Post on 05-Jun-2020
BRAZIL MACROECONOMIC
OUTLOOKJune, 2020
Economic Research Department
o The effects of the covid-19 pandemic on economic activity have been stronger than initiallyexpected. There is still enormous uncertainty regarding a recovery in the second half of the year.Considering this, we now expect GDP to contract by 5.9% in 2020. For 2021, we forecast growth of 3.5%.
o This uncertainty caused the BRL to weaken more than other EM currencies since the beginning of thepandemic. In our view, the exchange-rate suggested by fundamentals tends to be stronger than currentlevels, closer to BRL 5.10/USD by year-end.
o Despite BRL depreciation, the inflation outlook remains benign. The negative shock on demand hasoutweighed the effects of the weaker BRL, and lead us to lower our forecast for IPCA consumer inflation to1.5% in 2020 and to 2.8% in2021.
o Against this backdrop, we believe the Central Bank will continue to ease monetary policy and forecastthat the Selic policy rate will be cut to 2.25% and remain at that level through the end of 2021.
o The enormous output gap will keep inflation and interest rates low, but the conditions necessary tomaintain this will depend on the fiscal outlook and overall economic policy after the pandemic.
BRAZIL – MACROECONOMIC OUTLOOKUpdates
2
GDPAnnual rate of change, %
Source: IBGE, Bradesco
4.4
1.4
3.1
1.1
5.8
3.24.0
6.15.1
-0.1
7.5
4.0
1.93.0
0.5
-3.5 -3.3
1.3 1.3 1.1
-5.9-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Crescimento anual do PIB, em %
3
Investment
Government Consumption Household Consumption
Source: IBGE, Bradesco
GDPAnnual rate of change, %
8.5
2.0
6.7
12.0 12.3
-2.1
17.9
6.8
0.8
5.8
-4.2
-13.9-12.1
-2.6
3.92.2
-9.5
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
-0.2
2.6
3.8
1.6
3.9
2.0
3.64.1
2.0
2.9
3.9
2.2 2.3
1.5
0.8
-1.4
0.2
-0.7
0.4
-0.4
0.6
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
4.0
0.81.3
-0.5
3.94.4
5.36.4 6.5
4.5
6.2
4.8
3.5 3.52.3
-3.2-3.8
2.0 2.1 1.8
-7.0-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Renda real
4
Services
Construction
Agricultural
Industrial
Source: IBGE, Bradesco
GDPAnnual rate of change, %
2.01.1
4.63.2
5.8
-3.7
6.75.6
-3.1
8.4
2.8 3.3
-5.2
14.2
1.4 1.3 2.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Título
5.0
3.74.3
5.84.8
2.1
5.8
3.52.9 2.8
1.0
-2.7-2.2
0.81.5 1.3
-6.0-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Serviços
8.2
2.0 2.0
6.2
4.1
-4.7
10.2
4.1
-0.7
2.2
-1.5
-5.8-4.6
-0.5
0.5 0.5
-7.5-10.0
-5.0
0.0
5.0
10.0
15.0
04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Renda real
4.9
7.0
13.1
8.2
3.24.5
-2.1
-9.0-10.0
-9.2
-3.8
1.6
-7.7
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
08 09 10 11 12 13 14 15 16 17 18 19 20
5
INDUSTRY, RETAIL AND SERVICESSeasonally adjusted level
Source: IBGE, Bradesco
78.0
83.0
88.0
93.0
98.0
14 15 16 17 18 19 20
Industry
Retail
Services
6
CONFIDENCE INDEXSeasonally adjusted level
Industrial Services
Retail Construction
Source: FGV, Bradesco
60.5
50.0
60.0
70.0
80.0
90.0
100.0
110.0
120.0
09 10 11 12 13 14 15 16 17 18 19 20
Título do Gráfico
ICS Neutro
61.4
45.0
55.0
65.0
75.0
85.0
95.0
105.0
115.0
125.0
05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Índice de Confiança da Indústria - Série com ajuste sazonalFonte: FGV
67.4
60
70
80
90
100
110
120
10 11 12 13 14 15 16 17 18 19 20
68.0
60.0
70.0
80.0
90.0
100.0
110.0
120.0
11 12 13 14 15 16 17 18 19 20
indice confianca dessaz
7
EMPLOYMENT AND INCOME
Unemployment Real Income
Source: IBGE, Bradesco
9.8%9.3%
9.8%
8.8%
8.0%8.5% 8.2%
7.6% 7.3% 7.2%6.8%
8.3%
11.3%
12.8%12.3%12.1%
14.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Título do Gráfico
-1.7%
1.1%
4.1%
3.4%3.3%3.4%3.3%2.9%
4.1%
3.3%
2.1%
-0.8%
-2.3%
1.5%1.6%
0.6%
-1.5%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Renda real
8
NOMINAL EXCHANGE RATER$/US$
Source: Bloomberg, Bradesco
5.38
3.00
3.20
3.40
3.60
3.80
4.00
4.20
4.40
4.60
4.80
5.00
5.20
5.40
5.60
5.80
6.00
Aug-17 Nov-17 Feb-18 May-18 Aug-18 Nov-18 Feb-19 May-19 Aug-19 Nov-19 Feb-20 May-20
9
BRL vs. EMERGING MARKET CURRENCIESAccumulated BRL fluctuation vs. EMC median and percentiles
Source: Bloomberg, Bradesco
10
4.39
5.39
3.5
4.0
4.5
5.0
5.5
jan/2019 jul/2019 jan/2020
75% 25% 10% Last Copom Median BRL
INTEREST RATE DIFFERENTIALBrazil and peers*, 1 year
Source: Bloomberg, Bradesco * South Africa, Chile, Colombia, Peru, Mexico, Turkey and Australia
11
-1.4
-4
-2
0
2
4
6
8
10
12
11 12 13 14 15 16 17 18 19 20
NOMINAL EXCHANGE RATER$/US$, end of period
Source: Bloomberg, Bradesco
1.962.32
3.53
2.892.65
2.342.14
1.77
2.34
1.74 1.671.88 2.04
2.342.66
3.90
3.26 3.31
3.87 4.03
5.10
4.60
0.00
1.00
2.00
3.00
4.00
5.00
6.00
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Título do Gráfico
12
Source: IBGE, Bradesco
CONSUMER PRICES INDEX – IPCA Annual rate of change, %
13
7.7%
12.5%
9.3%
7.6%
5.7%
3.1%
4.5%
5.9%
4.3%
5.9%6.5%5.8%5.9%6.4%
10.7%
6.3%
2.96%3.7% 4.3%
1.5%
2.8%
0%
2%
4%
6%
8%
10%
12%
14%
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
-0.42%
1.17%2.02%
-2%
0%
2%
4%
6%
8%
10%
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
3ma
6ma
12m
IPCA – AVERAGE INFLATION CORESCores at historically low levels
Source: IBGE, Bradesco
14
MARKET EXPECTATIONS – IPCAFalling inflation expectations
Source: BCB, Bradesco
1.6
3.2
1.5
2.0
2.5
3.0
3.5
4.0
4.5
mai/18 set/18 jan/19 mai/19 set/19 jan/20 mai/20
Título do Gráfico
2020 2021
15
15.75%
19.00%
25.00%
16.50%18.00%
13.25%
11.25%
13.75%
8.75%
10.75%
7.25%
10.00%11.75%
14.25%13.75%
7.00% 6.50%
4.50%
2.25%
0%
5%
10%
15%
20%
25%
30%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Título do Gráfico
NOMINAL INTEREST RATE We expect the Selic rate to fall to 2.25% by year-end
Source: BCB, Bradesco
16
2.4% 2.1%2.8%
1.2%
2.8%2.1%
1.6% 1.4%
-0.3%
-1.9%-2.6%
-1.9% -1.8%-1.2%
-10.6%-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
2005 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*
17
CENTRAL GOVERNMENT PRIMARY BALANCE% of GDP, with new fiscal measures
Source: STN, Bradesco
Source: BCB, Bradesco
GROSS PUBLIC DEBT% of GDP
18
56%59%
52% 51%54% 52%
56%
66%70%
74%77% 76%
94% 95%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020* 2021*
CREDIT – FREE RESOURCESInventories, % yoy in nominal terms
Source: BCB, Bradesco
11.5%
17.4%
24.7%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
12 13 14 15 16 17 18 19 20
Título do Gráfico
Household Total Corporate
19
POST-PENSION REFORM AGENDASummary
Topics Reforms
Business environmentTax reform, Economic Freedom Bill, Law of Gas and Sanitation, Regulatory Mark of Regulatory Agencies,
BC+ Outlook
Privatization and concessions BRL 204 billion in projects
Openness of economy Mercosul-EU Deal, unilateral reduction of CET, new deals
Demand boost FGTS, Bolsa Família Programme Christmas Bonus, monetary policy
Macro and fiscal reformsTransfer of Rights (Petrobras), Central Bank Independence, aid to states and municipalities,
administrative reform
Implemented reformsSpending cap bill, TLP, labor reform, public credit downsizing, social security and anti-fraud, reduction
of inflation target, home equity credit, positive credit bureau, LIG, eletronic bonds
Source: Bradesco
20
Source: Bradesco
OUR FORECASTS...
Bradesco economic forecasts are revised at the beginning of each month. During moments of greater volatility, the level of uncertainty and error margins naturally rise, especially between revisions.Our forecasts are based on the assumption that the adjustments necessary to ensure the sustainability of Brazil’s macroeconomic framework will be implemented over the next few years. If theseadjustments do not materialize or are better than expected, the forecast could be altered significantly. Last updated on May 29th, 2020.
21
2017 2018 2019 2020
GDP growth (%) 1.3 1.3 1.1 -5.9
Consumer inflation - IPCA (%) 2.95 3.75 4.3 1.5
Wholesale inflation - IGP-M (%) -0.5 7.5 7.3 5.1
Selic Rate (%, eop) 7.00 6.50 4.50 2.25
Exchange Rate (BRL/USD, eop) 3.31 3.87 4.03 5.10
Industrial Production (%) 2.5 1.0 -1.1 -7.5
Retail Sales (%) 4.0 5.0 3.9 -6.5
Job Creation (in thousands) 1899 966 1816 -1418
Unemployment Rate (% of labor force, avg) 12.7 12.3 12.1 14.0
Outstanding Credit Growth (%) -0.4 5.1 6.5 5.0
Trade Balance (USD bn) 64.0 53.0 39.4 50.5
Current Account (USD bn) -15.0 -41.5 -50.8 -7.2
Primary Balance (BRL bn) -111 -108.3 -62 -750
Gross Debt (% of GDP) 74.1 76.5 75.8 93.8
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Updated: May 29th, 2020
22