Transcript Slide 1

Brazil:
Recent Economic Developments
Afonso Bevilaqua
July 2004
1
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
1.6
1.4
%
0.5
1Q03
2Q03
3Q03
4Q03
1Q04
-0.9
-1.2
4
GDP x Domestic Demand
106
2Q03 = 100
104
102
100
98
96
1Q02
2Q02
3Q02
4Q02
1Q03
Domestic Demand
2Q03
3Q03
4Q03
1Q04
GDP
5
GDP x Investment Growth
6%
4%
2%
0%
-2%
-4%
-6%
-8%
1Q03
2Q03
3Q03
GDP
4Q03
1Q04
Investment
6
Industrial Output
110
s.a., 2002 = 100
105
100
95
90
85
Jan
99
Sep
99
May
00
Jan
01
Source: IBGE; BCB estimate for June
Sep
01
May
02
Jan
03
Sep
03
Jun
04
7
Industrial Output
%
May 04
May 03
Jan-May 04
Jan-May 03
+9.5
+6.1
Capital Goods
+27.2
+21.7
Intermediate Goods
+7.8
+4.5
Consumer Goods
+7.6
+4.1
Durable
+27.6
+21.2
Semi-Durable e Non-Durable
+2.9
+6.4
Total
Source: IBGE
8
Industrial Output
Compared Economic Recoveries in Brazil
Previous Trough = 100
110
108
106
104
102
100
98
t
t+1
t+2
Jul 95
t+3
t+4
Feb 99
t+5
t+6
Nov 01
t+7
t+8
t+9
t+10
Jul 03
9
Industrial Output by
Categories of Use
Accumulated growth since June 2003, seasonally adjusted
35
Capital Goods
Intermediate Goods
Durable Goods
Non-Durable Goods
30
%
25
20
15
10
5
0
-5
jun
03
jul
03
Source: IBGE
ago
03
set
03
out
03
nov
03
dez
03
jan
04
fev
04
mar
04
abr
04
mai
04
10
Real Retail Sales
Seasonally Adjusted, 3-Month Moving Average
Average 2003 = 100
108
106
104
102
100
98
96
Jan
01
May
01
Sep
01
Jan
02
Source: IBGE, Banco Central
May
02
Sep
02
Jan
03
May
03
Sep
03
Jan
04
May
04
11
Retail Sales
%
May 04
May 03
Jan-May 04
Jan-May 03
+12.3
+8.0
Furniture & Electronics
+35.7
+27.8
Fuel and Lubricants
+4.1
+7.2
Supermarket, Food,
Beverage and Tobacco
+7.3
+4.5
Vehicles & Autoparts
+25.0
+13.0
Clothing
+22.1
+4.4
Total
Source: IBGE, Banco Central
12
Retail Sales
Accumulated growth since June 2003, seasonally adjusted
30
Furniture & Electronics
26
Vehicles & Autoparts
%
22
Clothing
18
Supermarket
14
10
6
2
-2
Jun
03
Jul
03
Aug
03
Sep
03
Oct
03
Source: IBGE, Banco Central
Nov
03
Dec
03
Jan
04
Feb
04
Mar
04
Apr
04
May
04
13
Real Interest Rates (360-day swap)
40
36
32
Avg 04
10.0%
28
24 Avg 97/99
21.4%
Avg 01/02
17.6%
20
16
Avg 00
12.3%
Avg 03
13.2%
12
8
Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan
97 97 98 98 99 99 00 00 01 01 02 02 03 03 04
Source: Bacen
14
Real Interest Rates (360-day swap):
Jan/2003 to Jul/2004
18
% p.a.
16
14
12
10
8
Jan
03
Mar
03
Source: Bacen
May
03
Jul
03
Sep
03
Nov
03
Jan
04
Mar
04
May
04
Jul
04
15
108
1,95
106
1,90
104
Retail Sales
left scale
1,85
102
1,80
100
1,75
Credit to Individuals
right scale
98
96
R$ billion
Average 2003 = 100
Credit x Demand
1,70
1,65
Jun Jul Ago Sep Oct Nov Dec Jan Feb Mar Apr May
03 03 03 03 03 03 03 04 04 04 04 04
Source: Bacen, IBGE
16
Real Interest Rate vs. Retail Sales
Real Interest Rate
left scale
24
108
106
Retail Sales (t+6)
right scale
16
104
102
100
2003=100
% p.a.
20
12
98
8
96
Jan
02
May
02
Sep
02
Jan
03
May
03
Sep
03
Jan
04
Jun
04
17
Real Interest Rate vs. Industrial Output
Real Interest Rate
left scale
24
106
20
Industrial Output (t+6)
right scale
16
100
2003=100
% p.a.
103
12
8
Jan
02
97
May
02
Sep
02
Jan
03
May
03
Sep
03
Jan
04
May
04
18
Supermarket Sales vs. Total Payroll
108
109
108
107
106
104
105
104
102
103
102
100
s.a., 2003 = 100
s.a., 1992 = 100
106
101
100
98
99
Jan
02
May
02
Sep
02
Jan
03
May
03
Supermarket Sales
Sep
03
Jan
04
May
04
Total Payroll
19
Industrial Sales x Industrial Output
125
Jun 03 = 100
120
Industrial Sales
115
110
Industrial Output
105
100
Jun Jul
03 03
Aug
03
Source: IBGE, CNI
Sep Oct Nov Dec
03
03
03
03
Jan
04
Feb Mar
04
04
Apr May
04
04
20
Quarterly Industrial Survey:
Level of Inventories
Insufficient
Excessive
Balance
-20
% of Sample
-15
-10
-5
0
5
-10
Jan 03
Source: FGV
Apr 03
Jul 03
Oct 03
Jan 04
Apr 04
Jul 04
21
Formal Employment
105
s.a., Jun 2003 = 100
104
103
102
101
100
99
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
03 03 03 03 03 03 03 04 04 04 04 04 04
Source: Ministry of Labor and Employment
22
Industrial Employment
102
s.a., Jun 2003 = 100
São Paulo (Fiesp)
Brazil (CNI)
101
100
99
Jun
03
Jul
03
Aug Sep
03
03
Sources: CNI, Fiesp
Oct
03
Nov
03
Dec
03
Jan
04
Feb
04
Mar
04
Apr
04
May
04
23
Industrial Real Wages
107
106
s.a., Jun 2003 = 100
105
104
103
102
101
100
99
98
97
96
jan
03
mar
03
Sources: CNI, Bacen
mai
03
jul
03
set
03
nov
03
jan
04
mar
04
mai
04
24
Urban Average Real Earnings
108
Mar 2002 = 100
106
104
102
100
98
96
94
92
90
88
86
Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May
02 02 02 02 02 03 03 03 03 03 03 04 04 04
Source: IBGE
25
Packing Paper Shipments
s. a., jan 2003 = 100
114
110
106
102
98
94
jan
03
mar
03
may
03
jul
03
set
03
nov
03
jan
04
mar
04
jun
04
26
Cars Production
s. a., jan 2003 = 100
110
105
100
95
90
85
80
jan
03
mar
03
may
03
jul
03
sep
03
nov
03
jan
04
mar
04
jun
04
27
Steel Production
s.a., jan 2003 = 100
112
108
104
100
96
jan
03
mar
03
may
03
jul
03
set
03
nov
03
jan
04
mar
04
jun
04
28
Power Consumption: São Paulo
s.a., Jun 2003 = 100
118
114
110
106
102
98
Jun
03
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
03
03
03
03
03 03
04
04
04
04
04
04
Source: São Paulo State Energy Department
29
Business Confidence
60
50
Net Expectations
40
Future Conditions
30
20
10
0
-10
Current Conditions
-20
-30
Jan
02
Apr
02
Jul
02
Oct
02
Source: FGV Industrial Survey
Jan
03
Apr
03
Jul
03
Oct
03
Jan
04
Apr
04
Jul
04
30
In a Nutshell
• 1st quarter GDP growth confirms economic rebound. Result
is consistent with the 3.5% growth estimate for the year.
• Industrial output continued to expand in 2004, with positive
prospects for the near future due to increasing domestic and
external demand.
• Sales have been outpacing production growth, affecting
level of inventories.
• Credit growth and payroll increase explain sales expansion,
still led by durable goods.
• Unemployment rate affected by increase in labor force.
However, formal employment rising.
31
II. Inflation
32
IPCA Inflation Rate
3.5
3.0
2.5
%
2.0
1.5
1.0
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 Jun
04 04
33
IPCA Inflation Rate
Accumulated in 12 months
18.0
16.5
15.0
%
13.5
12.0
10.5
9.0
7.5
6.0
4.5
Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar
02 02 02 02 02 02 03 03 03 03 03 03 04 04
Jun
04
34
Wholesale Industrial Prices
2.5
2.06
2.0
%
1.5
1.0
0.5
0.0
IPA - IPA - IPA - IPA - IPA - IPA - IPA - IPA - IPA - IPA - IPA - IPA - IPA - IPA - IPA - IPA - IPA - IPA - IPA10 M
DI 10 M
DI 10 M
DI 10 M
DI 10 M
DI 10 M
DI 10
Jan 04
Source: FGV
Feb 04
Mar 04
Apr 04
May 04
Jun 04
Jul
04
35
Commodities Prices
Chicago Commodities Bureau (CRB) Price Index
110
105
1995 = 100
100
95
90
Food
85
80
75
Metals
70
65
60
Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar
02 02 02 02 02 02 03 03 03 03 03 03 04 04
Source: CRB
Jun
04
36
Wholesale Agricultural Prices
3.0
2.5
2.0
1.5
%
1.0
0.5
0.16
0.0
-0.5
-1.0
-1.5
IGP- IGP- IGP- IGP- IGP- IGP- IGP- IGP- IGP- IGP- IGP- IGP- IGP- IGP- IGP- IGP- IGP- IGP- IGP10
M
DI
Jan 04
Source: FGV
10
M
Feb 04
DI
10
M
Mar 04
DI
10
M
Apr 04
DI
10
M
May 04
DI
10
M
Jun 04
DI
10
Jul
04
37
Core Inflation
IPCA: 3-Month Moving Average
1.8
1.6
1.4
%
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan
01 01 01 01 02 02 02 02 03 03 03 03 04
Smoothed trimmed means
Source: Bacen
Exclusion
Jun
04
Non-Smoothed trimmed means
38
Market Inflation Expectations: 2004
9
8
7.1%
% p.a.
7
6
5
4
3
Jan
02
Apr
02
Source: Bacen
Jul
02
Oct
02
Jan
03
Apr
03
Jul
03
Oct
03
Jan
04
Apr
04
Jul
04
39
Inflation Expectations: 12-Month
14
13
12
11
10
9
8
7
6.3%
6
5
4
Jan
03
Mar
03
Source: Bacen
May
03
Jul
03
Sep
03
Nov
03
Jan
04
Mar
04
May
04
Jul
04
40
Inflation Expectations
Accumulated in 12 months
8.0
7.5
June July
7.0
6.5
6.0
5.5
5.0
Jan Mar May
04
04
04
Ocurred
Source: Bacen
Jul
04
Sep Nov Jan
04
04
05
Mar May
05
05
Expectations (Jun)
Jul
05
Sep
05
Dec
05
Expectations (Jul)
41
III. External Sector
42
Current Account Surplus: 1994/2004
2
0.8
1
1.1
% of GDP
0
-1
-0.3
-2
-3
-4
-5
- 4.7
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004*
*2004: jan-may
43
Current Account vs. Trade Balance
7
30
25
0
-7
15
-14
10
5
-21
Trade balance
Current account
20
0
-28
-35
Jan
96
-5
Jan
97
Jan
98
Jan
99
Jan
00
Jan
01
Jan
02
Jan
03
-10
Jan Jun
04 03
44
Trade Balance
85
12-Month, Accumulated
83.4
80
US$ billion
75
70
Exports
65
60
55
53.9
Imports
50
45
Jan
99
Jul
99
Jan
00
Jul
00
Jan
01
Jul
01
Jan
02
Jul
02
Jan
03
Source: Ministry of Development, Industry and Foreign Trade
Jul
03
Jan Jun
04 04
45
Exports and Imports Volume
Seasonally Adjusted
215.8
220
Exports
200
1996 = 100
180
160
140
Imports
120
107.4
100
80
60
1996
1997
1998
1999
2000
2001
2002
2003
2004
46
Export and Import Prices
110
1996 = 100
105
100
95
Imports
92.7
90
86.3
85
80
75
1996
Exports
1997
1998
1999
2000
2001
2002
2003
2004
47
Imports Substitution
Imported Quantum
left scale
135
130
118
116
Dec 1995 = 100
125
112
120
110
115
108
110
106
104
105
Dec 1995 = 100
114
102
100
100
Industrial Output
right scale
95
98
90
96
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
May
95
96
97
98
99
00
01
02
04
48
Export Growth Diversification
Contribution by Country to Exports Growth
- last 12 Months to MayArgentina
China
19%
12%
Netherlands
8%
Germany
4%
Italy
4%
United States
Others
3%
50%
49
Brazilian Exports by Market
Last 12 Months to May
European Community
25.6%
Others
29.3%
Chile
2.7%
Japan
3.2%
Mexico
3.8% China
6.4% Argentina
7.1%
United States
21.9%
50
External Private Debt Rollover
6-month moving average
160
140
%
120
100
80
60
40
20
Jul
01
Nov
01
Source: Bacen
Mar
02
Jul
02
Nov
02
Mar
03
Jul
03
Nov
03
Mai
04
51
IV. Fiscal Policy and Debt Management
52
Consolidated Public Sector Primary Surplus
6
May 04
4.26
5
% of GDP
4
3
2
1
0
-1
-2
Jul Apr Jan Oct
94 95
96 96
Source: Bacen
Jul Apr Jan Oct
97 98
99 99
Jul
00
Apr Jan Oct
01
02 02
Jul Apr
03 04
53
Fiscal Target
% of 1H Fiscal Target Accomplished in the Jan-May Period
120
110
%
100
90
80
70
2002
2003
2004
54
Debt-to-GDP Ratio
59
62
57
% of GDP
52
47
58
57
Jun 04
56.2%
56
dez 03 jan 04 fev 04 mar 04 abr 04 mai 04 jun 04
42
37
32
27
jan jan
91 92
jan jan
93 94
jan
95
jan jan
96 97
Source: Bacen, June preliminary
jan jan
98 99
jan
00
jan jan
01 02
jan jan jan
03 04 04
55
Debt Dynamics
1999
Net debt increase
7.4%
1. Primary surplus
-3.0%
2. Pure interest on the debt
8.4%
3. Depreciation on domestic debt 3.8%
4. Depreciation on foreign debt
4.2%
5. Skeletons
0.0%
6. Privatization proceeds
-0.9%
7. Effect of GDP growth
-5.2%
Memo:
Debt dynamics (1+2+7)
Currency (3+4)
Net "skeletons" (5-6)
2000 2001 2002 2003 2004
-0.2% 3.2% 0.0% 3.2% -1.9%
-3.3% -3.5% -3.3% -4.3% -2.3%
6.8% 6.9% 7.2% 9.3% 3.1%
0.8% 1.5% 4.8% -1.5% 0.3%
0.8% 1.5% 4.4% -2.7% 0.8%
0.8% 1.5% 0.9% 0.0% 0.0%
-1.8% -0.1% -0.2% 0.0% 0.0%
-4.3% -4.6% -13.9% 1.2% -3.9%
0.2% -0.8% -1.2% -10.0% 6.2% -3.1%
8.0% 1.6% 3.0% 9.2% -4.2% 1.1%
-0.9% -1.0% 1.4% 0.7% 0.0% 0.0%
56
Debt-to-GDP Ratio Trend*
End of Year
60
% of GDP
55
50
45
40
35
30
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
*trend estimated based on market expectations for GDP, interest rate and Fx
57
FX-Linked Debt Rollover Rate
100
80
Avg 2003: 61.3%
60
%
From January to
May, the
government did not
roll over any FXlinked bond or swap
40
20
0% 0% 0% 0% 0%
0
Jan
03
Mar
03
May
03
Jul
03
Sep
03
Nov
03
Jan
04
Mar
04
May
04
Jul
04
58
FX-Linked and Fixed Domestic Debt as a
Share of the Total Debt
FX-Linked Domestic Debt/Total Debt
42
19
16.8
39
16
36
13
33
30
%
Fixed Domestic Debt/Total Debt
10
27
24
7
21
4
18
15
15.8
Jan
Jul
Jan
Jul
02
02
03
03
Source: Bacen
Jan Jun
04
04
1
Jan
Jul
Jan
Jul
02
02
03
03
Jan Jun
04
04
59
V. Strengthening Resistance to Shocks
60
Net International Reserves
Net Reserves
35
US$ billion
30
25
20
15
Adjusted Net Reserves
10
Jan
99
Aug
99
Source: Bacen
Mar
00
Oct
00
May
01
Dec
01
Jul
02
Feb
03
Sep
03
May
04
61
Interest Payments/Exports Ratio
38
34
%
30
26
22
18
1996
* 2004: BCB estimate
1997
1998
1999
2000
2001
2002
2003
2004*
62
Net External Debt/Exports Ratio
4.0
3.5
%
3.0
2.5
2.0
1.5
1996
1997
* 2004: BCB estimate
1998
1999
2000
2001
2002
2003
2004*
63
Net External Debt/GDP Ratio
40
35
%
30
25
20
15
10
1996
1997
* 2004: BCB estimate
1998
1999
2000
2001
2002
2003
2004*
64
Impact of a 1% FX change on
Debt/GDP ratio
35
31
%
27
23
19
15
Jan
00
Sep
00
Source: Bacen
May
01
Jan
02
Sep
02
May
03
May
04
65
Brazil:
Recent Economic Developments
Afonso Bevilaqua
July 2004
66