the “three adjustments” and growth outlook€¦ · 1 the “three adjustments” and growth...
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11
The “Three Adjustments” and Growth Outlook
New York
June 27, 2016.
Tony Volpon**
*These remarks are those of the author and do not necessarily reflect those of the Central Bank of Brazil.
22
External Adjustment
Sli
de
3
Source: BCB. Note: 15-currency basket.
Jun
e9
4=
10
0
90.0
171.0
129.4
107.7
92.7
60
80
100
120
140
160
180A
pr-
00
Ap
r-0
2
Ap
r-0
4
Ap
r-0
6
Ap
r-0
8
Ap
r-1
0
Ap
r-1
2
Ap
r-1
4
Ap
r-1
6
Real Effective Exchange Rate (REER) - IPCA
10-Year Average 5-Year Average
External Adjustment
Sli
de
4
Source: BCB. Notes: 10-Year Average starting in April 2006 and 5-Year Average in April 2011.
134.1
146.2
Jul-11, 181.9 Jun-14
168.6
Apr-16
127.1
30
50
70
90
110
130
150
170
190A
pr-
99
Ap
r-0
0
Ap
r-0
1
Ap
r-0
2
Ap
r-0
3
Ap
r-0
4
Ap
r-0
5
Ap
r-0
6
Ap
r-0
7
Ap
r-0
8
Ap
r-0
9
Ap
r-1
0
Ap
r-1
1
Ap
r-1
2
Ap
r-1
3
Ap
r-1
4
Ap
r-1
5
Ap
r-1
6
10-Year Average 5-Year Average
Jun
e 9
4 =
10
0
Unit Labor Cost (USD)
External Adjustment
Sli
de
5
Source: Funcex. Note: 12-Month Moving Average.
Au
g2
00
8 =
(In
de
x)
10
0
May-15
100.8
114.6
85
90
95
100
105
110
115
Ma
y-0
9
Ma
y-1
0
Ma
y-1
1
Ma
y-1
2
Ma
y-1
3
Ma
y-1
4
Ma
y-1
5
Ma
y-1
6
Exports VolumeMay-15
127.3
101.8
70
80
90
100
110
120
130
140
Ma
y-0
9
Ma
y-1
0
Ma
y-1
1
Ma
y-1
2
Ma
y-1
3
Ma
y-1
4
Ma
y-1
5
Ma
y-1
6
Imports Volume
External Adjustment
Sli
de
6
External Adjustment
Source: MDIC/Secex. Note: P = Partner’s share in 2015.
Exports and Imports by Trade Partners
Exports – Quantum Change (%) Ex-Oil Imports - Quantum Change (%)
6.7
16.5
7.6
32.8
4.4
8.4
15
4.0
-9.1
2.4
9.0
0.6
5.5
4.4
-10 0 10 20 30
Latam Ex-Argentina (P=13.8%)
Argentina (P=6.7%)
Asia Ex-China (P=14.5%)
China (P=18.6%)
USA (P=12.7%)
EU (P=17.8%)
Total (P=100%)
Jan-May 2015/Jan-May 2014
-11.9
-14.1
-32.5
-32.1
-23.1
-15.1
-22.1
-10.2
-17.6
-14.0
-7.6
-15.0
-10.7
-11.7
-35 -30 -25 -20 -15 -10 -5 0
Latam Ex-Argentina (P=8.7%)
Argentina (P=6.8%)
Asia Ex-China (P=15.6%)
China (P=20.3%)
USA (P=15.6%)
EU (P=23.3%)
Total (P=100%)
Jan-May 2016/Jan-May 2015
Sli
de
7
41.750.8 50.1 46.0 42.6 40.0
2016:
189.9
244.5
2016:
148.3
209.5
0
50
100
150
200
2502
00
0
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
*
20
16
**
20
17
**
20
18
**
20
19
**
20
20
**
Trade Balance Exports Imports
External Adjustment
Sources: MDIC/Secex; BCB (Focus). Prepared by Secre/Direx.
US
D B
illi
on
Trade Balance Forecast for 2016: USD 51 Billion (**).
**Market Expectations (Median)
2016 to 2020
*12 months until May 16;**as of June 17th (refers to BPM6).
Sli
de
8
International ReservesOn 31 Dec 1999
6% of GDPUSD 36.3 Billion
External Adjustment
Source: BCB. Note: New methodology as of 1995. (*): Forecast as of 24th May, 2016 (Press Note).
% o
f G
DP
US
$ B
illion
-2.1
-0.5
1.4
0.3
-0.8
-0.4
1.6
-0.2-0.3
-2.4-2.8
-3.5
-3.9
-4.3
-3.8
-4.2
-1.6
0.7
1.71.5
1.2
0.0
-1.8-1.6
-3.4
-3.0 -3.0 -3.0
-4.3
-3.3
-1.5
-120
-100
-80
-60
-40
-20
0
20
-5
-4
-3
-2
-1
0
1
21
98
6
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
*
Current Account/GDP(lhs) Current Account(rhs)
International ReservesOn 31 Dec 2014
15% of GDPUSD 363.6 Billion
New Methodology
99
Monetary Adjustment
Sli
de
1
0
Source: BCB; IBGE.
Monetary Adjustment
9.3
14.7
7.5
10.9
6.8
0
2
4
6
8
10
12
14
16
18
20M
ay-
10
Au
g-1
0
No
v-1
0
Fe
b-1
1
Ma
y-1
1
Au
g-1
1
No
v-1
1
Fe
b-1
2
Ma
y-1
2
Au
g-1
2
No
v-1
2
Fe
b-1
3
Ma
y-1
3
Au
g-1
3
No
v-1
3
Fe
b-1
4
Ma
y-1
4
Au
g-1
4
No
v-1
4
Fe
b-1
5
Ma
y-1
5
Au
g-1
5
No
v-1
5
Fe
b-1
6
Ma
y-1
6
YO
Y C
ha
ng
e (
%)
CPI (IPCA) and the Main Components
IPCA Food at Home Services Regulated Industrial Goods
Sli
de
1
1
Source: BCB; IBGE.
Monetary Adjustment
Jan-16; 10.71
9.3
8.2
2
3
4
5
6
7
8
9
10
11
12
Ma
y-1
0
No
v-1
0
Ma
y-1
1
No
v-1
1
Ma
y-1
2
No
v-1
2
Ma
y-1
3
No
v-1
3
Ma
y-1
4
No
v-1
4
Ma
y-1
5
No
v-1
5
Ma
y-1
6
YO
Y C
ha
ng
e (
%)
IPCA and Core IPCA (MS, EX2 and DP)
IPCA Core IPCA (Average)
Mar-15
73.5
Nov-15
78.02
63.0
69.9
45
50
55
60
65
70
75
80
85
Ma
y-1
0
No
v-1
0
Ma
y-1
1
No
v-1
1
Ma
y-1
2
No
v-1
2
Ma
y-1
3
No
v-1
3
Ma
y-1
4
No
v-1
4
Ma
y-1
5
No
v-1
5
Ma
y-1
6
%
IPCA - Diffusion index
Diffusion Index Diffusion Index (12M)
Sli
de
1
2
Monetary Adjustment
Source: IBGE. (*): Prepared by BCB.
% i
n 1
2 m
on
ths
8.2
9.0
8.0
7.5
6
7
8
9
10
11Ju
l-1
3
Se
p-1
3
No
v-1
3
Jan
-14
Ma
r-1
4
Ma
y-1
4
Jul-
14
Se
p-1
4
No
v-1
4
Jan
-15
Ma
r-1
5
Ma
y-1
5
Jul-
15
Se
p-1
5
No
v-1
5
Jan
-16
Ma
r-1
6
Ma
y-1
6
Services (Total) Labor Intensive Other Services
Services Inflation – IPCA*
Sli
de
1
3
7.08
5.50
5.00
4.50 4.50
7.62
6.00
5.40
5.00 5.00
7.25
5.50
5.00
4.50 4.504.5
2.53
6.56
2
3
4
5
6
7
8
2
4
6
8
2016 2017 2018 2019 2020
An
nu
al In
flat
ion
Rat
e (
%)
01/18/2016 02/17/2016 06/17/2016
Monetary Adjustment
Source: BCB/Focus. Note: The CMN set the inflation target until 2017 at 4.5%, and narrowed the target interval to +/-1.5pp from +/-2.0pp.
Median of Market Expectations (Focus Report)2017-2020
Sli
de
1
4
0
5
10Ju
n 1
2
Jun
13
Jun
14
Jun
15
Jun
16
Real Interest Rate (ex-ante)
Source: BM&FBovespa; BCB.
Monetary AdjustmentA
nn
ua
l C
ha
ng
e (
%)
360-day market rate discounted by the IPCA expected for the next 12 months (Focus)
June 176.9
1515
Fiscal Adjustment
Sli
de
1
6
Fiscal Adjustment
Source: BCB.
% o
f G
DP
(A
ccu
mu
late
d i
n 1
2 M
on
ths)
(-) = Surplus; (+) = Deficit
10.1
7.8
2.3
-5
-1
3
7
11A
ug
-08
De
c-0
8
Ap
r-0
9
Au
g-0
9
De
c-0
9
Ap
r-1
0
Au
g-1
0
De
c-1
0
Ap
r-1
1
Au
g-1
1
De
c-1
1
Ap
r-1
2
Au
g-1
2
De
c-1
2
Ap
r-1
3
Au
g-1
3
De
c-1
3
Ap
r-1
4
Au
g-1
4
De
c-1
4
Ap
r-1
5
Au
g-1
5
De
c-1
5
Ap
r-1
6
Nominal Fiscal Balance Nominal Interests Primary Balance
Sli
de
1
7
Fiscal Adjustment
Source: Ministério da Fazenda (MF). Novo Regime Fiscal (Nota à Imprensa), avaliable at MF’s website.
Proposal for a new fiscal regime (Constitutional Amendment) to limit public spendingincreases for the next 20 years and strengthen the public finances. The main measure is a ceilingfor the public spending, wherein the spending of the current year would not exceed the previousone adjusted by last year inflation.
Concepts
Total Primary Expenses: real growth willnot be allowed from 2017 on;
All Government Expenses (includingLegislative and Judicial) will be readjustedby CPI of last year (IPCAt-1).
Duration
20 years. Possibility of reviewing the rulefrom the 10th year ahead.
General
On the first year (2017), the expenses limitwill be equal to the last year expensescorrected by the last year inflation;
Minimum health and education expenseswill be readjusted by variation of last yearinflation, and no more by revenues.
* In case of overshooting these ceiling limits, the government entity will be prohibited of readjusting thesalary of public employees and/or create new jobs that increase the amount of expenses.
Sli
de
1
8
73.3
78.6
81.7
84.4
86.5
66.5
72.7
77.078.4 79.1 78.5
60
70
80
90
2015 2016 2017 2018 2019 2020
Pu
bli
c D
eb
t(%
of
GD
P)
Paths for the General Government Gross
Debt (DBGG)*
Extended Baseline Alternative Scenario
Fiscal Adjustment
Source: BCB (historical series). (*): Projections are based on assumptions, parametersand simulations from the author and do not necessarily reflect those of the Central Bankof Brazil or those of the federal government.
Extended Baseline Scenario
i) Current fiscal rules;
ii) As a reference, thebaseline scenario of theFocus-Market Report .
Alternative Scenario
i) Adjustments Rules:
To limit annual spendinggrowth to the inflation rate ofthe prior year (IPCAt-1);
Resources allocated to thearea of social security limitedby IPCA + 2%;
R$100 billion repayment from
the Brazilian Development
Bank (BNDES) to the National
Treasury.
ii) Assumption that theses
adjustments will improve national
economic performance (GDP).
Two Scenarios Based on a Range of Assumptions*
1919
GrowthOutlook
Sli
de
2
0
Source: BCB (Focus Report). Note: Total GDP is projected at market prices.
Brazil: Growth Expectations for 2017
06/01/2016
0.60%
06/17/2016
1%
0
0.25
0.5
0.75
1
% -
An
nu
al
Ch
an
ge
The Median Market Forecast for 2017 Real GDP
Sli
de
2
1
65,9
75,3
69,2
68,1
69,4
60
65
70
75
80
85
90
95
100
105
Ma
y-1
3
No
v-1
3
Ma
y-1
4
No
v-1
4
Ma
y-1
5
No
v-1
5
Ma
y-1
6
ICC (Consumer)
ICI (Manufacturing)
ICS (Services)
ICST (Construction)
ICOM (Commerce)
Source: FGV.
FGV Confidence IndicesIn
de
x:
Fe
b-2
01
3 =
10
0, s
.a.
Sli
de
2
2
Source: Bloomberg and Datastream (for raw data). (*): Prepared by BCB/Derin based on author’s methodology.
Financial Condition Index (FCI)*
-3
-2
-1
0
1
2
3
20072008
20092010
20112012
20132014
20152016
FCI Mexico (sd)
Tighter
-3
-2
-1
0
1
2
3
20052006
20072008
20092010
20112012
20132014
20152016
FCI South Africa (sd)
Tighter
-3
-2
-1
0
1
2
3
20052006
20072008
20092010
20112012
20132014
20152016
FCI Brasil (sd)
Tighter
-3
-2
-1
0
1
2
3
20052006
20072008
20092010
20112012
20132014
20152016
ICF Rússia (dp)
Aperto
Sli
de
2
3
Source: Bloomberg and Datastream (FCI’s raw data). (*): Prepared by BCB/Derin based onauthor’s methodology; (**): PIB YoY from IBGE.
FCI* and GDP**
Leading properties = 3 months
-3
-2
-1
0
1
2
3
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
BRAZIL RUSSIASOUTH_AFRICA MEXICO
Financial Condition Index (sd)
Tighter
-8.00
-4.00
0.00
4.00
8.00
12.00
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
MODEL_ESTIMATION PIB YoY
in %
Brazil (%YoY)
------ Brazil FCI ------ Brazil GDP (YOY)
2424
Thank you
Tony Volpon
New York
May 27, 2016.