brazilian agency for industrial development - abdi 1 the brazilian economy: recent performance and...

1

Brazilian Agency for Industrial Development - ABDI

The Brazilian Economy:Recent Performance and

New Challenges

Alessandro Teixeira

September, 2006

2


The progress in 2003-2006In the last four years the Brazilian economy improved substantially:

Trade surpluses and reduction of the vulnerability to external shocks

Reduction in inflation

Overall improvement in public finance

Reduction of the country risk premium

Gradual growth acceleration, with high job creation

Continuity of institutional reforms

3


Trade Balance

Source: MDIC Prepared by: MF/SPE.

Since Jul/04 the trade surplus has stabilized at 5.5% of GDP

Exports and Imports in Goods (FOB)(US$ billion, 12-month cumulative basis)

10

30

50

70

90

110

130

ago95

ago96

ago97

ago98

ago99

ago00

ago01

ago02

ago03

ago04

ago05

ago06

Exports

Imports

84,4

130,4

Balance46,0

4


Source: MDIC/SECEX, IMF and BCB (Focus -14.07.2006) Prepared by: MF/SPE.

(*) Brazil: preliminary data by MF/SPE; World: IMF (World Economic Outlook, april 06).

World Trade and Brazilian Exports (Growth rate acummulated in 12 months – in dollars)

-8,6

0,7

13,2

7,7

12,9

6,8

2,7

11,0

-6,1

5,73,7

21,1

32,0

14,0

3,10,1

19,4

4,4

-1,7

3,6

13,2

-3,8

12,59,9

22,6

14,7

-3,5

8,7

13,9

7,1 9,2

21,0

16,2

4,7

-10

-5

0

5

10

15

20

25

30

3519

90

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

*

Brazilian Exports World Exports

5


Net external debt / exports

Source: BCB. Prepared by: MF/SPE

External solvency started to improve after the 1999 devaluation.

1,9

3,2

3,6

3,12,8 2,7

2,1

1,4

0,90,6

2,32,0

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6 *

(*) forecast : July

6


Consumer Inflation (IPCA) and Inflation Targets(12-month cum.)

Sources: IBGE and BCB. Prepared by: MF/SPE.

Market expectations for 2006 (3.32%) and 2007 (4.4%) are even lower than the inflation targets set by the Government (4.5%).

Dec/055.69

Dec/047.60

Dec/039.30

%

02468

101214161820

dez02

abr03

ago03

dez03

abr04

ago04

dez04

abr05

ago05

dez05

abr06

ago06

dez06

Aug/063.84

Market forecast:Dec/06=3,32 Dec/02

12.53

7


Increase in the Public-Sector Primary Surplus(as % of GDP)

Source: BCB Prepared by: MF/SPE

Average of 1999-2002: 3.5% of GDP

Average of 2003-2006: 4.5% of GDP

+ 1.0% of GDP

4,834,594,253,89

3,643,19

4,33

3,46

0,0

1,0

2,0

3,0

4,0

5,0

6,0

99 00 01 02 03 04 05 06

(*) 12 -months (July/06)*

8


Net Debt of the Public Sector(as % of GDP)

Note: 2006 – up to JulySources: BCB. Prepared by: MF/SPE.

After 9 years of growth the debt/GDP ratio started to fall in 2004.

30,633,3 34,4

41,7

48,7 48,8

52,655,5

57,250,351,551,7

20

25

30

35

40

45

50

55

60

95 96 97 98 99 00 01 02 03 04 05 06

9


Sustainable Growth: Employment

Formal Employment: job creation– 12 months accumulated

(Thousand jobs)

Source: MTE/CAGED Prepared by: MF/SPE.

Total job creation will reach 4.6 million in 2003-06

1,2481,254

1,523

645762

0

250

500

750

1,000

1,250

1,500

1,750

2002 2003 2004 2005 2006*

(*) 12-months (July/06)

10


Source: MF/SPE.

Total Payroll in Real Terms The total wage bill has been growing, in real terms, since 2004. Additionally, Government transfers have contributed to an increase in the personal disposable income.

R$ Millions Var. % R$ Millions Var. % R$ Millions Var. %

2002 491.072 143.905 634.977

2003 474.256 -3,4% 148.056 2,9% 622.312 -2,0%

2004 509.964 7,5% 163.361 10,3% 673.325 8,2%

2005 534.094 4,7% 176.517 8,1% 710.611 5,5%

2006 559.007 4,7% 191.237 8,3% 750.244 5,6%

(1) PME (amplification on PNAD's basis)

(2) INSS pensions, unemployment benefit, bolsa-família, FGTS etc.

Work Real Revenue 1 Government Transfers 2 Total

11


Income InequalityReduziu-se a concentração de renda no País

Source:: PNAD / IBGE/IPEADATA Prepared by: MF/SPE

Income inequality, as measured by the Gini index, is falling. Recent market surveys showed an expansion of the middle

class.

Gini Index0,601

0,594

0,6020,600

0,596

0,589

0,572

0,581

0,57

0,58

0,59

0,60

0,61

1995 1996 1997 1998 1999 2001 2002 2003 2004

12


GDP GrowthReduziu-se a concentração de renda no País

Source:: IBGE/IPEADATA Prepared by: MF/SPE

After the disinflation of the past months, GDP growth is accelerating again. The final rate for 2006 should be between 3.5 and 4.0%. For 2007, the Government expectation is an annual growth rate between 4.5 and 5.5%.

dinsinflation of 2003

dinsinflation of 2005-06

GDP growth ratein the past 12 months

3,5%

4,0%

0%

1%

2%

3%

4%

5%

6%

2002-1 2003-1 2004-1 2005-1 2006-1

Forecast for 2006: GDP growth between 3.5% and 4.0%

13


Institutional Reforms Approved

Constitutional Amendments:

Social Security Reform (EC 41 / 2003)

Tax Reform (EC 42 / 2003)

Judicial Reform (EC 45 / 2004)

14


Institutional Reforms Approved

Main Laws Approved

Payroll Credit (Law 10.820) Rural Insurance (Law 10.823) Housing sector (Law 10.931) Innovation (Law 10.973) Agricultural Bonds (Law 11.076) Public-Private Partnerships (Law 11.079) Bankruptcy (Law 11.101)

15


Main Institutional Reforms under analysis(in the Congress or in the Federal Government)

Tax Reform (PEC 285 e 293)

Micro and Small Enterprises (PLC 123)

Credit Report (PL 5870/05)

Opening up of the Reinsurance Market (PLC 249)

Public Sector Pension Fund (Federal Government employees)

Simplified Registration of New Businesses – REDESIM (PL 6529)

16


New Challenges – What are the Goals?

1) Consolidating the new development cycle initiated in 2004: macroeconomic stability with social inclusion

2) Raising the annual GDP growth rate above 5%, while maintaining high job creation

3) Reducing regional inequalities in the country

4) Increasing the openness and the international competitiveness of the Brazilian economy

17


New Challenges – What are the instruments?

1) Macroeconomic Stability

• Inflation targeting;• Fiscal responsibility; and • Floating exchange rates

2) Higher investment

Tax and credit incentives to reach an investment-GDP ratio of 25% in 2010

3) Infrastructure

Reducing costs and stimulating the implementation of new projects in the energy and transportation & logistics sectors

18


New Challenges – What are the instruments?

4) Credit and interest rates

• Reducing the base interest rate• Reducing interest-rate spreads; and• Increasing credit to GDP ratio to 50% by 2010

5) Fiscal Policy

Reducing taxes and Government current expenditures, in terms of GDP, while keeping the primary-surplus target at 4.25% of GDP

6) Institutional Reforms

Carrying tax reform initiatives further

19


The Investment Challenge

Entering a new phase: Moving from modernization of the

existing capacity of production to the increase in the capacity of production

Removing the main barriers to investment: High real interest rates; Cumulative taxes; and Imperfect regulation

20


Gross Fixed Capital Formation(1990 = 100, seasonally adjusted)

Source: IBGE. Prepared by: MF/SPE

Mexican crisis

East Asia, Russian and

Brazilian crisis

Argentine crisis

2002 elections

Expansion initiated in the 3rd quarter of 2006

80

90

100

110

120

130

140

2º T91

2º T92

2º T93

2º T94

2º T95

2º T96

2º T97

2º T98

2º T99

2º T00

2º T01

2º T02

2º T03

2º T04

2º T05

2º T06

21


The Credit Challenge Reducing the base real interest rate to 5% p.a. Reducing interest-rate spreads Increasing the credit-GDP ratio to 50%, with

special emphasis on Long-term investment Consumer credit Agriculture Housing

Accelerating the growth and development of the domestic capital market

22


Credit Operations (as % of GDP)

Source: BCB. Prepared by: MF/SPE

Credit operations have been growing markedly, led by the expansion in personal credit.

Jul/0632.6

22

24

26

28

30

32

34

jan02

abr02

jul02

out02

jan03

abr03

jul03

out03

jan04

abr04

jul04

out04

jan05

abr05

jul05

out05

jan06

abr06

jul06

Jan/0323,9

+ 8.7% of GDP

23


Capital Markets – Primary Issue (R$ million – current values)

(*) Includes promissory notes, CRIs (real estate receivables certificates), and quotas of credit rights investment funds, among others.(**) Up to AugustSource: CVM. Prepared by: MF/SPE.

The value for Jan/Aug 2006 is already higher than the total for 2005.

0

10.000

20.000

30.000

40.000

50.000

60.000

70.000

80.00019

96

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

**

Shares Debentures Other*

24


The New Leading SectorsEnergy:

Oil, Gas, Electric Power, Ethanol and other renewable energy resources

Transport Equipment:Automotive, Rail, Naval, and Aeronautical

Civil Construction:Infrastructure, Housing and Basic Inputs

Innovation and technology:Semiconductors, Software, Pharmaceuticalproducts, Biotechnology, Nanotechnology

and Capital Goods

25


brazilian agency for industrial development - abdi 1 the brazilian economy: recent performance and...

Documents

brazilian agency

industrial development

gdp slide

brazilian economy

gdp source

mfspe world

mfspe average

months july06 slide