brazil - economiaemdia.com.br · o the effects of the covid-19 pandemic on economic activity have...

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



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



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


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


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


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


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


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


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


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


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


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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projections. All the data and opinions contained in these information bulletins is carefully checked and drawn up by fully qualified professionals, but it

should not be used, under any hypothesis, as the basis, support, guidance or norm for any document, valuations, judgments or decision taking, whether of

a formal or informal nature. Therefore, we emphasize that all the consequences and responsibility for using any data or analysis contained in this

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Updated: May 29th, 2020

22

brazil - economiaemdia.com.br · o the effects of the covid-19 pandemic on economic activity have...

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