Brazil Economic Overview New York Alexandre Tombini Governor February 2013 1
Macroeconomic Policy and Social Development Macroeconomic fundamentals, combined with adequate prudential policies and strong bank supervision, resulted in: - Capacity to absorb internal and external shocks - Macroeconomic and financial stability - Sustainable economic growth - Credit and capital market development Macroeconomic and social inclusion policies have led to a marked improvement in living conditions 2
1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Solid Macroeconomic Fundamentals 18 16 14 12 10 8 6 4 2 0 Met Inflation Target 9 Consecutive Years 65 60 55 50 45 40 35 30 25 20 Declining Net Public Debt (% of GDP) 52 60 55 51 48 47 46 39 42-25.3 p.p. of GDP 39 36 35 400 350 300 250 200 150 100 50 0 International Reserves (US$ billion) 60 33 379 210 170 130 90 50 10-30 -70-110 Net External Debt (US$ billion) 190-83 Source: IBGE / BCB 3
Main Questions and Answers Inflation Growth Inflation resilient in the last few months 2013 CPI will decline in second half Growth is resuming ER policy Flexible exchange rate Investments Reforms to boost competitiveness Concessions and PPP 4
Inflation Outlook Inflation has been persistent in the last few months, however inflation will be lower in the second half 2013 Why? Food price inflation will moderate Lower wage increases (minimum wage) will reduce pressure on services Exchange rates unlikely to repeat 2012 depreciation Credit growth should remain moderate Weak global recovery should restrain global prices Inflation on target for 10th consecutive year in 2013 5
Breakeven Inflation is Declining in 2013 21/12/12 26/12/12 28/12/12 02/01/13 04/01/13 08/01/13 10/01/13 14/01/13 16/01/13 18/01/13 22/01/13 24/01/13 28/01/13 30/01/13 01/02/13 05/02/13 07/02/13 13/02/13 15/02/13 19/02/13 21/02/13 6.50% 6.25% 6.00% 5.75% 5.50% 5.25% 2013 2014 2015 up to February 21 th Source: BCB 6
Growth is Resuming Brazil underwent a typical business cycle downturn Economic growth drivers Monetary and financial stimuli already in place Employment, wages and credit Business confidence and lower inventories will support growth in manufacturing Improved corporate balance sheets Agriculture: record grain crop expected for 2013 Tax reforms to simplify the tax system and reduce costs Reforms to boost productivity and competitiveness Infrastructure investments private sector oriented 7
Growth is Resuming % 1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13 3Q 13 4Q 13 3.5 Quarterly GDP YoY Market expectations 3.4 3.4 3.0 3.0 2.5 2.6 2.0 1.7 1.5 1.0 0.5 0.8 0.5 0.9 0.0 Source: BCB (Focus Feb 18, 2013) 8
% Monetary Policy Stimuli Jan 11 Mar 11 May 11 Jul 11 Sep 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 R$ billion May 08 Sep 08 Jan 09 May 09 Sep 09 Jan 10 May 10 Sep 10 Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12 13 Policy Rate 500 Reserve Requirements 45% 12 11 10 450 400 350 300 250 40% 35% 30% 25% 9 200 20% 8 150 100 15% 10% 7 7.25 Reserve requirements / total deposits Reserve requirements (overall balance) Source: BCB 9
% (seasonally adjusted) Domestic Demand Drivers 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 average (Dec 08 = 100) Dec 08 Apr 09 Aug 09 Dec 09 Apr 10 Aug 10 Dec 10 Apr 11 Aug 11 Dec 11 Apr 12 Aug 12 Dec 12 14 13 12 11 10 9 8 7 6 5 4 Unemployment Rate at Record Lows Dec 12 5.4% Growing Real Wages and Real Payroll Mean over previous 12 months 125 120 115 110 105 100 95 + 6.4% Dec 12 / Dec 11 + 3.2% Dec 12 / Dec 11 real wages real payroll Source: IBGE / BCB 10
index Business Confidence and Lower Inventories Jan 11 Mar 11 May 11 Jul 11 Sep 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 index Jan 11 Mar 11 May 11 Jul 11 Sep 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 115 113 112.8 Business confidence seasonally adjusted 110 Industrial inventories seasonally adjusted 111 108 109 106 107 105 106.5 104 103 101 99 97 95 102.3 102 100 98 96 Source: FGV 11
Stock Exchange Index (Ibovespa) Sector Shares of Ibovespa Index (% Change in 2012) Weight Retail Logistics Others* Manufacturing Financials Ibovespa Index Mining Real Estate Telecommunications Electricity & Utilities Oil & Gas -25.0-27.5-15.0-4.3 23.4 21.0 20.3 12.1 7.4 4.1 42.5 11.5 4.2 1.5 11.3 20.4 100 13 11.6 3.8 6.6 16.3 * Others: Sugar & Ethanol and Health Care. -40-30 -20-10 0 10 20 30 40 50 Source: BM&F Bovespa / Infomoney 12
R$ billion US$ billion Corporate Balance Sheets in Better Shape Jan/11 2001 2002 Apr/11 2003 Jul/11 2004 2005 Oct/11 2006 Jan/12 2007 2008 Apr/12 2009 Jul/12 2010 2011 Oct/12 2012 Domestic Corporate Bond Issuances 100 80 60 40 20-91 Domestic Bond Issuances in 2012 Purpose 9 19 22 50 Refinance Liabilities Investment Project Implementation Working Capital 12 10 8 6 4 2 0 Foreign Bonds and Loans Foreign Bonds and Loans Maturities 100% 27 80% 47 47 44 68 60% 29 40% 19 16 39 20% 45 34 37 31 18 0% 0 2008 2009 2010 2011 2012 longer than 3yrs. betw. 1 and 3yrs. 1yr. or shorter Source: BCB / Anbima 13
million tons Record Grain Crop Expected in 2013 185 180 175 170 165 160 155 150 145 140 135 130 125 120 production of grains 2013/2012 = 14% 2007 2008 2009 2010 2011 2012 2013* 160 162 184 *Jan 13 estimate Source: Conab 14
Exchange Rate Policy Flexible exchange rate First line of defense in the presence of shocks International reserves accumulation, as market conditions allow Provision of forex liquidity in case of market disruption Mitigate excessive volatility 15
Jan 10 May 10 Sep 10 Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12 Jan 13 Jan 10 May 10 Sep 10 Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12 Jan 13 Jan 02 Jan 04 Jan 06 Jan 08 Jan 10 Jan 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Exchange Rate 4.5 Exchange Rate (BRL / USD) 2.15 Exchange Rate (BRL / USD) 4.0 3.5 3.0 2.10 2.05 2.5 2.0 1.5 2.00 1.95 1.0 1.90 35 Exchange Rate Volatility (1-Month ATM Implied) 35 Exchange Rate Volatility (1-Month ATM Implied) 25 25 15 15 5 5 BRL EUR JPY BRL MXN AUD RUB Source: BCB / Bloomberg *Up to February 18th 16
Reforms to Boost Growth Tax reforms to simplify the tax system and reduce costs Payroll tax cuts Public sector pension reform Tax-advantaged bonds for infrastructure and R&D investment Reduce electricity costs due to lower taxes and renewal of concessions Measures to increase competitiveness and investments Building a skilled labor force (science without frontiers and pronatec) Concessions and PPPs (private sector oriented) Highways, railroads, ports and airports 17
Investment Opportunities Expanding consumer market share A significant share of low income groups joined the middle class Major investment opportunities Expanding and upgrading infrastructure Vast reserves of mineral commodities Offshore oil fields ( pre-salt layer) Potential to expand cultivated area Major international sports events (FIFA World Cup and Olympics Games) 18
million people Growing Middle Class Expanding Consumer Market Social Stratification 200 E D C A/B 7.6% 13 11.8% 23 14.9% 29 150 100 37.6% 66 55.1% 105 60.2% 118 50 0 26.7% 28.1% 47 20.3% 39 16.4% 32 49 12.9% 25 8.6% 17 2003 2011 2014* *FGV forecast Source: FGV 19
Concessions Program Next Steps in 2013 Airports auctions scheduled for September Rio de Janeiro (Galeao) Belo Horizonte (Confins) Ports Concession auctions for new public ports: Manaus (AM), Imbituba (SC), Ilheus and Aguas Profundas (ES) Re-auction over 50 privately operated terminals in public ports Highways 7,500 km (4,660 miles) in 9 projects for 30 years Railways 10,000 km (6,214 miles) in 12 projects for 25 years 20
Brazil is Leading Recipient of FDI 2010 2011 2012 USA 197.9 USA 226.9 USA 146.7 China 114.7 China 124.0 China 119.7 Belgium 85.7 Belgium 103.3 Hong Kong 72.5 Hong Kong 82.7 Hong Kong 96.1 Brazil 65.3 UK 50.6 Brazil 66.7 UK 62.5 Singapore 48.6 Australia 65.8 France 58.9 Brazil 48.5 Singapore 64.0 Singapore 54.4 Germany 46.9 Russian 52.9 Australia 48.5 Russian 43.3 UK 51.1 Canada 47.2 Ireland 42.8 Canada 41.4 Russian 44.1 Spain 40.8 France 40.9 Ireland 39.6 Australia 35.2 Germany 40.4 India 27.3 Switzerland 32.5 Italy 34.3 Chile 26.4 France 30.6 India 31.6 Luxembourg 22.6 Saudi Arabia 29.2 Spain 29.5 Belgium 19.3 0 50 100 150 200 0 50 100 150 200 0 50 100 150 Source: UNCTAD 21
Brazil Economic Overview Alexandre Tombini Governor 22
Glossary ABDIB ANBIMA BCB Conab CNI FGV IBGE MTE UN UNCTAD Brazilian Association of Infrastructure and Basic Industries Brazilian Financial and Capital Markets Association Central Bank of Brazil National Food Supply Company National Confederation of Industry Getulio Vargas Foundation Brazilian Institute of Geography and Statistics Ministry of Labor United Nations United Nations Conference on Trade and Development 23