Economic Outlook. Macroeconomic Research Itaú Unibanco

Transcription

1 Economic Outlook Macroeconomic Research Itaú Unibanco May 2016

2 Overview International Global environment remains supportive for emerging markets Two conditions must be met in order for the U.S. Fed to raise interest rates again: a pick-up in activity in the U.S. and concrete signs that the decline in global risks will be sustained. We continue to expect two rate hikes in 2016, but we now expect the first hike to be postponed from June to July. Growth remains modest in mature economies. We raised our growth forecast for China to 6.5% from 6.3% for The recent appreciation of emerging market currencies seems appropriate. However, it remains to be seen whether these tailwinds will translate into better growth. Brazil Fresh efforts to push through adjustments and reforms The renewed efforts for adjustments also tend to have a positive effect on confidence, but it will not be enough to avert a marked drop in activity this year. We are maintaining our forecast of a 4.0% decline in GDP this year. In 2017, this new environment should provide moderate growth of 1.0% (previously 0.3%). We have revised our exchange-rate forecast down to BRL 3.75 per dollar at the end of 2016 (previously BRL 4.00) and BRL 3.95 per dollar at the end of 2017 (previously BRL 4.25), reflecting both a more benign external scenario and an improved outlook for adjustments on the domestic front. We have maintained our IPCA inflation forecast for this year at 6.9% and for 2017 at 5.0%. We expect fresh efforts to push through reforms and adjustments in the months ahead. We have maintained our forecast for a primary result in 2016 of -1.7% GDP; however we have improved our 2017 forecast to -1.0% of GDP, compared with the previous forecast of -2.1%. The balance of risks for inflation is expected to improve. We therefore believe that the Copom will embark on an easing cycle over the second half of the year. 2

3 Global Growth: Our Forecasts Growth Rates (%) World U.S Euro Zone Japan China Source: Itaú Unibanco, Haver Analytics

4 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 United States: The Fed is in no rush to hike again The U.S. Fed remains cautious about the improvement in global risks, indicating no rush to raise interest rates again. To raise rates again, the Fed might need to see: i) a pick-up in activity after the recent moderation in GDP (1.4% QoQ/SAAR in 4Q15 and 0.5% in 1Q16) and ii) concrete signs that the decline in global risks will be sustained. Real GDP Growth %, annualized rate 5.5% 4.5% 3.5% 2.5% 1.5% 0.5% -0.5% -1.5% 2.4% 2.4% 1.9% -2.5% QoQ Annual 4 Source: Itaú Unibanco, Bloomberg, Haver Analytics

5 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 China: Activity picked up Economic activity picked up in March, fueled by property and infrastructure investment. We have revised our GDP forecast for 2016 up to 6.5%, from 6.3%, but maintain our expectation that growth will decelerate to 6.0% in Real GDP Growth %, annualized rate 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 7.3% 6.9% 6.5% 6.0% 5.5% 5.0% QoQ Annual 5 Source: Itaú Unibanco, NBS, CEIC

6 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Europe: The focus shifts from financial risk to political risk The ECB s credit easing in March has mitigated financial risks to economic activity. The main downside risks in Europe at present are the impact of immigration flows and the upcoming Brexit vote in the UK. We maintain our GDP forecasts for the euro zone at 1.50% for 2016 and 1.60% for Real GDP Growth % 2.5% 2.0% 1.5% 1.5% 1.5% 1.0% 0.9% 0.5% 0.0% -0.5% -1.0% QoQ Annual 6 Source: Itaú Unibanco, Bloomberg, Haver Analytics, Eurostat

7 LatAm: Extended relief The external environment remains supportive for Latin American currencies. We now expect stronger exchange rates than estimated in our previous scenario. Recent activity numbers indicate that economic growth is stabilizing, albeit at low levels. For 2017, we raised our growth forecast for Brazil and lowered our GDP forecast for Colombia. Monthly GDP Annual, 3-mma Currencies appreciation Dollar against local currency - Sep13=100 8% 6% 4% 2% 0% -2% Brazil -4% Chile Colombia -6% Mexico Peru -8% Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan CLP COP MXN PEN BRL 50 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Mar-16 7

8 LatAm: Our forecasts Peru Mexico GDP - % GDP - % PEN / USD (Dec) MXN / USD (Dec) Interest rate - (Dec) - % Interest rate - (Dec) - % IPC IPC Colombia Chile GDP - % GDP - % COP / USD (Dec) CLP / USD (Dec) Interest rate - (Dec) - % Interest rate - (Dec) - % IPC IPC Argentina GDP - % ARS / USD (Dec) BADLAR - (YE) - % Lebac 35 d (Dec) - % IPC - % (Private estimates) Source: Itaú Unibanco

9 Brazil: What to expect in the short run Economic Activity GDP (%) Unemployment (%) December (PNAD cont.) Inflation IPCA (%) Monetary Policy Selic Rate (%) Fiscal Primary Surplus (% GDP) Balance of Payments Exchange Rate (eop) Current Account (% GDP) Source: Itaú Unibanco, Bloomberg, BCB, IBGE

10 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q Brazil: Activity still falling, but the outlook for next year is improving Recent data suggest that GDP fell during the first and second quarters of the year. With leading indicators presenting improvements at the margin, we expect to see relative stability from the third quarter onward. Real GDP Growth % quarterly Real GDP Growth % annual 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -2.0% -2.5% 0.6% -0.1% -1.3% 0.1% -0.8% -2.1% -1.7% -0.3% -0.8% -0.7% -1.4% 0.6% 0.6% 0.5% 0.4% -0.1% Source: Itaú Unibanco, IBGE

11 Sep-98 Sep-00 Sep-02 Sep-04 Sep-06 Sep-08 Sep-10 Sep-12 Sep-14 Sep-16 Diffusion suggests relative stability during the second half We believe that inventories will continue to fall over the coming months. As a result, industrial confidence may begin to show a moderate improvement. Our diffusion index which shows the number of rising indicators - has climbed above the neutral level (44%). This is a leading index for economic activity and, as such, is consistent with our outlook of relative stability in the second half of this year. Inventories Excessive insufificient, p.p. Diffusion index 25 80% 9% % 64% 56% 7% 5% 3% 10 48% 1% 5 40% 32% -1% -3% 0 24% Diffusion index (12m, t-2) GDP growth (12m) (rhs) -5% -5 Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr-16 16% -7% 11 Source: Itaú Unibanco, FGV

12 Formal job market remains in decline Despite the significant reduction in formal jobs, the increase in the national unemployment rate fell below expectations once again. We believe that this is occurring because more workers are now self-employed. We have therefore revised our unemployment forecast to 12.5% at the end of 2016 (previously 13.0%). This trend toward a marked increase in unemployment is likely to continue in 2017, with unemployment rising to 13.0% (previously 13.4%). Unemployment Rate %, seasonally adjusted Formal Job Creation Thousands, seasonally adjusted 14% 13% 12% 12.5% 13.0% % 10% 9.9% % 8% 7% % Source: IBGE, Itaú Unibanco, FGV

13 Fiscal: fresh efforts to push through adjustments and reforms ahead The consolidated public sector registered a primary deficit of BRL 10.6 billion in March, with the accumulated twelve-month result of -2.1% of GDP in February widening to -2.3% of GDP in March. However, we believe that there will be fresh efforts to push through reforms. Hence, we have raised our forecast for the 2017 primary result from -2.1% to -1.0% of GDP. Consolidated primary balance 12M, % of GDP 5% 4% 3% 2% 1% 0% -1% -2% Gross Debt 12M, % of GDP 85% 80% 75% 70% 65% 60% 55% 50% 45% 78.9% 75.8% 71.7% 66.2% -3% Mar-04 Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 40% Source: Itaú Unibanco, Receita Federal

14 BRL boosted by reduced external volatility and outlook for adjustments in Brazil The international scenario continues to support global currencies, and the dollar lost ground again in April. The likelihood of fresh efforts to push through reforms and adjustments has also increased over the past month. We have revised our exchange-rate forecast down to BRL 3.75 per dollar at the end of 2016 (previously BRL 4.00) and BRL 3.95 per dollar at the end of 2017 (previously BRL 4.25). We have also changed our external account estimates for the next two years, but we continue to forecast an improvement. Exchange Rate BRL/USD, end of period Current Account % of GDP, annual % % 1% % -0.4% % -0.9% % -3% -4% -3.3% 1.50 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17-5% 14 Source: Itaú Unibanco, BCB

15 Inflation forecasts for 2016 and 2017 remain stable We have maintained our IPCA inflation projection for this year at 6.9%. Despite reviewing our exchange-rate scenario, there has been additional pressure from food at home and services, which are having the opposite effect. We have held our IPCA inflation projection stable for 2017 at 5%. IPCA Breakdown YoY change Price Contributions to the IPCA Contributions (pp) 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% IPCA Market-set prices (76%) Regulated prices (24%) 18.1% 10.7% 8.5% 7.1% 6.9% 6.5% 0% Dec-10Dec-11Dec-12Dec-13Dec-14Dec-15Dec (f) IPCA Market-set prices Regulated prices 15 Source: Itaú Unibanco, IBGE

16 Monetary policy: interest rate cuts are likely to come sooner The Central Bank (CB) believes there is no room for a short-term cut in interest rates. The balance of risks for inflation is expected to improve. We therefore believe that as this scenario evolves, the Copom will begin a cycle of interest-rate cuts in the second half of the year, starting in July. Selic % p.a. 15% 14% 13% 12% 11% 12.25% 13.02% 12.27% 10% 9% 10.00% 8% 7% Itau Unibanco Forecast Yield Curve Pricing 16 Source: Itaú Unibanco, Bloomberg

17 Conclusion International Global environment remains supportive for emerging markets Two conditions must be met in order for the U.S. Fed to raise interest rates again: a pick-up in activity in the U.S. and concrete signs that the decline in global risks will be sustained. We continue to expect two rate hikes in 2016, but postponed the first one to July from June. Growth remains modest in mature economies. We raised our growth forecast for China to 6.5% from 6.3% for The recent appreciation of emerging market currencies seems appropriate. However, it remains to be seen whether these tailwinds will translate into better growth. Brazil Fresh efforts to push through adjustments and reforms The renewed efforts for adjustments also tend to have a positive effect on confidence, but it will not be enough to avert a marked drop in activity this year. We are maintaining our forecast of a 4.0% decline in GDP this year. In 2017, this new environment should provide moderate growth of 1.0% (previously 0.3%). We have revised our exchange-rate forecast down to BRL 3.75 per dollar at the end of 2016 (previously BRL 4.00) and BRL 3.95 per dollar at the end of 2017 (previously BRL 4.25), reflecting both a more benign external scenario and an improved outlook for adjustments on the domestic front. We have maintained our IPCA inflation forecast for this year at 6.9% and for 2017 at 5.0%. We expect fresh efforts to push through reforms and adjustments in the months ahead. We have maintained our forecast for a primary result in 2016 of -1.7% GDP; however we have improved our 2017 forecast to -1.0% of GDP, compared with the previous forecast of -2.1%. The balance of risks for inflation is expected to improve. We therefore believe that the Copom will embark on an easing cycle over the second half of the year. 17

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