Brazil and Latin America Economic Outlook

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Brazil and Latin America Economic Outlook
Minister Paulo Bernardo Washington, June 6th,
2009
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• Presentation
• Impacts of the Economic Crisis
• Brazilian Economic Situation
• Counter-Cyclical Public Policies
• Forecast for 2009

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From 2003 to 2008, brazilian economy has grown
27,4, an average of 4,1 per year.
Real GDP Growth ( py)
Source IBGE.
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World GDP Growth (Annual percent change)
Source FMI (WEO) Elaborated by MF/SPE
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BRAZIL CONTRACTION IN THE 4Q OF 2008 AND
RECOVERY IN THE 1Q OF 2009
Source IBGE, elaboratted by MF/SPE
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Source JP Morgan GDW (April 9th)
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Favorable Macroeconomic Conditions

• Low inflation
• Sound fiscal policy
• Low external vulnerability
• Strong banking sector
• Large domestic market

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10 years of Inflation Targeting
/ Market Expectations (Focus 04/17/09). Sources
IBGE and BCB
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Fiscal policy consistency
Primary Surplus
of GDP
Nominal Deficit
Source Central Bank
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Commitment to a Sustainable Fiscal Policy has led
to positive results
Net Debt of the Public Sector ( of GDP)
Source Central Bank
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Debts Profile has changed
Others
Pre-Fixed

Price Index
Exch. Rate
Selic
months
Duration
Source Central Bank
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Better Fiscal Performance (Deficit as GDP)
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INTERNATIONAL RESERVES(US bi)
Source Central Bank
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TRADE BALANCE(US billions)
/ Market Expectations (Focus 07/03/09). Source
BCB
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BIS Capital Ratio (as of December 2007, )
Source Average from 10 larger banks at The
Bankers magazine- Top 1000 world banks, July/
2008. Elaborated by Febraban
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And, in conjunction with the Bolsa Família
Program, it has allowed significant social
mobility. Brazil today is a middle class country.
Development of Economic Classes (percentage of
population between 15 and 60 years old)
Source CPS/FGV (IBGE).
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... It has contributed, in conjunction with
inflation control, to recover the purchasing
power of the population.
percentage of the minimum wage expense in
acquiring the basic food basket
Source Dieese and MTE.
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Counter-CyclicalMacroeconomic Policy

• Monetary and Credit policies
• Reduction in reserve requirements, cuts in the
  basic interest rate and increase in credit supply
  from state-owned banks, deposit guaranties
• Fiscal policy
• Tax cuts, social programs, public investment and
  temporary reduction in the primary surplus
• Financial support to regional integration
• Increase in the CCR (Agreement on Reciprocal
  Credit Compensation System of Payments between
  Latin American Central Banks) limit, from US 120
  million to US 1.5 billion

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Ex-ante Real Interest Rates ( per year)
/ 360-day rate deflated by expected
inflation Sources BCB and BMF.
Elaborated by MF/SPE.
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Federal Government and Petrobras Investment (
of GDP)
/ Projections. Sources MF/STN and MP/DEST.
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Temporary Value Added Tax Cuts in

• Automobiles and Trucks (IPI)
• Construction Material (IPI)
• Motorcycles (COFINS)
• Household Appliances (IPI)

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World Crisis lower Impact on Brazilian Internal
Auto Market (tsd units)
Autovehicles Market Jan Feb (tsd units)
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Financial Assistance

• Circulating Capital for the Agribusiness sector
• Anticipation of transfers to Municipalities
• Special credit line for long-term investment by
  States

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Minha Casa, Minha Vida The Program Minha Casa,
Minha Vida (My House, My Life), launched in March
of this year, aims to finance the construction of
1 million homes, at a cost of about 60 billion,
for families with incomes of up to ten minimum
wages, in partnership with states ,
municipalities and private enterprise
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Brazil - Perspectives for 2009

• Slow economic growth
• Deceleration in the 1st semester
• Acceleration in the 2nd semester
• Foreign finance
• Reduction in the current-account deficit
• Lower but positive capital inflows
• Stable international reserves
• Labor market and domestic demand
• Positive job creation
• Resumption of credit expansion

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Early improvements

• Stable commodities prices
• Rising credit levels (though insufficient) and
  falling interest-rate costs (though still high)
• Increase in economic activity in comparison to
  the 4th quarter of 2008

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Source ONS
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The international crisis has affected in
different ways Latin America however not evenly.

• IMPACTS
• Slowdown of exports
• Price fall of primary goods
• Decrease of money remittance
• Less tourist inflow
• FDI reduction
• Cost increase of foreign credit
• Downfall of international lending availability

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Latin America Measures against crisis

• Monetary and Financing Policies
• Reduction and flexibilization of reserves
  requirements
• Provision of marketability in local currency
• Fiscal Policy
• Tax cuts
• Increase and/or anticipation of infrastructure
  expenditures
• Exchange Rate and Foreign Trade Policies
• Provision of marketability in foreign currency
• Export financing
• Credit with financial institutions
• Focal Policies
• Housing
• Farming and Stockbreeding
• Industry
• Tourism

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Fiscal Stimulus Packages
Source IMF
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Looking Ahead

• Latin American will be less affected than other
  regions in the World
• Commodities prices recovery
• A stronger macroeconomic position than was in the
  past
• Quick recovery needs
• Cooperation with Financial International
  Organization
• Effective counter-cyclical policies
• FDI attraction ability.
• Rising its importance in the World
• The most important energy source
• Macroeconomic stability
• Consolidated democracy.

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Thank you!
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