
*estimate Jan 12
Source: BCB
12
Strong External Debt Ratios 140 120
120,6%
100
%
80 63,4%
60 42,4%
40 20
21,5%
17,0%
12,1%
0 short term debt/intl. reserves
debt services/exports Dec 03
Source: BCB
Jan 12*
external debt/GDP
*estimate
13
Sovereign Credit Ratings Reflect These Improvements Baa1 / BBB+ 13
Upgrades in 2011: • April: Fitch (BBB- to BBB) • June: Moody’s (Baa3 to Baa2) • November: S&P (BBB- to BBB) Investment grade
12 Baa2 / BBB
11 Baa3 / BBBBa1 / BB+10 Ba2 / BB 9 Ba3 / BB- 8
Moody's Source: Moody’s / S&P / Fitch
S&P
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
5 1996
B3 / B-
6
1995
B2 / B
7
1994
B1 / B+
Fitch 14
Social Development • Macroeconomic and social inclusion policies have led to a marked improvement in living conditions
• A significant share of low income groups joined the middle class
15
Declining Poverty and Inequality 20
0,65 0,64 0,63 0,62 0,61 0,60 0,59 0,58 0,57 0,56 0,55 0,54 0,53 0,52 0,51 0,50
18
% of households
16 14 12 10 8
6 4 2 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
0
Extreme Poverty Source: IPEA
Gini Index (RHS) 16
Financial Inclusion is a Priority All municipalities have a least one bank branch, outpost or correspondent. 2000
# of points per 10,000 adults (% of municipalities)
2010
# of points per 10,000 adults (% of municipalities)
0 (20%)
0 (0%)
>0 to 2 (22%)
>0 to 2 (0%)
>2 to 5 (40%)
>2 to 5 (6%)
>5 to 10 (16%)
>5 to 10 (29%)
>10 (2%)
>10 (65%) Bank branches, bank advanced outposts (PAA), credit cooperatives (headquarters and outposts) and bank correspondents
Source: BCB / IBGE
17
Recent Economic Developments Inflation Activity Credit & Financial System 18
Inflation on a Downward Trend • Producer prices inflation (IPP) and wholesale prices inflation (IPA) are below 2% in 12 months
• General prices index (IGP) inflation is below 3.5% in 12 months
• These trends are already partially reflected in consumer prices inflation, which has been falling since the third quarter of 2011
• Consumer inflation is converging to the central target 19
Producer and Wholesale Inflation Below 2% 13.94%
15
% 12 months
12
7.78%
9 6
1.89% IPA-10 (Mar)
3
1.73%
Source: IBGE / FGV
mar 12
fev 12
jan 12
dez 11
out 11
set 11
ago 11
jul 11
jun 11
mai 11
abr 11
mar 11
fev 11
jan 11
IPP
nov 11
IPP (Jan)
0
IPA (10, M and DI)
20
General Prices Index (IGP) Inflation Below 3.5% 11.40%
12
% in 12 months
10 8 6 4
mar 12
fev 12
jan 12
dez 11
nov 11
out 11
set 11
ago 11
jul 11
jun 11
mai 11
abr 11
mar 11
fev 11
jan 11
2
3.29%
IGP (10, M and DI) Source: IBGE / FGV
21
Declining Consumer Inflation 7,5 7,0
% in 12 months
6,5 6,0
5.61% IPCA (Mar)
5,5
5.47% IPC-10 (Mar)
5,0
5.47% INPC (Feb)
4,5
4.50% IPC-Fipe (Mar)
IPCA-15 and IPCA Source: IBGE / Fipe / FGV
INPC
IPC-Fipe
mar 12
fev 12
jan 12
dez 11
nov 11
out 11
set 11
ago 11
jul 11
jun 11
mai 11
abr 11
mar 11
fev 11
jan 11
4,0
IPC (10, M and DI)
22
Inflation Declining Towards the Central Target 18 16 14
% yoy
12 10 8
Reference Scenario
6 4 2
Source: BCB
dez 11
dez 10
dez 09
dez 08
dez 07
dez 06
dez 05
dez 04
dez 03
dez 02
dez 01
dez 00
dez 99
0
23
Recent Economic Developments Inflation Activity Credit & Financial System 24
Economic Activity • Drivers of domestic demand still present
− Unemployment rate at record lows − Formal job creation still strong − Real labor income growing − Credit growing at a sustainable pace
• Industry well positioned to resume production after rebalancing inventories over the last few months
Economic growth expected to increase throughout the year 25
Unemployment Rate at Record Lows 14 13 12
% (s.a.)
11 10 9
8 7 6 Feb 12 5.5%
Source: IBGE / BCB
jan 12
jan 11
jan 10
jan 09
jan 08
jan 07
jan 06
jan 05
jan 04
jan 03
5
26
jan 10 fev 10 mar 10 abr 10 mai 10 jun 10 jul 10 ago 10 set 10 out 10 nov 10 dez 10 jan 11 fev 11 mar 11 abr 11 mai 11 jun 11 jul 11 ago 11 set 11 out 11 nov 11 dez 11 jan 12 fev 12
Thousands (s.a.)
Formal Job Creation is Strong 240
180 1 million and 400 thousand jobs in the last 12 months (Mar 11 – Feb 12)
120
60
0
Source: MTE / BCB 27
Source: IBGE
fev 12
nov 11
ago 11
mai 11
95
fev 11
nov 10
ago 10
mai 10
fev 10
nov 09
ago 09
mai 09
fev 09
nov 08
ago 08
mai 08
fev 08
105
nov 07
ago 07
mai 07
fev 07
Average of 2010 = 100
Real Wages are Growing Average in the previous 12 months
100
+ 4.4%
Feb 12 / Feb 11
90
85
28
Source: IBGE
jan 12
out 11
jul 11
abr 11
95
jan 11
out 10
jul 10
abr 10
jan 10
out 09
jul 09
abr 09
jan 09
out 08
jul 08
abr 08
110
jan 08
out 07
jul 07
abr 07
jan 07
2010 = 100
Expanding Real Wage Bill Real wage bill in the previous 12 months
105
100
+ 6.4%
Feb 12 / Feb 11
90
85
80
75
29
Retail Sales Continue to Grow 110
Jan 12 / Jan 11 +7.3%
105
2011 = 100
100 Jan 12 / Jan 11 +7.7%
95
90 85 80
Retail Sales
Source: IBGE
jan 12
jul 11
jan 11
jul 10
jan 10
jul 09
jan 09
75
Retail Sales (including automobiles and construction materials) 30
Business Confidence is Improving Purchasing Managers Index (PMI) A PMI of more than 50 indicates a positive outlook for industrial companies
60 58 56 54 Index
52 50 48 46 44 42
Source: Markit
jan 12
jul 11
jan 11
jul 10
jan 10
jul 09
jan 09
jul 08
jan 08
jul 07
jan 07
40
31
Rebalancing of Industrial Inventories Over the last few months, industrial firms rebalanced their inventories. Together with the strong drivers for domestic demand and the adjustment to monetary conditions, this favors the resumption of growth in industrial production in the coming months 120
Index
115 110
105 100
jan 12
set 11
mai 11
jan 11
set 10
mai 10
jan 10
set 09
mai 09
jan 09
set 08
mai 08
jan 08
set 07
mai 07
jan 07
95
Data until Feb 12
Source: FGV
32
GDP Growth
Source: BCB
1S 13
2S 12
1S 12
GDP growth over 12 months – market forecast
33
Top 10 World Economies in 2011 (1) GDP (US$ bi.)
GDP Growth (%)
Unemployment rate(%)
1º United States
15,065
1.7
8.5
2º China
6,988
9.3
4.1
3º Japan
5,855
-0.9
4.5
4º Germany
3,629
3.1
6.6
5º France
2,808
1.8
9.8
6º Brazil
2,518
2.7
4.7
7º United Kingdom
2,481
0.9
8.4
8º Italy
2,246
0.4
8.9
9º Russia
1,885
4.3
6.1
10º India
1,843
7.0
9.4
Source: CEBR / Bloomberg
34
Top 10 World Economies in 2011 (2) GDP (US$ bi.)
Consumer Price Index (%)
Producer Price Index (%)
1º United States
15,065
2.9
3.0
2º China
6,988
3.2
0.7
3º Japan
5,855
0.1
-0.3
4º Germany
3,629
2.3
3.4
5º France
2,808
2.3
4.2
6º Brazil
2,518
5.8
1.7
7º United Kingdom
2,481
3.4
4.0
8º Italy
2,246
3.3
3.4
9º Russia
1,885
3.7
8.4
10º India
1,843
8.8
6.6
Source: CEBR / Bloomberg
35
Recent Economic Developments Inflation Activity Credit & Financial System 36
Credit and Financial System • Brazilian financial system is well capitalized • Provisioning is rigorous − Provisions are based on expected losses (but consider incurred losses also), reducing procyclicality
− Full provisioning is required in a shorter time frame – 6 months after the first delinquency for many operations
− Write-offs are required in a shorter time frame – 6 months after full provisioning
• Credit is growing at a sustainable pace
• Access to banking services is increasing 37
Brazilian Banks Well Capitalized 16,6
%
15
18,9
18,5 17,4
17,8
2006
19,0
2005
20
17,3
17,7
16,9
16,3
14,8 13,8
10
5
Brazilian banks capital ratio regulatory minimum capital ratio
Source: BCB
2011
2010
2009
2008
2007
2004
2003
2002
2001
2000
0
Basel minimum capital ratio
38
Source: BCB
provisions/NPLs jan 12
jul 11
jan 11
jul 10
jan 10
jul 09
jan 09
jul 08
jan 08
jul 07
jan 07
jul 06
jan 06
jul 05
jan 05
jul 04
jan 04
Rigorous Provisioning
220%
210%
200%
190%
180%
170%
160%
150%
3-mo moving average
39
Credit Growing at a Sustainable Pace 2005-2008: 25.2%
2009-2011: 18.3% (average growth of nominal credit)
(average growth of nominal credit)
49,1
50 43,7
45
40,5
40
35,2
24,6
25,7
2003
2004
26,0
2002
25
25,8
2001
% of GDP
35
30
45,2
28,3
30,9
20 15
10 5
Source: BCB
2011
2010
2009
2008
2007
2006
2005
0
40
Greater Access to Banking Services 2002
2009
2011
Accounts (banking sector)
55,708,468
83,308,800
91,944,421
Customers
87,630,527
151,102,765
174,791,126
banking sector
17,049
20,046
21,278
all financial institutions
17,756
21,287
22,628
32,769
53,628
60,375
129,913
165,567
174,920
78,539
151,351
177,925
222
-
-
5,358
5,566
5,564
96%
100%
100%
Branches
Posts of service (banking sector) ATMs Domestic correspondents Municipalities Without banking services
With banking services Municipalities banking services coverage
Source: BCB
41
Looking Forward
42
Outlook for Brazil • Sustainable GDP growth over the coming years
• Social gains and expansion of the middle class • Demographic bonus until 2025 • Major investment opportunities − Expanding and upgrading infrastructure − Offshore oil fields (“pre-salt” layer)
− Vast reserves of mineral commodities − Potential to expand cultivated area and agricultural production
− Major international sports events (FIFA World Cup in 2014 and Olympics Games in 2016) 43
Brazil in a Select Group of Major Economies Countries with area over 2 million km²
Countries with population over 100 million
Brazil
Countries with nominal GDP over US$ 600 billion
Source: IMF / UN
44
Growing Middle Class → Expanding Consumer Market Social Stratification
250
E
D
C
A/B
200
Million people
7.6%
13
12.0%
23
15.5%
31
150 37.6%
66 102 53.6%
100 26.7%
20.7%
39
20.0%
40
8.0%
16
49 13.7%
26
0 2003
2011 monthly per capita incomes A/B: above BRL 923 D: BRL 135 – 214 C: BRL 214 – 923 E: below BRL 135
Source: FGV
113
47
50 28.1%
56.5%
2014* BRL 100 = USD56 USD = 1.8 BRL (March 14, 2012)
45
Favorable Demographics Dependency Ratio
Population Pyramid (2010) 100+ 90-94 80-84 70-74 60-64 50-54 40-44 30-34 20-24 10-14 0-4
100
men
women 75
50
2050
2040
2030
2020
2010
2000
millions of people
1990
10
1980
5
1970
0
1960
-5
1950
25 -10
Brazil
• Brazilian
population is highly concentrated within the Economically Active Population range
• Brazil’s
dependency ratio is still declining, while other countries already face an upward trend
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
Source: IBGE / UN
46
Public Pensions Reform Advances in Congress • The Lower House of Congress recently passed a new, capitalization-based, supplementary pension scheme for civil service employees. The bill is now in the Senate
• The new system will lead to higher domestic savings and a stronger public sector fiscal position in the longterm
• It will also encourage the development of local capital markets, especially for long-term debt instruments 47
Investment Growing Faster Than GDP 25
forecast*
21,3
15
13,9 9,8
9,1
10
6,1
5,7 3,2 3,6
2,7
4,0
7,5 5,2 2,7
1,1
0
3,5
5,0
-0,3 -4,6 -6,7
GDP
2008
2007
2006
2005
2004
2003
2002
-10
2012*
-5,2
2011
-5
4,7
2010
5
13,6
2009
real growth (%)
20
Investment *forecast from Central Bank of Brazil (Inflation Report – Dec 11)
Source: IBGE / BCB
48
Investment Rate at a New Level 20% 19,5% 19,1%
19,3%
19% 18,1%
18% % of GDP
17,4%
17%
17,0% 16,8% 16,4%
16,4% 16,1%
16%
15,9%
15,3%
15%
Source: IBGE
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
14%
49
Brazil is a Major Recipient of FDI 69,1 66,7
70 60
48,5 45,1
40
34,6
32,8 28,928,6
30
25,9 22,5
19,0
20
16,6
10,8
2012*
2010
2008
2006
2004
2002
4,4
2000
1994
1992
1990
1988
1986
1982
0
2,8 1,3 1,5 1,4 0,3 1,2 1,1 1,0 1,1 2,1 1,3 2,1
1984
3,1
18,8 18,1 15,1
10,1
1998
10
1996
US$ billion
50
*up to Jan 12
Source: BCB
50
Major Infrastructure Investments Planned for 2012-2015 Affordable Housing
390 BRL Billion
300 BRL Billion
Energy
Oil and Gas
Transportation
Other
Source: Ministry of Planning
228 BRL Billion
117 BRL Billion
160 BRL Billion
51
Airports Will Receive Private Investment • Brazil is privatizing airport operations in order to boost investment and improve management
• 1st Round: São Gonçalo do Amarante (new airport) o Concession term: 25 years o Investment: US$ 350 million o Capacity: 8 million passengers
• 2nd Round: Guarulhos, Campinas and Brasília o Concession term: 20-30 years o Investment: US$ 9 billion o Capacity: increase from 50 to 180 million passengers 52
Oil Reserves Set to Grow crude oil, LNG and natural gas
billion – barrel oil equivalent (boe)
45 40
Libra* (8 billion boe)
35 deepwater offshore fields (pre-salt layer) *estimated volume
30 25
Franco* (4.5 billion boe) Guara* (2 billion boe) Iara* (4 billion boe)
20
Tupi and Iracema* (8 billion boe)
15 10 5
Source: Petrobras
future*
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
0
53
Brazil Economic Overview Brazilian American Chamber of Commerce of Florida
Alexandre Tombini Governor March 26th, 2012
54