bcb.gov.br

Economic Outlook

Fernanda Guardado

Deputy Governor for International Affairs and Corporate Risk Management

December 16th, 2021

2

Global Outlook

Europe

3

COVID-19

Covid-19: New deaths and Vaccination

Source: Our World in Data. Updated to December 12 2021

South Am. ex Brazil

New deaths/million(7-day rolling average)

Vaccination progressing in the World, but Omicron variant raises concerns

Brazil

US

Share of population vaccinated(% of population)

At least one dose Fully vaccinated Booster dose

0

3

6

9

12

15

Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21

- 10 20 30 40 50 60 70 80 90

Chile

Canada

Japan

Australia

Brazil

Colombia

United Kingdom

South America ex Brazil

United States

Israel

Turkey

Europe ex UK

India

GLOBAL ECONOMY

Economic activity – Advanced EconomiesGlobal economic recovery remains afoot, boosted by household consumption

Sources: Bloomberg, BEA, National Bureau of Statistics, Refinitiv

U.S

. GD

PEu

ro a

rea

GD

P%

an

d p

.p.,

Qo

Q s

aar

77

82

87

92

97

102

107

112

Q12019

Q2 Q3 Q4 Q12020

Q2 Q3 Q4 Q12021

Q2 Q3

Ave

rage

20

19

= 1

00

USA Euro area UK Japan

GDP* (Average 2019 = 100)

* Series at constant prices, seasonally adjusted. Dotted lines are Bloomberg forecasts for Q3 2021.

75

80

85

90

95

100

105

Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 Q2 21 Q3 21Q

4 2

01

9 =

10

0

Euro area = 2.2

Germany = 1.7

France = 3.0

Italy = 2.6

Spain = 2.1

Q3 21 Rate (qoq, %)

-40

-20

0

20

40

Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 Q2 21 Q3 21

Demand-Side Growth and Contributions

Houshold Consumption (1.7%; 1.2pp)

Invest. fixo (-0.8%; -0.2pp)

Change Inventories (2.1pp)

Net Exports (-1.2pp)

Government (0.8%; 0.2%)

GLOBAL ECONOMY

Economic activity – Advanced EconomiesDemand for goods has been specially pronounced in the US, shifting the global demand curve

Sources: BEA

75

85

95

105

115

125

135

Oct-16 Oct-17 Oct-18 Oct-19 Oct-20 Oct-21

US - Personal Spending (Index, S.A.)

Durable goods Non-durable goods Services

90

100

110

120

130

140

Korea Eletron. Comp. Taiwan - Wafer 6

GLOBAL ECONOMY

Sectoral Activity Indicators

Source: CPB, CEIC, Refinitiv

Sharp rise in goods’ demand meets short term limitations in production expansion

World Trade Volume

(2010 = 100)

Production – Semiconductors and Wafers(Dec 2019 = 100)

-20

-15

-10

-5

0

5

10

15

20

25

90

100

110

120

130

140

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

% YoY (right) Index (left)

0

5000

10000

15000

20000

25000

Production of Containers - China(MM3M – x 1,000 cubic meters)

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Global Container Index

Baltic Dry Global Index (Granel.)

Harpex Global Charter Rate Index

Disruption Euro Area

Disruption US

Disruption China

Disruption EM

8

GLOBAL ECONOMY

Sectoral Activity Indicators

Source: Eurostat, FREIGHTOS, IHS Markit, Bloomberg, Refinitiv, Anfavea,, LMC-automotive

Logistical and supply chain disruptions hold down industrial recovery in some sectors, and pose mounting costs…

Supply chain disruptions and International Freight Costs(Dec 2019= 100)

1

-5

-13-17

-20-23 -25

-27 -27

-34

11

6

-11

18

-27

3

0

25

-8

15

-40

-30

-20

-10

0

10

20

30

Production - Vehicles (%)

Ytd in relation to 2019 Last month (s.a.)

9

GLOBAL ECONOMY

Sectoral Activity Indicators

Source: Bloomberg

… and an energy supply that is not advancing at the same pace as demand

Global Crude Oil and Liquid Fuel Production

(millions of barrels/day)

70

75

80

85

90

95

100

105

Dec

-97

Mar

-99

Jun

-00

Sep

-01

Dec

-02

Mar

-04

Jun

-05

Sep

-06

Dec

-07

Mar

-09

Jun

-10

Sep

-11

Dec

-12

Mar

-14

Jun

-15

Sep

-16

Dec

-17

Mar

-19

Jun

-20

Sep

-21

Dec

-22

Energy pressure in Brazil is above peers

Sources: Central Banks, Statistical institutes and Bloomberg

*Includes regulated services10

GLOBAL ECONOMY

Global Inflation

19.9

10.7

8.1

6.2 6.2 6.2 5.8 5.4 5.0 5.0 4.6 4.5 4.5 4.13.0 2.6

0

2

4

6

8

10

12

14

16

18

20

Inflation % p.y. (October-21)

Food and Beverages Energy Services Others Headline

98

100

102

104

106

108

110

Dec

-19

Jan

-20

Feb

-20

Mar

-20

Ap

r-2

0M

ay-2

0Ju

n-2

0Ju

l-2

0A

ug-

20

Sep

-20

Oct

-20

No

v-2

0D

ec-2

0Ja

n-2

1Fe

b-2

1M

ar-2

1A

pr-

21

May

-21

Jun

-21

Jul-

21

Au

g-2

1Se

p-2

1O

ct-2

1N

ov-

21

Euro area

US

UK

Japan

-6

-4

-2

0

2

4

6

8

10

12

14

Oct-79 Oct-85 Oct-91 Oct-97 Oct-03 Oct-09 Oct-15 Oct-21

Germany US UK Japan

GLOBAL ECONOMY

Global Inflation – Advanced EconomiesInflation accelerates as economies reopen, sectoral bottlenecks bite, and relative prices realign

11Sources: Central Banks and Statistical institutes, Bloomberg

CPI - AEs

(Dec 2019 = 100)

PPI - AEs

(Dec 2019 = 100)

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

3,0

No

v-1

2

May

-13

No

v-1

3

May

-14

No

v-1

4

May

-15

No

v-1

5

May

-16

No

v-1

6

May

-17

No

v-1

7

May

-18

No

v-1

8

May

-19

No

v-1

9

May

-20

No

v-2

0

May

-21

No

v-2

1

FED ECB BoE BoJ

12

GLOBAL ECONOMY

Monetary Policy – Advanced Economies

Low interest rates ease debt burden, but there are growing signs of exit strategies approaching and extraordinary accommodation being reduced in the next quarters

Policy Interest Rates (%, p.y.)

Source: Refinitiv

General Government Gross Debt(% of GDP, IMF fiscal monitor forecast: 2021-26)

120

140

160

180

200

220

240

260

20

40

60

80

100

120

140

20

00

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

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

20

26

US Euro area UK China Brazil Japan (right)

13

GLOBAL ECONOMY

Monetary Policy – Advanced Economies

Central Banks pivot to a less accommodative stance

Change in Interest Rates in 2 years (OIS)(bps)

Number of 25 bps Hikes of FED in Eurodollar

Source: Bloomberg

(20)

20

60

100

140

180

220

260

300

Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21

Fed BoE ECB BoC BoJ Norges RBNZ

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

2022 2023 2024 2025

95

100

105

110

115

120

125

130

135

140

145

98

100

102

104

106

108

110

112

114

Brazil Chile

Mexico Peru

Colombia China

Russia India

South Africa Turkey (right)

GLOBAL ECONOMY

Global InflationWith sharper inflationary impacts in emerging economies

14Sources: Central Banks and Statistical institutes, Bloomberg

CPI - EME

(Dec 2019 = 100)

95

100

105

110

115

120

125

130

98

100

102

104

106

108

110

Jan

-20

Mar

-20

May

-20

Jul-

20

Sep

-20

No

v-2

0

Jan

-21

Mar

-21

May

-21

Jul-

21

Sep

-21

No

v-2

1

Brazil Chile

Mexico Colombia

China Russia

South Africa Turkey (right)

95

100

105

110

115

120

125

130

135

140

145

150

90

95

100

105

110

115

120

125

130

Brazil ChileMexico PeruColombia ChinaRussia IndiaSouth Africa Turkey (right)

Global Inflation - EMEsGLOBAL ECONOMY

EMEs above target inflation driven by volatile components such as food and energy prices, while services realign with the reopening of the economies

15Sources: Central Banks, Statistical institutes and Bloomberg

CPI - Services

(Dec 2019 = 100)

CPI - Food

(Dec 2019 = 100)

16

GLOBAL ECONOMY

Inflation expectations - EMEs

Source: Bloomberg, Central Banks Surveys. Last data: 15 Dec. 2021.

Emerging economies facing above target inflation in 2021, with expectations of convergence to target levels until 2023

10.1

4.4

5.3

7.2

3.9

3.7

4.9

5.0

8.2

9.3

1.01.6

6.2

2.4

4.3

1.1

4.5

5.0 5.0

3.9 4.0

3.5

4.3

4.5

5.6

4.8

7.0

2.22.8

5.4

2.0

3.2

1.5

4.6

0

1

2

3

4

5

6

7

8

9

10

BRA CHL COL MEX PER CZ HUN POL RUS UA CHN IDN IND MYS PHL THA ZAF

CPI - Inflation Expectations

Inflation target range Expected end-2021 Expected end-2022 Expected end-2023

% p.y. 23.9

21.4

0

2

4

6

8

10

12

14

16

18

20

22

24

TUR(right)

% p.y.

17

GLOBAL ECONOMY

Source: Bloomberg, Central Banks surveys. Last data: 15 Dec. 2021.

Monetary Policy – Emerging EconomiesEMEs raise interest rates to contain inflationary pressures, Latin America stands out

9.25

4.00

2.50

5.00

2.50 2.75 2.401.75

7.50

9.00

3.75

2.20

3.504.00

1.75 2.00

0.50

3

0

3

6

9

12

BRA CHL COL MEX PER CZ HUN POL RUS UA ZAF CHN IDN IND MYS PHL THA

Policy Interest Rate(% p.y.)

Expected end-2022 Actual 19/fev/20

14.00

0

3

6

9

12

15

TUR(right)

Accumulated Interest Rate Variation since Feb-21

BR

RUS

UACZ

CHL

PERHUNPOLMEXCOL

ZAF

TUR-3

-2

-1

0

1

2

3

4

5

6

7

8

Brasil +7.25 Rússia +3.25 Ucrânia +3.00Rep. Tcheca +2.5 Chile +3.5 Peru +2.25Hungria +1.8 Polônia +1.65 México +1.00Colômbia +0.75 África do Sul +0.25 Turquia -3.00

Domestic Outlook

18

40

50

60

70

80

90

100

110

120

Ap

r-1

9

Jun

-19

Au

g-1

9

Oct

-19

Dec

-19

Feb

-20

Ap

r-2

0

Jun

-20

Au

g-2

0

Oct

-20

Dec

-20

Feb

-21

Ap

r-2

1

Jun

-21

Au

g-2

1

Oct

-21

Industrial production - ManufacturingRetail sectorVolume of servicesServices rendered to families

19

DOMESTIC ECONOMY

GDPBrazilian GDP set to grow by 4.4% in 2021, 1.0% in 2022; Services recovery still ongoing

Sector Indicators(Feb 2020 = 100, s.a.)

Source: IBGE

GDP(2019 Q4 = 100, s.a.)

85

90

95

100

105

Q4 19 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 Q2 21 Q3 21

GDP Industry Services

20

DOMESTIC ECONOMY

Confidence and Uncentainty Indicators

Source: FGV. Seasonally adjusted data.

Economic Uncertainty IndicatorConfidence Indicator

Manufacturing

Construction

Commerce

Services

Consumer

Confidence indicators show , despite still uncertain outlook

(Feb 2020 = 100, s.a.)

55

60

65

70

75

80

85

90

95

100

105

110

115

120

Nov-19 Mar-20 Jul-20 Nov-20 Mar-21 Jul-21 Nov-21

(Average 2018-2019 = 100, s.a.)

70

80

90

100

110

70

90

110

130

150

170

190

No

v-0

3

May

-05

No

v-0

6

May

-08

No

v-0

9

May

-11

No

v-1

2

May

-14

No

v-1

5

May

-17

No

v-1

8

May

-20

No

v-2

1

Economic Uncertainty Index IBC-Br (right)

30

32

34

36

38

40

42

44

46

Oct

-12

Ap

r-1

3

Oct

-13

Ap

r-1

4

Oct

-14

Ap

r-1

5

Oct

-15

Ap

r-1

6

Oct

-16

Ap

r-1

7

Oct

-17

Ap

r-1

8

Oct

-18

Ap

r-1

9

Oct

-19

Ap

r-2

0

Oct

-20

Ap

r-2

1

Oct

-21

Caged Formal Informal

21

DOMESTIC ECONOMY

Labor Market

Source: IBGE, Ministério do Trabalho e Previdência

Formal market shows strong recovery, but informal markets still has ground to recover

Employed Population(millions, s.a.)

Employed population, workforce and effective real average income

(Dec 2019 = 100, s.a.)

85

87

89

91

93

95

97

99

101

103

105

Dec

-19

Jan

-20

Feb

-20

Mar

-20

Ap

r-2

0

May

-20

Jun

-20

Jul-

20

Au

g-2

0

Sep

-20

Oct

-20

No

v-2

0

Dec

-20

Jan

-21

Feb

-21

Mar

-21

Ap

r-2

1

May

-21

Jun

-21

Jul-

21

Au

g-2

1

Sep

-21

Employed population Labor force Effective real average income

Inflation and Monetary Policy

25

4.52

9.26

0,09

3,36

0,73 1,96

2,45

1,12

0,40

0,95

0

2

4

6

8

10

2020 Ytd until Nov-21

Others administered prices Residencial eletric power

Fuel Industrial goods ex-Etanol and Coal

Services Food at home

-2

0

2

4

6

8

10

12

14

16

18

20

22

No

v-1

8

Jan

-19

Mar

-19

May

-19

Jul-

19

Sep

-19

No

v-1

9

Jan

-20

Mar

-20

May

-20

Jul-

20

Sep

-20

No

v-2

0

Jan

-21

Mar

-21

May

-21

Jul-

21

Sep

-21

No

v-2

1

Food at home Industrial goods Administered prices Services IPCA

Inflation

Source: IBGE, BCB

DOMESTIC ECONOMY

Inflation being especially hit by foodstuff and energy prices, as the economy also reopens and services price are updated

26

CPI - Breakdown(% p.y.)

Contributions to IPCA(p.p.)

Inflation

Source: IBGE, BCB

DOMESTIC ECONOMY

Inflation - Services (24M, % p.y.)

27

Realignment of services’ prices generates spike during reopening, possibly compensating for long period of contained prices and costpressures

0

1

2

3

4

5

6

7

8

9

10

No

v-1

4

Mar

-15

Jul-

15

No

v-1

5

Mar

-16

Jul-

16

No

v-1

6

Mar

-17

Jul-

17

No

v-1

7

Mar

-18

Jul-

18

No

v-1

8

Mar

-19

Jul-

19

No

v-1

9

Mar

-20

Jul-

20

No

v-2

0

Mar

-21

Jul-

21

No

v-2

1

Headline Underlying

Inflation

Source: BCB

DOMESTIC ECONOMY

28

Initial exercizes suggest that inertia coeficiente back at normal levels (2019)

0,3

0,4

0,5

0,6

0,7

0,8

jul-

16

ou

t-1

6

jan

-17

abr-

17

jul-

17

ou

t-1

7

jan

-18

abr-

18

jul-

18

ou

t-1

8

jan

-19

abr-

19

jul-

19

ou

t-1

9

de

z-1

9

mar

-20

jun

-20

set-

20

de

z-2

0

mar

-21

jun

-21

set-

21

Phillips Curve - Sum of Coefficients Related to Inertia

4.65

0.50

1.90

0

1

2

3

4

5

6

2021 2022 2023

10.05

5.02

3.46

2

3

4

5

6

7

8

9

10

11

2021 2022 2023

29

DOMESTIC ECONOMY

Inflation and Growth expectations

Source: BCB. Last data: 10 Dec. 2021

Inflation expectations – Focus (% p.y.)

GDP growth expectations – Focus (% p.y.)

Inflation forecasts above target for 2022, while growth is revised downwards.

30

DOMESTIC ECONOMY

Inflation Expectations

Source: BCB

Inflation forecasts are very correlated to short term developments

-3,00

-2,00

-1,00

0,00

1,00

2,00

3,00

4,00

5,00

6,00

7,00

mar

/10

ago

/10

jan

/11

jun

/11

no

v/1

1

abr/

12

set/

12

fev/

13

jul/

13

de

z/1

3

mai

/14

ou

t/1

4

mar

/15

ago

/15

jan

/16

jun

/16

no

v/1

6

abr/

17

set/

17

fev/

18

jul/

18

de

z/1

8

mai

/19

ou

t/1

9

mar

/20

ago

/20

jan

/21

jun

/21

Deviation From Target - 12m CPI vs 18m Ahead Forecasts

Current Inflation h6m12m forecasts

-1,00

-0,50

0,00

0,50

1,00

1,50

2,00

-3,00 -2,00 -1,00 0,00 1,00 2,00 3,00 4,00 5,00 6,00 7,00

h6

m1

2m

Dev

iati

on

s

Current 12m CPI Deviations

Deviations from Target: h6m12m vs 12m CPI

2010-2016 2017-2020 2021

Full Sample Sample 10-16 Sample 17-20

0

2

4

6

8

10

12

IPCA Market Expectation - Focus BCB forecast - Baseline scenario

BCB estimates

Source: BCB

DOMESTIC ECONOMY

Inflation should decline in 2022 as shocks dissipate and output gap takes longer to close

31

Output gap(%)

Inflation Forecasts (% YoY)

-8

-6

-4

-2

0

2

4

Q403

Q404

Q405

Q406

Q407

Q408

Q409

Q410

Q411

Q412

Q413

Q414

Q415

Q416

Q417

Q418

Q419

Q420

Q421

Output gap Output gap ±2 standard deviations

32

DOMESTIC ECONOMY

Monetary policy

0

5

10

15

20

25

30D

ec-9

9

Dec

-00

Dec

-01

Dec

-02

Dec

-03

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Dec

-19

Dec

-20

Dec

-21

Selic rate (%p.y)

7 pp

7.25 pp

3.75 pp

8.5 pp

2.5 pp

3.75 pp3.75 pp

Source: BCB.

Monetary tightening in 2021 is the largest since 2002, but coming from a low starting point

33

DOMESTIC ECONOMY

Monetary policy

243rd Copom meeting – 08 December 2021

➢ Copom unanimously decided to increase the Selic rate by 1.50 p.p. to 9.25% p.a.

➢ The Committee judges that this decision reflects its baseline scenario for prospective inflation, a higher-than-usualvariance in the balance of risks and is consistent with the convergence of inflation to its target throughout therelevant horizon for monetary policy, which includes 2022 and 2023. Without compromising its fundamentalobjective of ensuring price stability, this decision also implies smoothing of economic fluctuations and fosters fullemployment.

➢ The Committee considers that, given the increase in its inflation projections and in the risk of a deanchoring oflong-term expectations, it is appropriate to advance the process of monetary tightening significantly into therestrictive territory. The Committee will persist in its strategy until the disinflation process and the expectationanchoring around its targets consolidate.

➢ For the next meeting, the Committee foresees another adjustment of the same magnitude. The Copom emphasizesthat its future policy steps could be adjusted to ensure the convergence of inflation towards its targets and willdepend on the evolution of economic activity, on the balance of risks, and on inflation expectations and projectionsfor the relevant horizon for monetary policy.

bcb.gov.br

Thank you!