Brazil - Economic Outlook
OECD, Paris
December 2008
Brazil
Recent Performance
2
Sustainable growth rates with inflation under control
GDP: Annual Real Variation (%)
5.7
6,0
5,0
4,0
3,0
2,0
1,0
0,0
2.8
Avrg 04-07: 4.5
5.5
5.4
19,5
8,3
6,6
3,1 3,6
2,2
0,0
-0,7
2005
2006
2007
2008*
general industry
-9,1
capital goods
1998
* BNDES (forecast).
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008*
Source: IBGE
* accum. in 12 months until Jun
Source: IBGE.
INCREASE IN FAMILY CONSUPMTION AND FCGF
14
16,2
(Variation in % of quart. vis-à-vis the same quart. of the previous year)
14,1
15
2,8
-5,8
AverageAverage 2004
1984-93 1994-03
20
19,5
6,7
6,0
5,7
2,7
1,6
-2,0 -1,6
19,7
13,5
13,1
3.8
3.2
2.5
INDUSTRIAL PRODUCTION AND CAPITAL GOODS
Growth Rate
12
Inflation accum. in 12 months*
10,2
10
10
Ceiling of Target
6,7
8
5 3,1
6.0
6.5
6
4.0
0
3.0
4
Fixed Capital Gross Formation
2.5
3.0
3.5
4.0
3.0
3.0
te
la
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Ki
Cz
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Sw ubl
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it z
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Th
ai
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Pe
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Po
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Ko
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Ph
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Hu s
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Is
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Is
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M
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o
No
rw
ay
* Up to June 2008. So uth A frica, Island, Israel, No rway, P o land, Czech Republic and
Sweden up to M ay 2008
Un
i
So urce: O Glo bo and
M acro dado s
Ch
i
A
ut
h
3
So
I.08
III.07
I.07
III.06
I.06
III.05
I.05
III.04
I.04
III.03
I.03
III.02
I.02
III.01
I.01
III.00
I.00
III.99
I.99
III.98
-15
I.98
4.0
3.0
Co
l
So urce: IB GE
-11,0
4.0
3.0
0
-10
-10,6
3.5
2
Family Consumption
fri
ca
Br
az
il
Ca
na
da
-5
5.0
4.5
3.5
Proper management of the public debt
Public Sector Net Debt - GDP %
60
56,0

Declining net debt
50
47,2
46,5
40,8
40
38,3
30
20
15,5
11,0
10
7,6
8,4
4,5
0
-6,7
-10
-11,4
Source: Banco Central
Net External Debt – US$ billion

nov/07
may/08
may/07
nov/06
may/06
nov/05
may/05
nov/04
nov/03
may/04
may/03
nov/02
may/02
nov/01
may/01
nov/00
nov/99
may/00
External
250
200
may/99
nov/98
may/98
nov/97
may/97
nov/96
may/96
nov/95
may/95
nov/94
may/94
-20
Total
A net foreign creditor
190,3
162,7
165,0
151,0
135,7
150
101,1
100
International Reserves:
US$ 206.65 billion (26 Nov´08)
74,8
50
-13,4
-11,9
0
Forecast. Up until Sept/ 2008
-50
2000
2001
2002
2003
2004
2005
2006
2007
2008*
4
Source: Banco Central
Low leverage in banking credit

Total Credit (% of GDP) - Brazil
45
40,2
Credit / GDP has been
growing in recent years….
40
34,7
35
30,7
28,1
30
25
22,0
24,0
24,5
2003
2004
20
2002
300%
2005
2006
2007
Total Credit and Mortgage (% of GDP)
249%
250%
Total
Mortgage
200%
65%
73%
46%
50%
….but it is still far below
developed countries.
125%
20%
63%
37%
37%
13%
2%
2%
Brazil
100%
141%
India
150%
Chile
156%
17%
9%
Mexico
Spain
South
Africa
UK
USA
0%
5
Sources: Central Banks, IMF and
World Bank.
oct/08
Major impacts of the international crisis
in Brazil
6
International crisis impact and Government´s response
Since Sep´08, as a consequence of the global crisis, local liquidity has fallen.
Immediate measures have been taken.
RESPONSES
IMPACTS


Currency depreciation

Shortage of short-term export trade
lines (ACCs)


Currency swap auctions

Short term export trade finance

Pressure on the interbank market
Temporary liquidity swap facilities with
FED (US$ 30 billion)
 Liquidity constraint faced by small and
Reserve requirements over local banking
deposits have changed
medium-sized banks

Increase in local credit costs

Decrease in industrial output

 Expectations: reduced 2009 GDP

prospects
Decrease in commodity prices
Short term / Long-term finance provided
by public banks
Mantainance of long-term investments
(PAC)
Liquidity in local credit market
Liquidity in Foreign Currency Market
7
Some highlights on immediate responses...



Short term export trade finance
– Central Bank is investing a small part of its international reserves in credit lines to
local banks (onlending to exports)
– BNDES announced a credit line of R$ 5 billions to trade finance
Reserve requirements over local banking deposits
– Decreased
– Loan portfolios and interbank deposits bought from smaller banks can be used
instead of local Treasuries
Short term / Long-term finance provided by public banks
– New BNDES lines for working capital (R$ 6 billions)
– Agribusiness: Treasury announced renegotiation (BB is the main agent) and
increased the amount directed to agriculture.
– Housing and construction: additional support mainly from Caixa
ACTIONS TAKEN OVER LIQUIDITY ISSUES
NO SYSTEMIC SOLVENCY ISSUES IN BRAZIL
8
Some comments on permanent actions
Despite the severity of international crisis, Brazil have the tools to overcome
this critical stage and keep economic growth:





Brazilian public sector significantly deleveraged in foreign currency
terms
Room to reduce reserve requirements over local banking deposits
Room to reduce interest rate
PAC (Growth Acceleration Program)
Strategic role of public banks
9
PAC: assuring investment on infra-structure
PAC Investments in Infrastructure: 2007 - 2010
ENERGY:
 Oil and Natural Gas
 Electric Power Generation
 Renewable Fuels
 Electric Power Transmission
SOCIAL & URBAN:
 Housing
 Sanitation
 Water Resources
“Light for Everyone” Programm
 Subways
LOGISTIC:
TOTAL
US billion
141.0
91.9
33.8
8.9
6.4
87.7
54.6
20.5
6.5
4.5
1.6
29.9
% of Share.
54.5
35.5
13.1
3.5
2.5
33.9
21.1
7.9
2.5
1.7
0.6
11.6
258.6
100.0
BNDES in PAC: 198 projects
Associated investments – US$ 73 billion
BNDES financing - US$ 36 billion
10
*R$/US$ = 1.94
Public Banks: important source of domestic credit
Total Credit
(R$ 1,067 billion)
Others
20%
Top 3
Public
38%
Top 3 Public = BB, BNDES & Caixa
Top 3 Private = Bradesco, Itaú & Unibanco
Top 3 Foreign = ABN Amro, HSBC &
Santander
Source: Central Bank
Top 3
Foreign
14%
Top 3
Private
28%
OBS: There are two ongoing merger processes:
ABN Amro / Santander and Itaú / Unibanco.
Data of June 2008.
Relevant sources of BNDES and CAIXA´s funding come from GOVERNMENTESTABLISHED FUNDS:
BNDES: FAT (sources must be driven to create jobs)
Caixa: FGTS (sources must be driven to sanitation & building construction)
11
Final Remarks
12
Future prospects
 Infrastructure investment will lead growth of GDP
 Key drivers:
- Solid public sector
- A healthy and capitalized banking system
- Relevant role of public banks
- Large number of high return/low risk projects in
infrastructure (PAC)
- A resilient and lean corporate sector
13
BRAZIL:
ECONOMIC OUTLOOK
Maria Isabel Aboim
Deputy CFO
Brazilian Development Bank - BNDES
OECD, PARIS
December 2008
14