September 30, 2020
Americas Society and Council of the Americas
Brazilian Economic Outlook and Agenda BC#
Roberto Campos NetoGovernor of Banco Central do Brasil
2
Sou
rce:
Our
Wor
ld in
Dat
a, 2
5 Se
p/2
020
COVID-19Brazil and other regionsCovid-19: new deaths slowly decreasing
Daily new confirmed deaths, rolling 7-day average
3
7-day rolling average per million – Apr 04 - Aug 22
Sou
rce
: Hea
lth
Min
istr
y
COVID-19The disease across Brazilian regionsNew daily cases per million, 7 - days moving average, 04/Apr – 19/Sep
North
North
Northeast
Northeast
Midwest
Midwest
Southeast
Southeast
South
South
Metropolitan region CountrysideTotal
Sour
ces:
Tho
mso
n R
eute
rs, T
rack
ther
ecov
ery,
BEA
Real GDP
5
0
- 5
-10
-15
-20
-25
-30
-35
p.p.
% (
QoQ
ann
ualiz
ed)
-32.9
Consumption (-25.1 p.p.)
Change in stocks (-4.0 p.p.)
Government (0.8 p.p.)
Investment (-5.4 p.p.)
Net exports (0.7 p.p.)
GDP (QoQ annualized)
4
16q2 17q2 18q2 19q2 2 0q2
GLOBAL ECONOMYCovid-19: Shock and impactsUnited States
Strong decline in economic activity in the 2nd quarter. Recent data suggest consumer spending is returning to the pre-crisis levels
2016 2017 2018 2019 2020 Jul
35
30
25
20
15
10
5
Pe
rso
nal
Sav
ings
Rat
e
%
13-Sep-20.6%
-50
10
0
-10
-20
-30
Tota
l sm
all b
usi
nes
s r
even
ues
( p
erc.
ch
ang
e in
com
par
iso
n to
jan
/20
)
15-Jan 01-Mar 01-Apr 01-May 01-Jun 01-Jul 01-Aug
-40
01/Sep
5
GLOBAL ECONOMYCovid-19: Shock and impactsEurope
The Covid-19 shock was simultaneous, but it affected countries and sectors asymmetrically. Recovery began in May, after severe losses in April
Sour
ce: O
ECD
Sta
tas a
nd B
loom
berg
fore
cast
s at
Se
pte
mbe
r 29
th, 2
020
. Dat
a ar
e se
aso
nally
adj
uste
d.
GDP Retail Sales
Germany Italy France United Kingdom Spain Euro Area
76
80
84
88
92
96
100
2019Q4 2020Q1 2020Q2 2020Q3(f) 2020Q4(f)
Q4
2019
=100
67
72
77
82
87
92
97
102
107
Jan-2020 Mar-2020 May-2020 Jul-2020
Jan
2020
=100
Sour
ces:
NB
S, B
loom
berg
GDP10
8
6
4
2
0
-2
-4
-6
-8
(% Y
oY)
15
Q2
15
Q4
16
Q2
16
Q4
17
Q2
17
Q4
18
Q2
18
Q4
19
Q2
19
Q4
20
Q2
Consumption (2.3 p.p.)Exports (0.5 p.p.)
Investment (5.0 p.p.)
GDP (3.2%)
6
GLOBAL ECONOMYCovid-19: Shock and impactsChina
Fast recovery, although incomplete. Investment is the main driver
Re
tail
Sale
s( %
Yo
Y)
Aug/200.5%
-25-20-15-10
-505
1015
14
12
10
8
6
4
2
0
New
cre
dit
tra
nsa
ctio
ns
RM
B tr
illio
n
jul/17 jul/18 jul/19 jul/20
Banking credit
Others*
*corporate and government bonds, new equity issuances, trusted and entrusted loans
Sour
ce:
Goo
gle,
Tho
mso
n R
eute
rs
7
GLOBAL ECONOMYCovid-19: Shock and impactsInflation
Rise in food prices and education
0
10
20
30
40
50
60
70
-5
-2
1
4
7
10
13
16
201
9-9
201
9-1
0
201
9-1
1
201
9-1
2
202
0-1
202
0-2
202
0-3
202
0-4
202
0-5
202
0-6
202
0-7
202
0-8
Ch
ina
US Euro area India
Colombia Chile China
4.15
-20
-10
0
10
20
30
40
50
201
9-9
201
9-1
0
201
9-1
1
201
9-1
2
202
0-1
202
0-2
202
0-3
202
0-4
202
0-5
202
0-6
202
0-7
202
0-8
US India Mexico
Colombia Chile China
-4
-3
-2
-1
0
1
2
3
4
5
201
9-9
201
9-1
0
201
9-1
1
201
9-1
2
202
0-1
202
0-2
202
0-3
202
0-4
202
0-5
202
0-6
202
0-7
202
0-8
US Euro area China
Mexico Colombia Chile
China
Difference between meat inflationand CPI (p.p.)
Difference between rice inflationand CPI (p.p.)
Difference between education inflation and CPI (p.p.)
8
GLOBAL ECONOMYEmerging Markets
20
25
30
35
40
45
50
55
60
65
70
Brazil Colombia Mexico Soth Africa India Russia
PMI Manufacturing
Apr-20 May-20 Jun-20 Jul-20 Aug-20
Me
xico
Me
xico
Arg
en
tin
a
Arg
en
tin
a
Sou
th A
fric
a
Sou
th A
fric
a
Ru
ssia
Ru
ssia
Bra
zil
Bra
zil
Ind
ia
Ind
ia
Ch
ina
Ch
ina
-11
-8
-5
-2
1
4
7
10
2020 2021
GDP Forecasts
%
Retail sales
%, Y
oY
Sour
ces:
Mar
kit;
Foc
us M
arke
t exp
ecta
tion
s in
Aug
28t
h fo
r B
razi
l an
d Ju
ne I
MF
fore
cats
for
the
othe
r co
untr
ies;
Blo
ombe
rg
Covid-19: Shock and impactsSigns of recovery
-50
-40
-30
-20
-10
0
10
Feb-19 Aug-19 Feb-20 Aug-20
Brasil Chile Colômbia México África do Sul Rússia
9
Spur
ce:
BCB
, Blo
ombe
rg. G
ross
Deb
t: IM
F.
GLOBAL ECONOMYFinancial conditions
Group 1:Malaysia, Indonesia, Poland, Chile and Russia.
Gross Debt/GDP (average) = 35.7%
Group 2:Brazil, South Africa, Turkey, Colombia, Mexico and India.
Gross Debt/GDP (average) = 61.1%2020
AEs Group 1 Group 2
Stan
dar
d-d
evia
tion
s fr
om
th
e m
ean
jan fev mar abr mai jun jul ago
Risk Appetite
0.550.27
-1.71
* Data until Sept 11th.
Financial conditions still restrictive for emerging countries with unfavorable economic fundamentals
Risk Appetite
1.0
0.0
-1.0
-2.0
-3.0
-4.0
jul-19 sep-19 nov-19 jan-20 mar-20 may-20 jul-20 sep-20
10
GLOBAL ECONOMYStock Market Top 5 show strength in the stock market, despite the recent drop. Recovery is uneven. Low interest and default risks harm the financial sector.
R$56,8 bi
2014 2015 2016 2017 2018 2019 2020
30
25
20
15
10
5
0
450
400
350
300
250
200
150
100
50
0
-50
S&P 5354%
S&P 50070%
MSCI EM
71%
S&P 49543%
Top 5 market cap (%) Top 5 increase in the market cap (%)
Top 5 market share (%)
Top 5: Amazon, Apple, Facebook, Google, Microsoft
170
135
100
65
30
Baskets of S&P and reopening
Jan-20 mar-20 may-20 jul-20 sep-20
S&P500
Leasure and tourism
High prob. of default
Stay at home
Financial with higher exposition to interest rates
Sou
rce:
Blo
om
berg
, GS
GLOBAL ECONOMYCovid-19: Shock and impactsLoss provisions
Increase in loss provisions still suggests caution
Sou
rce
: B
loo
mb
erg
11
2005 2007 2009 2011 2013 2015 2017 2019 2005 2007 2009 2011 2013 2015 2017 2019JPMorgan Wells Fargo BofA Citi Santander Deutsche BNP HSBC
30
25
20
15
10
5
0
-5
30
25
20
15
10
5
0
-5
Loss Provisions (US$ bn)
US Europe
GLOBAL ECONOMYImpact on credit marketCredit growth for business
1212
Sou
rces
: BCB
, Dat
astr
eam
, Blo
ombe
rg. B
razi
lian
data
refe
rs to
no
near
mar
ket c
redi
t to
busi
ness
.
EMEs(% Y/Y)
AEs(% Y/Y)
10.5%
6.6%
5.9%
5.5%
13.6%
-5%
0%
5%
10%
15%
20%
25%
30%
Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20
France Spain Germany Euro Area USA
19.1%
11.4%
7.8%
26.5% 26.9%
-5%
0%
5%
10%
15%
20%
25%
30%
Apr-19 Aug-19 Dec-19 Apr-20 Aug-20
Chile Colombia Mexico Peru Brazil
Sour
ce:
IMF
13
% GDP
0
3
6
9
12
15
18
Jap
an
Cana
da US
Bra
zil
Ge
rman
y
Au
stra
lia
Sou
th a
fric
a
UK
Chin
a
Fran
ce
Ko
rea
Sau
di A
rab
ia
Ita
ly
Spa
in
Indo
nesi
a
Arg
en
tin
a
Rus
sia
Turk
ey
Indi
a
Mex
ico
Health
Families
Employment
Companies
Public Investments
Others
GLOBAL ECONOMYFiscal policy responsesFiscal response
Announced measures – comparative view
14
GLOBAL ECONOMYFiscal response x GDP
-
2
4
6
8
10
12
14
16
18Reduction in the expected growth for 2020-2021 (before - after the crisis)
Fiscal answers (announced measures, % of GDP)
% e
p.p
.Fiscal policy responses
Sour
ce: I
MF.
Exp
ecte
d g
row
th b
efor
e th
e pa
ndem
ics:
WEO
O
cto
ber
201
9. ;
Bra
zilia
n gr
owth
=Fo
cus
DOMESTIC ECONOMYPolicy responsesThe roles of monetary and fiscal policies
Monetary and fiscal policies have well-defined roles
15
SolvencyFiscal Policy
If not properly managed, liquidity problems canbecome solvency problems
LiquidityMonetary Policy
DOMESTIC ECONOMYPolicy responsesThe roles of monetary and fiscal policies
Central Bank of Brazil and Ministry of Finance measures
16
Central Bank of Brazil Ministry of Finance
• Monetary and FX policies
• Liquidity and Capital
• Direct transfers
• Tax reliefs and deferrals
• Credit measures
Sour
ce: B
CB
Measures’ impacts
Summary of measures: BCB
17
Updated to 09/25
¹Potencial impact on credit provision.* Credit operations volume potentially benefited by the measure.** New measures.
DOMESTIC ECONOMYFacing the crisisBCB’s response
EMEs’ Comparative Overview
Liquidity Support(% of GDP)
Credit Support (% of GDP)
Sou
rce
s: F
SB/B
CB
–u
p t
o S
ep
tem
be
r 22nd
20.0% Brasil17.5% Brasil
18
Sour
ce:
Blo
om
berg
, BCB
, 202
0 fo
reca
st
1 Year RateStructural reductions
-5
0
5
10
15
20
25
30
2004 2008 2012 2016 2020
Real Public Spendingyoy % change
6.7%post exp. cap
29.8
12.4%pre exp. cap
%%
19
Social Security Reform
DOMESTIC ECONOMYFiscal and monetary policies interaction Room for conventional policies
Brazil: cautious MP actions
0
4
8
12
16
Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Sep-20
Government Expenditure Cap
20
DOMESTIC ECONOMYFX market Volatility in the FX market
Sour
ces:
BCB
and
B3
• In other markets, the growth of mini-contracts usually increases liquidity and reduces bid / offer spreads.
• In the local FX market, there has been a coincident increase in volatility and the proportion of mini -contracts in the total volume. There is not necessarily a causal relationship.
BRL vol. (observed-30d)Jan-19 apr-19 jul-19 oct-19 jun-20 apr-20 jul-20
BRL Volatility x Ratio Volume (WDO/DOLF)
BRL Volatility Ratio WDO/DOLF
21
Sou
rce
: IB
GE
DOMESTIC ECONOMYCovid-19: Shock and impactsStrong fall in 2Q2020 GDP
Consumption and investment fell
(15)
(11)
(7)
(3)
1
5
I II III IV I II III IV I II III IV I II III IV I II III IV I II
2015 2016 2017 2018 2019 2020
Contribution to real GDP growth (p.p.)Consumption
Government
Investment
Change in stocks +residual
External sector
Real GDP (YoY)
22
58
71
84
97
110
123
Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20
Consumer Manufacturing Services
Construction Retail Média
Seasonally adjusted data.
Confidence indicators
Average 2016-2019= 100
Sour
ces:
FG
V a
nd
Ciel
o
*Change in revenues in relation to the same days of Feb/20, with calendar adjustments.
Retail Sales – Cielo*
DOMESTIC ECONOMYCovid-19: Shock and impactsImpact of Covid-19: economic activity
Partial recovery of activity. Sectors most directly affected by social distancing remain depressed.
-85
-75
-65
-55
-45
-35
-25
-15
-5
5
15
01 - 21 22 - 28 29 - 02 03 - 30 31 - 27 28 - 01 02 - 29 30 - 05 06 - 12 13 - 19 20 - 26
Mar Mar Apr May Jun Jul Aug Sep Sep Sep Sep
%
Total retail Non Durables Durables Services
23
8
13
18
23
28
33
38
43
48
53
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37
BR
L b
illio
n
Weeks of the year
* Not including overdraft and credit card. Weekly data, accumulated over the last five working days, up to September 11th.
Sou
rce
: BC
B
Weekly new credit transactions*
Corporate 2020
Corporate 2019
Household 2019Household 2020
16.4%
26.9%
8.3%
-11%
-7%
-3%
1%
5%
9%
13%
17%
21%
25%
29%
Aug-16 Aug-17 Aug-18 Aug-19 Aug-20
Outstanding credit(% m/m(-12))
Corporate
Total
Household
DOMESTIC ECONOMYOutcomes: credit distributionNonearmarked credit
Credit increase amid the crisis. Corporate credit rises faster than household credit
12%
17%
22%
27%
32%
37%
42%
47%
52%
57%
62%
Aug-17 Feb-18 Aug-18 Feb-19 Aug-19 Feb-20 Aug-20
Cen
ten
as
24
By line of credit
Sou
rce
: BC
B. D
ata
refe
r to
ave
rage
inte
rest
rate
in
no
ne
arm
arke
d n
ew
cre
dit
tra
nsa
ctio
ns
Interest rate(% per year)
Households Corporate Total26%
30%
34%
38%
42%
46%
50%
10%
15%
20%
25%
30%
Aug-17 Feb-18 Aug-18 Feb-19 Aug-19 Feb-20 Aug-20
Discount of trade bills
Working capital
Guaranteed overdraftaccount (right)
79%
97%
115%
133%
18%
21%
24%
27%
30%
Aug-17 Feb-18 Aug-18 Feb-19 Aug-19 Feb-20 Aug-20
Payroll deducted loans
Vehicles financing
Personal credit exceptpayroll dedicted (right)
Corporate
Households
DOMESTIC ECONOMYOutcomes: credit costInterest rates: new credit transactions
Interest rates are falling
Sou
rce
: BC
B
(1) Includes debentures totaling BRL 46.2 billions. (2) Includes: full renewal of the credit operation,including new credit; as well as renegotiations with changes in interest rate and guarantees.
New transactions + credit renewals
25
Others
S1 – public
S1 - private
By type of financial institution By type of client
Corporate
Middle and SME
Household
DOMESTIC ECONOMYOutcomes: credit distributionNew transactions and credit renewals
From March 16th to September 18th, in BRL billions
Corporate Middle SME Household Total Corporate Middle SME Household Total
S1 - public 48.9 20.4 49.1 156.0 274.4 11.6 36.7 25.5 109.6 183.3
S1 - private 304.4 70.4 71.6 138.1 584.4 88.1 19.9 15.8 41.5 165.4
S2 66.2 17.1 2.6 32.9 118.8 5.1 0.6 0.1 0.3 6.1
S3 63.9 27.7 6.1 44.9 142.6 15.6 3.3 1.5 9.6 30.0
S4 19.5 19.4 4.3 12.2 55.5 2.3 3.7 0.2 6.2 12.4
Cooperatives S3, S4 and S5 2.7 18.7 28.4 48.2 97.9 0.7 2.5 2.8 3.9 9.9
505.5 173.7 162.1 432.2 1,273.5 123.4 66.7 45.9 171.1 407.1
Type of
financial
institution
Total
Banks
SegmentNew transactions (1) Credit renewals (2)
26
Sou
rce
: BC
B
DOMESTIC ECONOMYBanking System
-10
0
10
20
30
40
50
-3
0
3
6
9
12
15
Jun2013
Jun2014
Jun2015
Jun2016
Jun2017
Jun2018
Jun2019
Jun2020
Opportunity cost (left)
Selic 12M
Diference between net margins % (credit vs GB)
%
Opportunity costs - credit vs GB*Accumulated in the last 3 months
BRL bn
0
3
6
10
13
16
Dec2015
Jun Dec2016
Jun Jun Dec2018
Jun Dec2019
Jun Dec2020
Funding Costs Selic
%
Funding costs – Banking SystemAccumulated in the last 3 months
Opportunity cost and funding
* Government bonds
27
INCLUSION
COMPETITIVENESS
TRANSPARENCY
EDUCATION
InnovationMarket efficiencyInternational reserves
Rural creditHousing creditRelationship with CongressTransparency of Monetary PolicyCommunication plan for BCB actionsRelationship with foreign investors
Financial education
Cooperative creditMicrocreditCurrency conversibilityInitiatives for capital market
Means of payment - Pix
• Financial and payment institutions applied to membership and started homologation cycle
• Regulation approved
• To be launched in November 2020
Availability
Speed
Convenience
Open environment
Various use cases
Enriched data
Safety
28
AGENDA BC#PixHighlights for 2020
29
Convergence AGENDA BC#
Texting
Payment
Content
Financial Innovation
30
Innovation in the financial system AGENDA BC#
Digital currency
Open Banking
• Simplification• Internationalization• Convertibility
Innovation in the currency
2021/2022
Open banking
• Operating rules approved
• Implementation schedule
How does it work today?
Open banking
31
AGENDA BC#Open bankingHighlights for 2020
• Measures to fight the economic effects of the Covid-19 crisis
• Regulation on issuance of electronic trade receivables
• Open banking regulation
• PIX - BCB’s means of payment
▪ Brand launch
▪ Homologation phase; public release expected for November/2020
• Credit cooperatives allowed to issue Real Estate Credit Bills (LCI)
• Agreement between BCB and the National Treasury Secretariat (STN) to use instant
payments
32
AGENDA BC#Main achievementsHighlights for 2020
Measures:
• BCB’s S&E Responsibility
• Partnerships
• Policies
• Supervision
• Regulation
33
BCB’s social and environmental responsibility• Strengthening internal environmental awareness
• Inclusion of the theme in the Museum of Economy
• Reduction of the environmental impact of the money cycle
• Review of the BCB’s S&E Responsibility Policy
• Implementation of TCFD* recommendations’
• Integrated risk management at the BCB
Partnerships• BCB joins the Network for Greening the Financial System (NGFS)
• Memorandum of Understanding with the Climate Bonds Initiative (CBI)
#Sustainability: highlights
34
* TCDF - Task Force on Climate-related Financial Disclosures
35
Policies• Creation of the ‘Green liquidity facility’
• Inclusion of sustainability criteria in the management of internationalreserves
Supervision• Structuring and broadening the scope for collecting information on S&E
risks
• Monitoring of climate risks and stress tests
#Sustainability: highlights
36
Regulation• Management of S&E risks by financial institutions – Regulatory
enhancement of Resolution No. 4.327/2014
• Improved transparency based on TCFD recommendations
• Creation of the ‘Green Bureau’ for rural credit
• Establishing incentives for green rural credit
#Sustainability: highlights
Additional challenges in the post-Covid-19 period
37
More sustainable and more inclusive growth
Common factors in the recovery
38
More technology
The epidemic has accelerated technological changemedicine, education, finance, communication
39
Comércio mundial
Mudanças nas cadeias globais de valor
40
World trade
Changes inglobal value chains
40
Low interest rates and high liquidity in the world
There are challenges, but alsoopportunities to reinvent the economywith private resources
41
A changing world
42
Technology
Change instandards of
consumption andproduction
Government actions
Secular change in the
workforce
Thank you!
Roberto Campos NetoGovernor of Banco Central do Brasil
September 30, 2020