Transcript Slide 1

Brazil: Back on the
Sustained Growth Track
Afonso Bevilaqua
November 2004
1
Brazil: Back on the Sustained Growth Track
I. Economic Activity
II. Inflation
III. External Sector
IV. Fiscal Policy and Debt Management
V. Strengthening Resistance to Shocks
2
I. Economic Activity
3
GDP Growth
Seasonally adjusted, %
1.7
1.7
1.5
0.4
1Q03
2Q03
3Q03
-1.1
4Q03
1Q04
2Q04
-1.2
4
Contribution of Domestic and External
Demand to GDP Growth
Decomposition of GDP growth (y-o-y)
7
5
3
%
1
-1
-3
Domestic Demand
2Q04
1Q04
4Q03
3Q03
2Q03
1Q03
4Q02
3Q02
2Q02
1Q02
4Q01
3Q01
2Q01
1Q01
-5
External Demand
5
Industrial Output
112
109
s.a., 2002 = 100
106
103
100
97
94
91
88
85
Jan
99
Jul
99
Source: IBGE
Jan
00
Jul
00
Jan
01
Jul
01
Jan
02
Jul
02
Jan
03
Jul
03
Jan
04
Aug
04
6
Industrial Output
%
Aug 04
Aug 03
Jan-Aug 04
Jan-Aug 03
+13.1
+8.8
Capital Goods
+32.3
+26.2
Intermediate Goods
+11.1
+7.4
+36.2
+26.0
+6.3
+3.1
Total
Consumer Goods
Durable
Semi-Durable e Non-Durable
Source: IBGE
7
Industrial Output
Comparison of Economic Recoveries in Brazil
Previous Trough = 100
112
110
108
106
104
102
100
98
t
t+2
t+3
t+4
t+5
Jul 95
Sources: Bacen and IBGE
t+6
t+7
Feb 99
t+8
t+9 t+10 t+11 t+12 t+13 t+14
Nov 01
Jul 03
8
Retail Sales
s.a., Average 2003 = 100
111
108
105
102
99
96
Jan
01
Jul
01
Sources: IBGE, Bacen
Jan
02
Jul
02
Jan
03
Jul
03
Jan
04
Aug
04
9
Retail Sales
%
Aug 04
Aug 03
Jan-Aug 04
Jan-Aug 03
+9.9
+9.0
Furniture and Appliances
+29.7
+29.6
Fuels and Oil
+1.9
+6.1
Supermarkets, Food,
Beverages and Tobacco
+8.4
+5.6
Vehicles and Autoparts
+25.4
+16.8
-0.1
+5.5
Total
Clothing
Source: IBGE
10
Industrial Employment
Seasonally Adjusted, Jun 2003 = 100
106
105
104
103
102
101
100
99
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
03 03 03 03 03 03 03 04 04 04 04 04 04 04 04
Source: CNI
11
Industrial Real Wages
112
2002 = 100
107
102
97
92
Jan
97
Jan
98
Jan
99
Sources: CNI, Bacen
Jan
00
Jan
01
Jan
02
Jan
03
Jan Aug
04 04
12
The Monetary Impulse
Aug 04
24
110
Real Interest Rate
left scale
108
106
104
Retail Sales (t+6)
right scale
16
102
2003 = 100
% p.a.
20
100
12
98
8
Jan
02
May
02
Sep
02
Sources: Bacen, IBGE
Jan
03
May
03
Sep
03
Jan
04
May
04
96
Sep
04
13
The Monetary Impulse
24
111
Aug 04
Real Interest Rate
left scale
109
107
105
16
Industrial Output (t+6)
right scale
103
2002 = 100
% p.a.
20
101
12
99
8
Jan
02
May
02
Sep
02
Sources: Bacen, IBGE
Jan
03
May
03
Sep
03
Jan
04
May
04
Sep
04
97
14
The Role of the Labor Market Recovery
108
112
Real Wages,
seasonally adjusted data
3-month moving average
107
106
110
2003 = 100
104
106
103
104
102
101
100
99
98
1992 = 100
108
105
102
Supermarket Sales,
seasonally adjusted data,
3-month moving average
Jan
02
Apr
02
Source: IBGE
Jul
02
Oct
02
Jan
03
100
98
Apr
03
Jul
03
Oct
03
Jan
04
Apr
04
Aug
04
15
Industrial Sales x Industrial Output
127
Industrial Sales
124
s.a., Jun 03 = 100
121
118
115
112
109
Industrial Output
106
103
100
Jun
03
Aug
03
Sources: IBGE and CNI
Oct
03
Dec
03
Feb
04
Apr
04
Jun
04
Aug
04
16
Consumer Confidence
145
135
125
115
105
95
85
75
Mar
99
Sep
99
Mar
00
Sep
00
Source: Fecomércio SP
Mar
01
Sep
01
Mar
02
Sep
02
Mar
03
Sep
03
Mar
04
Oct
04
17
Business Confidence
40
30
%
20
10
Jul
03
Oct
03
Oct 03
Jan 04
Jan
04
Apr
04
Jul
04
Apr 04
Jul 04
Oct 04
0
-10
Good
Source: FGV Industrial Survey
Weak
Net Result
18
Capacity Utilization
Quarterly moving average, %
84
83
82
81
80
79
78
77
76
75
Jan
97
Source: CNI
Jan
98
Jan
99
Jan
00
Jan
01
Jan
02
Jan
03
Jan Aug
04
04
19
Domestic Absorption of Capital Goods
125
120
115
1992=100
110
105
100
95
90
85
80
Feb
99
Aug
99
Source: Bacen
Feb
00
Aug Feb
00
01
Aug
01
Feb
02
Aug Feb
02
03
Aug
03
Feb
04
Aug
04
20
Fixed Capital Investment vs.
Brazil Risk
135
1 900
Fixed Capital Investment
left scale
right scale
1 600
125
%
1 300
1 000
115
Basis Points
Brazil Risk (Q-2)
Sources: IBGE, JP Morgan
1Q05
3Q04
1Q04
3Q03
1Q03
3Q02
1Q02
3Q01
1Q01
3Q00
105
1Q00
700
400
21
Fixed Capital Investment vs.
Economic Cycle
86
135
82
78
Investment
right scale
Sources: IBGE and CNI
04Q2
03Q1
02Q1
01Q1
00Q1
95
99Q1
98Q1
97Q1
96Q1
95Q1
94Q1
93Q1
70
105
Capacity Utilization
left scale
74
92Q1
%
115
1990=100
125
85
22
Distribution of Frequencies
Market Expectations:
2004 GDP Growth
Aug/04 (8/13/04): 3.92%
Sep/04 (9/10/04): 4.31%
Oct/04 (10/15/04): 4.53%
2.5
3
3.5
4
4.5
5
23
II. Inflation
24
IPCA Inflation Rate
3.5
3.0
2.5
%
2.0
1.5
1.0
Sep
0.33%
0.5
0.0
-0.5
Jan
02
Apr
02
Source: IBGE
Jul
02
Oct
02
Jan
03
Apr
03
Jul
03
Oct
03
Jan
04
Apr
04
Jul
04
25
IPCA Inflation Rate
18.0
16.5
15.0
13.5
%
12.0
10.5
9.0
7.5
6.0
4.5
Jan
02
May
02
Source: IBGE
Sep
02
Jan
03
May
03
Sep
03
Jan
04
May
04
Sep
04
26
Wholesale Industrial Prices: 2004
10-day Change
2.4
2.2
2.0
%
1.8
1.6
1.4
1.2
0.75
1.0
0.8
10 M DI 10 M DI 10 M DI 10 M DI 10 M DI 10 M DI 10 M DI 10 M DI 10 M DI 10
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Source: FGV
27
Commodity Prices
115
110
Metals
105
1995 = 100
100
95
90
Food
85
80
75
70
65
Jan
02
May
02
Sep
02
Jan
03
May
03
Source: CRB (Chicago Research Bureau)
Sep
03
Jan
04
May
04
Sep
04
28
Industrial Prices: Wholesale x IPCA
3.0
2.5
Wholesale Industrial Prices
(Excluding fuels)
2.0
%
1.5
1.0
0.5
0.0
Consumer Industrial Prices
(Excluding fuels)
-0.5
-1.0
Feb
03
Apr
03
Jun
03
Sources: IBGE, FGV
Aug
03
Oct
03
Dec
03
Feb
04
Apr
04
Jun
04
Sep
04
29
Tradables x Non-tradables Inflation
3-Month Moving Average
3.5
3.0
2.5
%
2.0
1.5
1.0
0.5
0.0
-0.5
Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep
00 00 00 01 01 01 02 02 02 03 03 03 04 04 04
Tradables
Sources: IBGE and Bacen
Non-Tradables
30
Core Inflation
IPCA: Core Measures (3-Month Moving Average)
1.8
Exclusion
1.6
Smoothed Trimmed Mean
Non-Smoothed Trimmed Mean
1.4
%
1.2
1.0
0.8
0.6
0.4
0.2
Jan
May
Sep
Jan
May
Sep
Jan
May
Sep
Jan
May
Sep
01
01
01
02
02
02
03
03
03
04
04
04
Source: Bacen
31
Market Inflation Expectations (IPCA):
12-Month
14
13
12
11
10
9
8
7
6.2
6
5
Jan 03
Apr 03
Jul 03
Source: Bacen Research
Oct 03
Jan 04
Apr 04
Jul 04
Oct 04
32
Market Inflation Expectations (IPCA):
2005
Copom
Jun Jul Aug Sep
6.0
5.9
5.8
5.7
5.81
%
5.6
5.5
5.4
5.3
5.2
5.1
5.0
4.9
Jul
03
Sep
03
Nov
03
Jan
04
Average
Mar
04
May
04
Jul
04
Sep
04
Median
33
Market Inflation Expectations (IPCA):
2005
Distribution of Frequencies
Aug/04 (8/13/04): 5.50%
Sep/04 (9/10/04): 5.70%
Oct/04 (10/15/04): 5.81%
5
5.5
6
6.5
7
34
III. External Sector
35
Current Account: 1996/2004
9.8
10
5
US$ billion
0
-5
-10
-15
-20
-25
-30
-35
-33.4
-40
1996
1997
1998
*2004: 12-month accumulated
1999
2000
2001
2002 2003
Sep
2004*
36
Current Account vs. Trade Balance
14
35
30
7
25
20
-7
15
Current Account
left scale
-14
10
5
-21
Trade Balance
right scale
-28
US$ billion
US$ billion
0
0
-5
-35
-10
Jan
96
Jan
97
Jan
98
Sources: Bacen and MDIC
Jan
99
Jan
00
Jan
01
Jan
02
Jan
03
Jan Sep
04 04
37
Trade Balance
12-month accumulated
90
90.6
85
US$ billion
80
Exports
75
70
65
58.4
60
55
Imports
50
45
Jan
99
Jul
99
Source: MDIC
Jan
00
Jul
00
Jan
01
Jul
01
Jan
02
Jul
02
Jan
03
Jul
03
Jan
04
Sep
04
38
Exports Growth Diversification
Contribution to Exports Growth, Last 12 Months
European Union
24.0%
Others
35.2%
Argentina
15.3%
Venezuela
3.0%
Chile
3.0%
Mexico
4.7%
Source: MDIC
US
8.5%
China
6.2%
39
Exports by Market
Last 12 Months (Sep 2003-Aug 2004)
Others
31.9%
European Union
24.5%
Chile
2.6%
Japan
2.9% Mexico
4.0%
Source: MDIC
US
20.5%
China Argentina
7.4%
6.1%
40
Trade Balance: Prices and Volumes
US$ billion
Exports
Imports
Balance
2002
60.4
47.2
13.1
2003
73.1
48.3
24.8
Change %
21.%
2.2%
89.1%
Price Changes %
4.7%
6.1%
15.7%
-3.7%
8M03
45.5
30.4
15.1
8M04
Change %
61.4
39.4
22.0
34.8%
29.6%
45.2%
Price Changes %
10.3%
6.0%
Volume Changes %
18.6%
19.6%
Volume Changes %
Source: Funcex
41
Terms of Trade
110
1996 = 100
105
100
95
90
85
Jan
96
Oct
96
Jul
97
Apr
98
Jan
99
Sources: Funcex and Bacen
Oct
99
Jul
00
Apr
01
Jan
02
Oct
02
Jul
03
Aug
04
42
Imports Substitution
Imported volume
left scale
135
120
118
130
125
114
120
112
110
115
108
110
106
105
104
Dec 1995 = 100
Dec 1995 = 100
116
102
100
100
Industrial Output
right scale
95
98
90
96
Dec
95
Dec
96
Dec
97
Dec
98
Sources: IBGE and Funcex
Dec
99
Dec
00
Dec
01
Dec
02
Dec Aug
04
03
43
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
US$ billion
10
8
6
2
4
2
0
Value
Source: Bacen
% of GDP
Net Imports of Oil and Oil Products
4
3
1
0
% of the GDP
44
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
thousands of barrels/day
Oil Production and
Consumption of Oil Products
1,600
1,400
1,200
1,000
800
600
400
200
0
Production
Source: Bacen
Consumption
45
IV. Fiscal Policy and Debt Management
46
Consolidated Public Sector Primary Surplus
6
new target
4.5%
5
Aug
4.9%
% of GDP
4
previous target
4.25%
3
2
1
0
-1
-2
Jul May Mar Jan Nov Sep Jul May Mar Jan Nov Sep
94
95
Source: Bacen
96
97
97
98
99
00
01
02
02
03
Aug
04
47
Debt-to-GDP Ratio
62
62
57
60
58
56
52
54
Aug 04
54.1%
% of GDP
52
47
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul
02 02 02 02 03 03 03 03 04 04 04
42
37
32
27
Jan
91
Jul
92
Source: Bacen
Jan
94
Jul
95
Jan
97
Jul
98
Jan
00
Jul
01
Jan
03
Aug
04
48
Debt-to-GDP Ratio Trend
60
55
% of GDP
50
45
40
35
Median of Market
Expectations
30
1994
1996
Source: Bacen
1998
2000
2002
2004
2006
2008
49
FX-Linked Debt Rollover Rate
100
80
2003 Average: 61.3%
%
60
From Jan to May 2004, and
from Aug to Oct, Bacen did
not roll over any bonus or
FX swaps
40
20
0% 0% 0% 0% 0%
0% 0% 0%
0
Jan
03
Mar
03
Source: Bacen
May
03
Jul
03
Sep
03
Nov
03
Jan
04
Mar
04
May
04
Jul
04
Oct
04
50
FX-Linked Debt Outstanding in US$
80
Since Jan/2003, the FX-linked
75
debt has fallen
70
US$32.5 billion
65
60
55
50
45
40
35
33.2
30
Nov
99
Jul
00
Mar
01
Nov
01
Jul
02
Mar
03
Nov
03
Sep
04
51
FX-Linked and Fixed Domestic Debt as a
Share of the Total Debt
Domestic Fx-linked Debt/Total Debt
Domestic Fixed Debt/
Total Debt
19
42
39
17.5
16
36
33
13
%
30
10
27
24
7
21
18
4
15
12.3
12
1
Jan
02
Jul
02
Source: Bacen
Jan
03
Jul
03
Jan
04
Sep
04
Jan
02
Jul
02
Jan
03
Jul
03
Jan
04
Sep
04
52
V. Strengthening Resistance to Shocks
53
Net International Reserves
35
Net Reserves
US$ billion
30
25
20
15
10
Adjusted Net Reserves
IMF Concept
Jan
99
Aug
99
Source: Bacen
Mar
00
Oct
00
May
01
Dec
01
Jul
02
Feb
03
Sep
03
Sep
04
54
Interest Payments/Exports Ratio
35
31
%
27
23
19
15
1996
1997
1998
* 2004 and 2005: BCB estimate
1999
2000
2001
2002
2003
2004* 2005*
55
Net External Debt/Exports Ratio
4.0
3.5
%
3.0
2.5
2.0
1.5
1.0
1996
1997
1998
1999
* 2004 and 2005: BCB estimate
2000
2001
2002
2003 2004* 2005*
56
Net External Debt/GDP Ratio
40
35
%
30
25
20
15
10
1996
1997
1998
* 2004 and 2005: BCB estimate
1999
2000
2001
2002
2003
2004* 2005*
57
Impact of a 1% FX change on
Debt/GDP ratio
36
32
%
28
24
20
16
12
Jan
00
Jun
00
Source: Bacen
Nov
00
Apr
01
Sep
01
Feb
02
Jul
02
Dec
02
May
03
Oct
03
Mar
04
Aug
04
58
Brazil: Back on the
Sustained Growth Track
Afonso Bevilaqua
November 2004
59