Transcript Brazil Economic Outlook and Investment Opportunities Jorge Arbache University of Brasilia BUSBC Meeting, Brasilia, April 28, 2015

Brazil Economic Outlook and
Investment Opportunities
Jorge Arbache
University of Brasilia
BUSBC Meeting, Brasilia, April 28, 2015
1
1. Overview
2
Recent economic performance
GDP per capita growth (%)
Source: Central Bank
7
6.5
6
4.8
5
4.3
3.9
4
2.9
2.8
3
1.9
1.7
2
1.8
0.8
1
0
-0.1
-0.1
2001
2002
2003
-1.3
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
-0.7
-1.5
-1.0
-0.2
0.0
2014
2015
2016
2017
2018
-1
-2
Note: 2015-2018: our own estimates based on macroeconometric modelling and CGE analyses
3
• End of the low hanging fruit growth model: consumption, easy credit,
international liquidity, government spending and commodity boom
4
Short term challenges
• Restore the market confidence
• Resume growth
• Fight inflation: ~ 8.25% in the last 12 months
• Keep fiscal accounts under control: significant deterioration in recent
years
• Keep BoP deficit under control: -4.5% of GDP in the last 12 months
5
-3
0.2
-4
0
-5
Jan-15
0.4
Sep-14
-2
May-14
0.6
Jan-14
-1
Sep-13
0.8
May-13
0
Jan-13
1
Sep-12
1
May-12
1.2
Jan-12
2
Sep-11
1.4
May-11
3
Jan-11
Source: Central Bank
Sep-10
Source: Central Bank
May-10
CPI (%) – monthly
Jan-10
Current account balance - % GDP
6
2. What the government is doing?
7
Pillars of Mr Levy`s policy
• Focus on gross public debt
• Accelerate concessions and PPPs opportunities
• Increase technical and college-level training
• Foster increase in labor supply
• Changes in Federal and State VAT
• Expansion of the SIMPLES and ‘doing business’ initiatives
• Focus on international trade
Source: MoF
8
Non financial public sector primary and nominal
balance - % GDP
Source: MoF
Government goal
9
3. Challenges ahead
10
• Brazil -- combination of a still low unemployment rate (4.9% in the
last 12 months) with recession, rising inflation and current account
deterioration: trap
11
How to explain the trap?
• Low unemployment is partly explained by the decelerating working
age population, low labor productivity and service sector boom,
which is highly labor intensive
• Exchange rate pass-through
• Falling savings and investment ratios
• Poor international competitiveness
12
Medium term challenges
• Output gap has decreased: 2.3% from 3.4% in the last 15 years (our
own estimates Jan/2015); IMF estimates (Apr/2015): 2.5%
13
How to explain the falling potential output?
• Premature aging and rapid deceleration of the working age
population
• Premature servicification (70% of GDP), which is highly uncompetitive
• Premature deindustrialization (manufacturing sector 13% of GDP
from 35% in the 1980s)
• Re-primarization of exports
• Low and falling savings and investment ratios
• All combined with low and stagnated labor productivity, poor
international competitiveness, and secular stagnation in developed
countries
14
4. Are there business opportunities?
15
• Despite the poor environment and growth prospects in Brazil, there
are plenty of opportunities out there in the short and medium terms
• Demographic changes are creating great opportunities
• The desperate need to increase efficiency and productivity favors
smart initiatives and smart businesses
• Expansion of concessions, PPPs and privatizations
16
• Huge potential for industrialization of comparative advantages e.g.
agribusiness, pre-salt, minerals, renewable energy, biodiversity, etc
• New frontiers of development in the countryside and in fringe states
• Smart cities projects
• Regional markets and the still rising middle class
17
Case study: heath sector
• Brazil has a free, universal health
service
• Public service is widely
perceived as poor
• It is unlikely that public
investment in healthcare will
improve significantly in the
foreseeable future
• Low and stable supply of beds
and large regional infrastructure
disparities
• Hospital sector is highly
fragmented limited capacity
to invest
• Recent legislation change will
favor new entrants
18
Note: Total of beds per 100 000 habitants. Source: WHO 2013 and OECD 2013.
India
Indonesia
Mexico
Chile
South Africa
Brazil
Turkey
Sweden
China
Canada
New Zealand
United…
Ireland
United…
Spain
Israel
Norway
Iceland
Portugal
Italy
Denmark
Australia
Slovenia
Netherlands
Greece
Switzerland
OECD25
Estonia
Luxembourg
Finland
Slovak…
Belgium
France
Poland
Czech…
Hungary
Austria
Germany
Russian Fed.
Korea
Japan
Supply of beds: Brazil vs. OECD
4.9
2.3
19
• Demographic changes
are already impacting
the healthcare demand
strongly in terms of
level, composition and
type of care
• 19% of population
above 60 years old in
2030 – it was 11% in
2013
• 2000
90+
85-89
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
• 2030
90+
85-89
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
20
• Only 1/4 of total population is
covered by private health
insurance
48.28
50.93
45.18
41.47
Million of People
• As a result of the growing
income and demographic
changes, the coverage of private
health insurance has increased
from 34 to 51 million people
between 2004 and 2014
37.25
33.84
2004 2006 2008 2010 2012 2014
Source: ANS
21
• A substantial share of additional supply of healthcare will have to be
provided by the private sector
• Large room for new investments in infrastructure and market
consolidation
• Hospitals
• Diagnosis services
• Retail health clinics
22
4. Risks
23
• Limited margin for fiscal maneuver in the short term
• Pursuing a fiscal adjustment will be politically challenging, but
emerging awareness on the need to go forward with the reforms
proposed by government
• Loss of investment grade and access to credit markets
• Economic slack and political uncertainties globally
24
• China`s slowdown and commodity prices
• FED’s policy move
• Protectionism and trade policies
• Exchange rate uncertainties
• Environmental changes
25
Thank You!
[email protected]
26