Economic Outlook. Macroeconomic Research Itaú Unibanco

Transcription

1 Economic Outlook Macroeconomic Research Itaú Unibanco September, 2014

2 Overview International Strong U.S., weak Europe Recovery in the United States continues, inflation remains under control. The European economy has lost momentum, and the ECB has eased policy. Activity data became more mixed in China, and more stimuli may be necessary to avoid a more intense deceleration. LatAm: disappointing growth Brazil We expect 0.1% growth this year and 1.3% next year. Unemployment is likely to rise slightly. BRL tends to depreciate due to international and domestic factors. Inflation will reach 6.3% this year and 6.4% in It will be difficult to achieve the primary surplus target. We expect the Selic rate to remain at 11%. 2

3 Global Economy Is Recovering World USA Euro Zone Japan China Source: Haver Analities, CEIC, Bloomberg, Itaú Unibanco 3

4 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 U.S. Economy Remains on Track for a Strong 2H14 U.S. economic indicators are broadly in line with a cyclical 3.0% growth pace in 2H14. GDP growth was revised up to 4.2% qoq/saar (seasonally adjusted annual rate) from 4.0%. We raised our GDP growth forecast up to 2.2% (from 2.0%) for 2014 and to at 3.1% (from 3.0%) for Though it was weak in August (142 thousand jobs), the U.S. economy should continue to create more than 200 thousand (non-farm) jobs per month due to this growth pace. GDP Real Growth Seasonally adjusted, annualized change, % 5.5% Payroll and ISM Non-Manufacturing Thousands, higher than 50 indicates expansion (ISM) % % 2.2% 3.1% 2.5% 1.5% 0.5% -0.5% -1.5% QoQ Annual Source: Itaú Unibanco, Bureau of Economic Analysis, BLS, ISM Dec-10 Nov-11 Oct-12 Sep-13 Aug-14 Payroll ISM non-manufacturing 4

5 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 We Reduced Our Long-Term Interest Rate Estimate Inflation continues to be well behaved: The core PCE deflator increased only 0.09% mom in July. We expect a gradual convergence toward the Fed s 2% target in 2H15. We reduced our year-end forecast for the 10-year U.S. Treasury yield to 2.7% (from 2.9%) in 2014 and to 3.25% (from 3.45%) in Increased geopolitical tensions and extremely low interest rates in Europe will likely hold down the U.S. interest-rate risk premium for longer. Core PCE and Average Hourly Earnings YoY change, (%), seasonally adjusted 4.5% 4.0% 3.5% 3.0% 10-Year Treasury Yield % % % % 1.0% % 0.0% Core PCE Average hourly earnings 1.5 Source: Itaú Unibanco,Bloomberg, Haver analytics, BLS 5

6 Europe: The Economy Has Lost Momentum Euro-zone GDP expanded by a meagre 0.03% qoq in 2Q14. Geopolitical and policy uncertainty are weighing on business and consumer confidence and limiting the cyclical recovery. We maintain our 2014 GDP growth estimate at 0.8% and reduce our forecast to 1.1% from 1.5% for GDP growth by country QoQ France 0.0% 0.0% GDP real growth Seasonally adjusted, annualized change, % 3.0% 2.0% Italy -0.2% -0.1% 1.0% 0.8% 1.1% Germany -0.2% 0.7% 0.0% -1.0% Spain 0.4% 0.6% -2.0% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 0.8% 1st quarter 2nd quarter Source: Itaú Unibanco,Bloomberg, Haver analytics, Eurostat -3.0% 1Q10 4Q10 3Q11 2Q12 1Q13 4Q13 3Q14 2Q15 QoQ Annual 6

7 ECB Cuts Interest Rates Again The ECB provided further stimulus by cutting interest rates by 10 bps and announcing it would buy privately issued securities. Further actions might be taken if inflation fails to pick up. We think the ECB actions reduce the risk of deflation in the euro zone but are not enough to provide a substantial boost to activity. The main impact, in our view, is to depreciate the euro. Interest rate and inflation % p.a., YoY change % 4.0% 3.0% 2.0% 1.0% 0.0% Euro/Dollar Weakening Euro = positive change EONIA CPI Source: Itaú Unibanco,Bloomberg, Haver analytics, Eurostat -1.0%

8 China: Growth Momentum Remains Fragile and Requires More Targeted Stimuli Mixed data in July and August. Industrial production and fixed investment slowed down in July. Credit growth has also weakened. The manufacturing PMI declined to 51.1 in August. In the absence of additional stimuli, the steeper decline suggested by the fundamentals could lead annual growth to be between 7.2% and 7.3%. We maintain our GDP forecast at 7.4% in 2014 and 7.0% in PMI and industrial production Higher than 50 indicates expansion (ISM) % GDP real growth Seasonally adjusted, annualized change, % 10.5% % % 7.5% 7.4% 7.0% % % 4.5% % 3.0% % % Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Oct-13 Jul % Manufacturing PMI Industrial production (rhs) QoQ Annual Source: Itaú Unibanco,Haver analytics, NBS 8

9 Commodities: Lower Soybean and Iron Ore Prices We lowered our year-end price forecasts for soybean, sugar and iron ore. Our year-end ICI forecast is down to -7.0% yoy for 2014 (vs. -5.6% previously) and 2.1% yoy for 2015 (vs. 3.0% previously). Itaú Commodities Index Source: Itaú Unibanco 9

10 Latin America: Growth is Disappointing In Chile and Peru, the economy decelerated further. Activity disappointed in June, but confidence indicators suggest that the economy remains robust and in Mexico, activity continues to recover, led by external demand. The central banks in Chile and Peru continued the easing cycle. In Colombia, another hike in the interest rate, while in Mexico, the monetary policy remains unchanged. The combination of higher interest rates in the U.S. and weak growth in emerging economies tends to depreciate Latin American currencies In Argentina, we understand that the default will last longer. We now expect sharper FX depreciation and a deeper recession in

11 Latin America: Growth is Disappointing Peru Mexico GDP - % GDP - % PEN / USD (Dec) MXN / USD (Dec) Interest Rate- (Dec) - % Interest Rate - (Dec) - % CPI CPI Colombia Chile GDP - % GDP - % COP / USD (Dec) CLP / USD (Dec) Interest Rate - (Dec) - % Interest Rate - (Dec) - % CPI CPI Argentina GDP - % ARS / USD (Dec) BADLAR - (YE) - % CPI - % (Private Estimatives) Source: Itaú Unibanco 11

12 Brazil: What Do We Expect in the Short Term? Economic Activity GDP (%) Unemployment (%) - December Inflation IPCA (%) Monetary Policy Selic Rate (%) Fiscal Primary Surplus (% GDP) Balance of Payments Exchange Rate (eop) Current Account (% GDP)

13 Activity: We Reduced Our Forecast for GDP Growth in 2014 After weakness in 2Q14, the rebound in activity so far does not seem enough. We cut our forecast for GDP growth in 2014 to 0.1% from 0.6%. For 2015, we expect modest growth of 1.3%. Industrial Production Seasonally adjusted, 2012= GDP Growth Seasonally adjusted change, % 3.0% % 2.0% 1.5% 1.3% % 0.5% 0.0% -0.5% 0.5% -0.1% 0.1% % Month 3-Month average QoQ Annual Source: Itaú Unibanco, IBGE 13

14 The Recovery in Economic Activity Has Been Sluggish Business and consumer confidence remain low. The indicators that have already been published do not signal a rebound in 3Q14. Confidence Indexes Seasonally adjusted, July 2010= Aug-08 Aug-10 Aug-12 Aug-14 Construction Industrial Services Retail Source: Itaú Unibanco, FGV Activity Diffusion Index (CAD)* Ratio of activity indexes that increased on mom change, 3-month average 70% 60% 50% 40% 30% 20% 10% Month Average( ) *A 47.1% Index is consistent with null GDP growth August/2014: 20 published indicators from 48 used 14

15 Labor Market Remains Weak, and Unemployment Is Expected to Increase Weaker economic activity and a possible end in the recent declines in the labor force will likely cause a moderate increase in unemployment. Formal Job Creation (CAGED) Thousands, seasonally adjusted Unemployment Rate and Difficulty Finding a Job (FGV) Seasonally adjusted Unemployment Difficulty finding a job (rhs) Source: Itaú Unibanco, IBGE, Caged 15

16 Rationing Risks in 2015 Remain Rainfall levels below average in August affected hydro power generation. Lower hydropower generation was offset by thermal power plants and wind mills. We continue to see intense usage of thermal power plants for a prolonged period and electricity rationing risks in Aggregate Reservoir Levels % of total capacity Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Itaú Unibanco, ONS 2012 Average ( ) * 16

17 FX: Depreciation Ahead After holding steady for nearly one year, the current account deficit narrowed to 3.5% of GDP, with a positive contribution from the trade balance. We revised our forecasts for the current account deficit to 3.6% of GDP from 3.7% in 2014, and to 3.3% from 3.2% in Our year-end BRL forecasts are unchanged at 2.40 reais per U.S. dollar in 2014 and 2.50 in The stronger signs of recovery in the U.S. economy and the adjustment in current account deficit are expected to pressure the BRL. Trade Balance and Current Account 12 months, USD billions and % of GDP % Exchange Rate Monthly average % % -1.5% -2.0% % % 5-3.5% 0-4.0% Jan-10 Dec-10 Nov-11 Oct-12 Sep-13 Aug-14 Trade balance Current account (rhs) Jan-13 Dec-13 Nov-14 Oct-15 Source: Itaú Unibanco, MDIC, BCB 17

18 Inflation: Unchanged Estimates for the IPCA The consumer price index IPCA climbed 0.25% in August (6.5% in 12 months). Our projections for 2014 and 2015 stand at 6.3% and 6.4%, respectively. We expect 6.5% inflation in market-set prices this year and 6.2% in 2015, thanks to lower price increases for food and services. Weaker economic activity and the sharp slide in producer price recently may translate into a slightly more favorable balance of risks. For regulated prices, we forecast a 5.7% advance in 2014 and 7.0% in 2015, driven by substantial adjustments in electricity, water and sewage tariffs and urban bus fares. IPCA Breakdown YoY change, % 9% 8% 7% 6% 7.0% 6.5% 7.0% 6.4% 6.2% Regulated Prices Adjustment Sub-item Increase (forecast) 2014 Regulated 5.7% Electricity tariffs 13% 5% 4% 3% 2% 5.1% 2015 Water and sewage tariffs 12% Urban bus fares 10% Regulated 7% 1% 0% Market-set Regulated IPCA Source: Itaú Unibanco, IBGE 18

19 Fiscal Policy: Reducing Our Forecast for the Primary Surplus The surplus continues to shrink. Federal intake continues to slow down due to weak activity, while expenses decrease at a lower pace. We reduced our forecast for the conventional primary surplus this year to 1.1% of GDP from 1.3%. Our estimate for the recurring primary surplus was lowered to 0.4% from 0.6%. Public sector expenses and tax revenues Real, 12-month growth 20% Public-Sector Primary Balance % of GDP 4.0% 15% 3.5% 3.0% 10% 2.5% 5% 2.0% 0% -5% 1.5% 1.0% 0.5% 1.2% -10% Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Oct-13 Jul-14 Tax revenues Total expenses Source: Itaú Unibanco, BCB, STN 0.0% 0.3% Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Conventional primary balance Recurring primary surplus 19

20 Monetary Policy: No changes, for now We thus maintain the scenario of stability for the Selic rate, at 11% p.a. until year-end. In the absence of a clear bias, we maintain our forecast that the Selic rate will also be stable in Selic % p.a 14% 13% 12.2% 12% 11% 11.00% 11.00% 10% 9% 8% 7% Itaú Unibanco forecast Yield curve pricing Source: Itaú Unibanco, Bloomberg 20

21 Conclusion International Strong U.S., weak Europe Recovery in the United States continues, inflation remains under control. The European economy has lost momentum, and the ECB has eased policy. Activity data became more mixed in China, and more stimuli may be necessary to avoid a more intense deceleration. LatAm: disappointing growth Brazil We expect 0.1% growth this year and 1.3% next year. Unemployment is likely to rise slightly. BRL tends to depreciate due to international and domestic factors. Inflation will reach 6.3% this year and 6.4% in It will be difficult to achieve the primary surplus target. We expect the Selic rate to remain at 11%. 21

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