3 rd Brazil - China Capital Markets Forum Ilan Goldfajn Chief Economist, Itaú Unibanco Partner, Itaú BBA August 30 th, 2012
In Brief World: consolidating a scenario of low growth. Slow recovery in the second half. China: sustainable moderate growth. Brazil: delayed recovery in economic activity leaves room for further monetary, fiscal and quasi-fiscal stimuli. We expect a mild rebound following 3Q12. Brazil and China must rebalance their growth models. Brazil should invest (and save) more, while China should rebalance its growth model towards more consumption. Commerce and financial transactions between Brazil and China are set to keep growing: complementary trade portfolios, savings surplus/deficit. 2
World: Consolidation of Slow Growth 2011 2012E 2013 World 3.9 2.9 3.2 US 1.7 2.1 1.5 Euro Zone 1.5-0.6 0.4 Japan -0.7 2.2 0.9 China 9.2 7.8 8.0 Source: Haver, CEIC, Bloomberg, Itaú Unibanco 3
World: Consolidation of Slow Growth GDP* (quarterly growth, seasonally adjusted) 1,4% 1,2% 1,16% 1,0% 0,8% 1,03% 1,02% 0,88% 0,78% 0,87% 0,78% 0,78% 0,74% 0,75% 0,75% 0,81% 0,82% 0,65% 0,67% 0,6% 0,56% 0,4% 0,2% 0,0% Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 * Weighted average (US, Euro Zone, China and Japan) Source: Haver, CEIC, Bloomberg, Itaú Unibanco 4
China: Important Contribution to Global Growth Share of Global GPD (PPP) China s Contribution to Global Growth (percentage points) 25% 1,80 16% 23% 21% 1,60 14% 19% 18,2% 1,40 12% 17% 15% 17,1% 1,20 10% 8% 13% 11% 9% 1,00 0,80 6% 4% 7% 0,60 2% 5% 2000 2004 2008 2012 2016 0,40 2000 2004 2008 2012 2016 0% China United States Contribution to Global Growth GDP Growth(rhs) Source: IMF and Itaú Unibanco 5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F China: Sustainable Moderate Growth 15,0% 12,5% 10,0% 7,5% 5,0% 2,5% 0,0% -2,5% GDP Growth GDP Share (Demand) 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% -5,0% 0% 2001 2003 2005 2007 2009 2011 Total Consumption Net Exports Gross Capital Formation GDP Private Consumption Government Consumption Gross Capital Formation Net Exports Sources: CEIC and Itaú Unibanco 6
China: Smaller Current Account Surplus Current Account (% of GDP, 12m) Trade Balance (% of GDP, 12m) 12% 20% 10% 8% 6% 4% 15% 10% 5% 2% 0% -2% -4% 1996 2000 2004 2008 2012F Goods Services services Income Transfers Current Account 0% -5% -10% 2001 2003 2005 2007 2009 2011 Misc Manufactured Goods Machinery Industrial Materials Primary Sources: CEIC and Itaú Unibanco 7
Commodities: Real Prices Continue to Grow in the Long Term Grains: necessity to stimulate the supply of land and new technologies. Metals: correlation with chinese growth. Energy: more demand from emerging countries, rising production costs, geopolitical risk. 300 280 260 240 220 200 180 160 140 120 100 Commodities Projection CRB Index in Real Terms 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 300 280 260 240 220 200 180 160 140 120 100 Sources: Itaú Unibanco and Bloomberg 8
Commodities: Scarce Water and Land are Relevant Factors Available Land for Agriculture (millions of hectares) Arable Land in Use, 1997-99 Total Suitable for Rainfed Crop Production Latin America and Caribbean Sub-Saharan Africa East Asia South Asia Near East Industrial and North Countries Africa Transition Countries Source: Itaú Unibanco, FAO and Fisher et.al.(2000) 9
Commodities: Water is a Scarce Resource in Most of the Emerging Countries Areas With Physical/Economic Scarcity of Water Physical Scacity Close to Physical Scarcity Economic Scarcity Little or None Scarcity Not Estimated Source: Comprehensive Assessment of water Management in Agriculture, 2007 10
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012e Brazil: Foreign Direct Investment Remains Robust Foreign direct investment remains robust (US$ 8.4 bi in July). 70 Accumulated FDI (in billions of dollars) Yearly FDI (in billions of dollars) 70 60 60 50 50 40 38,1 40 30 30 20 20 10 10 0 jan feb mar apr may jun jul aug sep oct nov dec 0 2008 2009 2010 2011 2012 Source: Haver /Elaboration: Itaú Unibanco 11
Brazil: Monetary, Fiscal and Parafiscal Stimuli to Growth 18 16 Real Interest Rates (%) (Interest rate x 12 month inflation expectation) Federal Expenditure (% of GDP, jun) 4,2% Payroll 4,3% 0,4% Subsidies 0,3% 3,3% Other 3,2% 2012 2011 14 Investment 1,5% 1,3% 12 Investment ex. MCMV Transfers 1,1% 1,1% 8,2% 7,7% 10 Total Expenditure 17,6% 16,7% 8 Public Sector Share in Outstanding Loans 6 4 2 0 2003 2005 2007 2009 2011 2013 2008 2009 2010 2011 2012 Source: Itaú Unibanco and Secretaria do Tesouro Nacional 12
China Japão Japan México Mexico Peru Chile Argentina Colombia Colômbia Canadá Canada Brasil Brazil África South do Africa Sul Reino Unido UK USA Brazil Saves too Little, China Saves too Much Domestic Savings (Share of GDP, 2011) 54 24 23 23 22 22 19 17 16 13 11 10 Source: Itaú Unibanco 13
Brazil: Lower Interest Rates and more Investment in the Long Term Real Interest Rates Investment (% GDP) 5,5% 5,0% 4,5% 4,0% 3,5% 3,0% 2,5% 2,0% 1,5% 22,0% 21,5% 21,0% 20,5% 20,0% 19,5% 19,0% 18,5% 1,0% 2010 2012 2014 2016 2018 2020 18,0% 2010 2012 2014 2016 2018 2020 Source: IBGE, BCB e Itaú Unibanco 14
Brazil: Lower Interest Rates Allow Smaller Nominal Deficit Government Balance (% of GDP) 6,0 4,0 2,0 2,6 2,0 2,9 3,2 3,2 3,3 3,9 2,0 1,9 2,2 2,8 2,6 2,7 2,0 1,7 1,6 1,5 1,2 1,2 0,0-2,0-4,0-3,7-4,2-3,6-2,8-1,6-3,3-3,5-2,2-1,5-1,4-1,7-1,8-1,7-1,7-1,7-1,7-1,7-6,0-5,1-8,0-6,6 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Primary Balance Nominal Balance Source: BCB and Itaú BBA 15
Bilateral Trade Grows; China is Brazil s Biggest Trade Partner Brazil and China Bilateral Trade - 12 m, US$ bi 50 Share in Brazilian International Trade 12m (exports + imports) 30% 45 40 35 30 25 25% 20% 15% 20 15 10 5 0 2002 2004 2006 2008 2010 2012 10% 5% 0% 2002 2004 2006 2008 2010 2012 Brazilian Exports Brazilian Imports China European Union US Source: Itaú Unibanco 16
Food and Beverage Oil and Derivatives Other Materials Intermediates Textile, Clothing, Footwear Machinery, Transportation, Electronics Other Iron Ore and Concentrates Agriculture Other Durable Consumer Goods Passenger Vehicles Capital goods Other Intermediate Goods Fuels Non-Durable Consumer Goods Trade Portfolios are Complementary China: Trade Balance Breakdown (US$ mm) Brazil: Trade Balance Breakdown (US$ mm) 250.000 Primary Goods 50.000 40.000 Primary Goods 150.000 30.000 50.000 20.000 Manufactured 10.000-50.000 0-150.000 Manufactured -10.000-20.000-250.000 Source: Itaú Unibanco 17
Appendix 18
Brazil: What We Expect in the Short Term Payment Balance 2011 2012 2013 Current Account -2.1-2.2-2.4 Exchange Rate 1.84 1.95 1.90 ICI* (eop, yoy) -18% 27% -11% * Itaú Commodities Index, dollar values Economic Activity GDP % 2.7 1.9 4.5 Inflation IPCA % 6.5 5.2 5.3 Monetary Policy Selic Rate % 11.0 7.0 8.5 Fiscal Primary Surplus 3.1 2.8 2.6 Source: Itaú Unibanco and BCB 19
What We Expect in the Long-Term? Source: Itaú Unibanco 20
China: Less Room and Less Willingness for Reaction Total Social Financing (% of GDP) Government Net Debt (% of GDP) 200% 60% 180% 160% 140% 50% 40% 120% 100% 30% 80% 60% 40% 20% 10% 20% 0% 2001 2003 2005 2007 2009 2011 0% 2001 2003 2005 2007 2009 2011 Loans in Local Currency Others Central Govt Debt Local Govt Debt Others Sources: CEIC and Itaú Unibanco 21
2007.I 2007.III 2008.I 2008.III 2009.I 2009.III 2010.I 2010.III 2011.I 2011.III 2012.I Brazil: Labor Market Remains Heated Conditions are Loose in Production, Tight in Employment Lack of Qualified Workers* 4% 35 2% 30 0% 25-2% 20-4% -6% -8% Hiato Output Produção gap Hiato Employment Empregogap 15 10 5 0-10% 2003 2005 2007 2009 2011 * Percentage of companies that see the lack of qualified workforce as a bottleneck to growth. Quarterly survey by CNI, 2nd quarter of 2012. Source: CNI, IBGE and Itaú Unibanco 22
2007 T4 2008 T1 2008 T2 2008 T3 2008 T4 2009 T1 2009 T2 2009 T3 2009 T4 2010 T1 2010 T2 2010 T3 2010 T4 2011 T1 2011 T2 2011 T3 2011 T4 2012 T1 2012 T2 2012 T3 2012 T4 Brazil: Forecasting a Rebound in the Second Half GDP Growth (quarterly, seasonally adjusted) 5% 4% Fiscal and Monetary Stimuli 3% 2,6% 2,7% 2,1% 2% 1% 0% -1% 2,0% 1,8% 1,5% 1,6% 1,5% 1,2% 0,9% 1,0% 0,9% 0,5% -0,1% 0,2% 0,2% 0.5% 1.2% 1,4% -2% -1,5% -3% -4% -5% -3,9% Slower-Than-Expected Recovery Source: IBGE and Itaú Unibanco 23