1

Brazil: Economic outlook

Fernanda NechioDeputy Governor for International Affairs and Corporate Risk Management

April 20, 2020

Economic outlook

Brazil before Covid-19

Improving fundamentals, gradual recovery, inflation within target

Pandemic impact

Virus spread

Economic impact

Response to the crisis

Central Bank guaranteeing liquidity and financial stability

Government implementing measures to mitigate the economic impact

What´s next?

Overview

3

Brazil before the pandemic

Gradual economic recovery

Source: IBGE / ME

Gradual economic recovery… … in all sectors(Net employment – thousands)

-800

-600

-400

-200

0

200

400

600

800

1.000

Dec

-12

Jun

-13

Dec

-13

Jun

-14

Dec

-14

Jun

-15

Dec

-15

Jun

-16

Dec

-16

Jun

-17

Dec

-17

Jun

-18

Dec

-18

Jun

-19

Dec

-19

Industry

Civil construction

Commerce

Services

Agriculture

-10

-8

-6

-4

-2

0

2

4

6

8

10

-2,5

-2,0

-1,5

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

Mar

-10

Dec

-10

Sep

-11

Jun

-12

Mar

-13

Dec

-13

Sep

-14

Jun

-15

Mar

-16

Dec

-16

Sep

-17

Jun

-18

Mar

-19

Dec

-19

GDP (quarterly) left

GDP (yoy) right

Improving fundamentals with reform agenda

Labor market reform

Spending cap law

Comprehensive pension reform

Divestments and privatization program

Foreign exchange market modernization (in Congress)

Other: credit registry law, trade agreements, improvements in business conditions,

OECD liberalization benchmarks convergence

Accommodative monetary policy and inflation within target range

Source: BCB

Main policy rateHeadline inflation and expectations

2

5

8

11

14

set

14

mar

15

set

15

mar

16

set

16

mar

17

set

17

mar

18

set

18

mar

19

set

19

mar

20

Selic rate3.75%

0

1

2

3

4

5

6

7

8

9

10

11

Jun

06

Jun

07

Jun

08

Jun

09

Jun

10

Jun

11

Jun

12

Jun

13

Jun

14

Jun

15

Jun

16

Jun

17

Jun

18

Jun

19

Jun

20

Jun

21

Jun

22

realized

market expectations*

Comfortable international position

CA deficit more than financed by FDI(US$ billion)

Sizable buffers against shocks(US$ billion)

-120

-100

-80

-60

-40

-20

0

20-20

0

20

40

60

80

100

120

1995 2000 2005 2010 2015 2020

Milh

ares

FDI

Current Account Deficit(inverted)

-200

-100

0

100

200

300

400

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Foreign Reserves Repo Lines

FX Swaps Others

Net FX Position ARA

ARA 100% - 150%

312.97(Apr 8, 2020)

Liquid and well-capitalized banking system

4

8

12

16

20

Dec2017

Mar Jun Sep Dec2018

Mar Jun Sep Dec2019

%

Total Capital Ratio Tier 1 Capital Ratio

Common Equity Tier Ratio Leverage Ratio

Capital Ratios

Source:BCB

0

200

400

600

800

1.000

1.200

0,00

0,50

1,00

1,50

2,00

2,50

Dec2013

Jun Dec2014

Jun Dec2015

Jun Dec2016

Jun Dec2017

Jun Dec2018

Jun Dec2019

BRL billionLiquidity ratios

Liquid assets Stressed outflows Liquidity ratio (right axis)

un.

9

The pandemic impact

Early in the contagion curve

Progressão internacional da Covid-19

Sources: WHO, Brazilian Ministry of Health

Austria

France Iran

JapanDenmarkMalaysia

Netherlands

Norway

Korea

Sweden

UKSwitzerland

Singapore

United States

Spain

China

Italy

Brazil

100

1,000

10,000

100,000

0 7 14 21 28 35

Speed of Spread – Covid-19 TrackerReference date: April 2nd

Number of days since the 100th case

*Numbers as of April 12, 2020

Uneven but widespread contagion

Confirmed cases

38.654

Deaths

2.462

Lethality

6,4%

*Numbers of April 19, 2020 Source: Brazilian Ministry of Health

Accumulated cases since the first case

Confirmed cases Deaths

Source: BCB/Derin

Severe strains in emerging markets

Source: Bloomberg, DERIN, Thomson Reuters

-3,5

-3,0

-2,5

-2,0

-1,5

-1,0

-0,5

0,0

0,5

1,0

1,5

Ap

r-1

7

Jul-

17

Oct

-17

Jan

-18

Ap

r-1

8

Jul-

18

Oct

-18

Jan

-19

Ap

r-1

9

Jul-

19

Oct

-19

Jan

-20

Ap

r-2

0

stan

dar

d d

evia

tio

n

Risk appetite indicator

EM

AE

-60

-40

-20

0

t t+15 t+30 t+45 t+60 t+75 t+90

US$

bill

ion

Days after event

Accumulated non-resident portfolio flows to EM* since indicated date

GFC (9/8/08)

Taper Tantrum (5/17/13)

China Scare (7/26/15)

COVID-19 (1/21/20)

* Daily net total flows for Mexico, Korea, Taiwan, India, Indonesia, South Africa, Thailand, Phillipines, Sri Lanka, and Vietnam; daily equity flows for Brazil, UEA, Malaysia, Ukraine, and Pakistan.

Source: BCB/Derin

Deep impact in prices of main financial assets

Source: Thomson Reuters

-5

0

5

10

15

20

25

30

35

Jan-20 Feb-20 Mar-20 Apr-20

EME currencies**

10%-90%InterquantileMedianMeanBRLDXY

-50

-40

-30

-20

-10

0

10

Jan-20 Feb-20 Mar-20 Apr-20

EME equity indexes*

10%-90%

Interquantile

Median

Mean

IBOV

* Composite of equity indexes of China, Hong Kong, India, Indonesia, Malasia, Mongolia, Pakistan, Philippines, Sri Lanka, South Korea, Taiwan, Thailand, Vietnam, Bosnia, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kazakhstan, Latvia, Lithuania, Poland, Romania, Serbia, Slovak, Turkey, Ukraine, Argentina, Brazil, Chile, Colombia, Mexico, Peru, Venezuela, Panama, Abu Dhabi, Egypt, Ghana, Israel, Jordan, Kenya, Kuwait, Lebanon, Mauritius, Morocco, Nigeria, Oman, Qatar, Saudi Arabia, South Africa, and Tunisia.

** Composite of currencies of Brazil, Mexico, Argentina, Chile, Colombia, Peru, China, Hong Kong, Taiwan, India, Indonesia, South Korea, Malaysia, Singapore, Thailand, Philippines, Russia, Turkey, Czech Republic, Bulgaria, Romania, Hungary, Poland, and South Africa.

Feb/2Mar/1

Feb/27Mar/26

Feb/2Mar/1

Feb/27Mar/26

Feb/2Mar/1

Feb/27Mar/26

Soft data signaling severe economic impact

Source: Cielo, proprietary data.

Non-durable goods ServicesDurable goods

Quarantine

preparation

Feb-20, seasonally adjustedMar-20

SMTWTFS SMTWTFS SMTWTFS SMTWT SMTWTFS SMTWTFS SMTWTFS SMTWT SMTWTFS SMTWTFS SMTWTFS SMTWT

Nominal sales by sector(Cielo Index Feb 2=100)

15

Response to the crisis

Timely and robust BCB response

For details see: https://www.bcb.gov.br/en/about/covid-19-measures

2020 2008

Liquidity support

Term-deposit reserve requirements from 31% to 25% and

regulation enhancements on Liquidity Coverage Ratio (LCR) 135 -

Term-deposit reserve requirements from 25% to 17% 68 82

Regulatory easing on Agrobusiness Credit Bills 2.2 -

Loans backed by financial notes guaranteed by sovereign bonds

and debentures670 -

Repos with sovereign global bonds 50 25

Term deposits guaranteed by deposit insurance (NDPGE) 200 10

Repo backed by debentures and reserve requirements 91 -

Total 1216.2 117

% GDP 16.7% 3.5%

Capital relief

Overhedge 520 -

Decline of Capital Conservation Buffer 637 -

Total 1157 0

% GDP 15.8% 0%

Exemptions for new loan-loss provisions 3.2* -

Other measures

Swap line with the Fed US$ 60 bi US$ 30 bi

Credit line for SMEs R$ 40 bi -

(R$ billion)

Amounts

Measures:

Credit markets responding to demand

Non-earmarked credit for households and businesses

Households Business

0

6

12

18

24

30

1 2 3 4 5 6 7 8 9 10 11 12 13Weeks

2019 2020

R$ billion

0

12

24

36

48

60

1 2 3 4 5 6 7 8 9 10 11 12 13Weeks

2019 2020

R$ billion

Government responses

Decline in import tariffs for medical supplies and raw materials

Hiring of doctors and nurses, and increased supply of hospital beds, respirators,

covid-19 tests

Transfers to retirees, low-income households, informal sector, SMEs

Aid for tourism, airline and other most impacted sectors

Aid for states and municipalities

For details and other measures: www.gov.br (in Portuguese)

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What´s next?

Uncertainty outlook

Source: BCB/Inflation Report

Human and capital losses

Length of lockdowns

Unwinding of lockdown

Pace of economic recovery

Reversal of fiscal policy measures

Wide range of forecasts

Source: Bloomberg

-3,3

3,6

2,3

-2,5

1,5 0,9

-5,3

4,5

1,33,0

6,55,5

-15

-10

-5

0

5

10

15

20

20 21 22 20 21 22 20 21 22 20 21 22

USA Japan Euro area China

Main Economies – growth (% yoy)

-1,5

2,02,2

4,8

4,3

6,3

-3,5

1,82,0

-1,5

2,6 2,5

-3,4

2,0

2,5

-0,9

2,7

2,7

0,0

3,23,4

-10

-5

0

5

10

20 21 22 20 21 22 20 21 22 20 21 22 20 21 22 20 21 22 20 21 22

Russia India Mexico Brazil Argentina Chile Colombia

Emerging Economies – growth (% yoy)

*Numbers as of April 13, 2020

22

Thank you!

Fernanda NechioDeputy Governor for International Affairs and Corporate Risk Management

“The Central Bank of Brazil stresses that it will continue to deploy its arsenal of monetary, exchange rate and financial stability policies to fight the current crisis.”

229th Copom MinutesMarch 18, 2019