growth review for 2016 and 2017 prospects · proprietary survey: leandro câmara negrão / ana...
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Depec-Bradesco Economic Highlights
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Year XIII Number 143 - June, 3 2016
Source: IBGEProduction and forecast: BRADESCO
Growth review for 2016 and 2017 prospects
Activity indicators have surprisingly shown positive results since early on in the year, suggesting a faster stabilization of the economy than originally anticipated.
Such uptrend was initially led by the confidence indicators, lower inventories (essentially in the industry, but also in commerce), and the improved prices of f inancial assets (such as the interest rate slope, exchange rate appreciation, and lower sovereign risk). The uptrend was later strengthened by multiple hard data indicators, such as the import and export of capital goods, toll circulation on highways, vehicle number plate licensing (light vehicles and trucks), supermarket sales, etc. Some of these indicators were highlighted in a specific
publication issued in April1.
Two more comprehensive indicators were disclosed last week: the first-quarter GDP – which showed a better variation than estimated (margin down 0.3%, compared to the -0.7% estimate) –, and industrial production in April (first relevant information for the second-quarter GDP), which also showed much more favorable results than expected.
Both indicators show a potential stabilization of the GDP in the second quarter. In fact, we are now estimating no variation in the GDP for the second and third quarters, followed by an increase of 0.2% in the fourth quarter. We estimate a drop of 3.0% for the year (compared to the previous estimate of 3.5%).
Igor Velecico
GDP – deseasonalized margin evolution
0,0
0,8
1,6
0,2 0,3
1,7
0,6
-0,2
0,4
-1,2
0,0
0,2
-1,2
-2,0
-1,6-1,3
-0,3
0,0 0,00,2
-2,5
-2,0
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
Mar
-12
Jun-
12
Sep-
12
Dec
-12
Mar
-13
Jun-
13
Sep-
13
Dec
-13
Mar
-14
Jun-
14
Sep-
14
Dec
-14
Mar
-15
Jun-
15
Sep-
15
Dec
-15
Mar
-16
Jun-
16
Sep-
16
Dec
-16
PIB
An in-depth analysis of the first-quarter GDP reveals the lingering downturn in household consumption rates and, as a result, in household absorption: household consumption was down 1.7% in the margin, compared to -0.9% in 4Q15. Despite the slightly underwhelming results, we believe there is
sufficient evidence suggesting a certain stabilization of consumption rates in the third quarter (vehicle number plate licensing and retail sales have already stabilized, while the consumption of services – which are inherently less cyclical – are still stabilizing.)
1 Depec-Bradesco highlight dated April 29, 2016.
2DEPEC
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GDP and domestic absorption (ex inventories) – margin variation in %
Source: IBGEProduction and forecast: BRADESCO
1,8
-4,1
-1,9
2,31,6
1,2 0,9
0,0 0,2
0,0
1,6
0,3
1,7
-0,2
0,4
-1,2
0,0
0,2
-1,2-1,6
-1,3
-0,3
2,41,7
2,8
-3,5
-0,8
3,2 3,5
2,21,6
-0,1
1,00,8
1,41,9
0,60,1
-1,0
0,8
-2,5-2,7-2,1
-1,4
-5,0
-4,0
-3,0
-2,0
-1,0
0,0
1,0
2,0
3,0
4,020
08q0
120
08q0
220
08q0
320
08q0
420
09q0
120
09q0
220
09q0
320
09q0
420
10Q
0120
10Q
0220
10Q
0320
10Q
0420
11Q
0120
11Q
0220
11Q
0320
11Q
0420
12Q
0120
12Q
0220
12Q
0320
12Q
0420
13Q
0120
13Q
0220
13Q
0320
13Q
0420
14Q
0120
14Q
0220
14Q
0320
14Q
0420
15Q
0120
15Q
0220
15Q
0320
15Q
0420
16Q
01
GDPDomestic absorption
PIB E ABSORÇÃO DOMÉSTICA (EXCLUINDO VARIAÇÃO DE ESTOQUES) - TAXA DE CRESCIMENTO EM RELAÇÃO AO
Fonte: IBGEElaboração: Bradesco
A consumption contraction of 0.8% and increase of 2% in investments are expected for the second quarter, which should virtually stabilize household absorption in the margin. Both consumption and investment rates should start to improve in the second half.
We have maintained our growth estimate of 1.5% for 2017, above the market average (currently at 0.6%). The market’s uncertainty surrounding the strength of recovery is, in fact, related to the recovery of the final demand (government, investments and household consumption). There is no growth without final demand.
The main arguments for household consumption are that there is an ongoing deleveraging process in course to lower indebtedness or commit income, while unemployment rates will continue to rise and further compress the overall wage bill. When it comes to investments, the argument is that the actual use of installed capacity is still very low, and the monetary policy is still extremely contractionary. Therefore, the ongoing fiscal adjustment is clearly contractionary.
We will begin with the last argument. Most of the 2015 recession is attributed to the lower confidence, among economic agents, that the prospective trend of the public debt is sustainable. This generated enormous pressure over the exchange rate and sovereign risk, ultimately raising inflation and the market interest curve. Therefore, the uncertainty surrounding public finances negatively impacted the activity. In partial equilibrium (everything else constant), an expansion in spending boosts the activity. In general equilibrium, however, that is not always the case.
In addition, we disagree with the need for deleveraging households. We believe that consumption is currently at a very low level, partly due to precautionary reasons,
in light of the massive uncertainty surrounding the unemployment rate. As the economy starts to stabilize once again, such uncertainty fades and consumption can return to normal, even with higher unemployment rates for a few quarters.
However, let us assume, for a moment, that the market consensus expecting weak household demand is correct. In this case, we must shift our discussion towards inflation. Its most recent drivers are (i) the output gap, related to domestic demand; (ii) the behavior of the exchange rate; (iii) the credibility of the monetary policy; (iv) inertia and expectations; and (v) commodity prices.
In our view, a scenario of extremely low domestic demand renders the drivers (i) and (ii) clearly asymmetrical in the sense of mitigating inflation. Regarding drivers (iii) and (iv), the evolution of the Selic rate in 2015 was paramount to guide expectations towards the target. Therefore, we are left with an eventual commodity shock as a potential risk of inflation increase.
Hence, we believe that an environment of weak domestic demand generates an asymmetry in the prospective scenario for inflation and the Selic rate, as a result. In this case, uncertainties regarding growth should not lie on domestic demand, but rather on the ability of interest cuts to leverage the consolidated demand of the economy. There has not been any example of shortage of demand in Brazil so far. In 2012, when interest rates were lowered and the GDP did not grow, the economy featured good employment rates and a high current account deficit, which indicates that the problem lies in the supply, rather than demand. Therefore, we are confident that the GDP’s performance in 2017 will surpass market expectations.
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4,4
1,4
3,1
1,1
5,8
3,24,0
6,15,1
-0,1
7,5
3,9
1,9
3,0
0,1
-3,8-3,0
1,5
3,0
-4,5-3,5-2,5-1,5-0,50,51,52,53,54,55,56,57,58,5
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
GDP variation (%)
Source: IBGEProduction and forecast: BRADESCO
4DEPEC
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Octavio de Barros - Macroeconomic Research DirectorFernando Honorato Barbosa Global economics: Fabiana D’Atri / Felipe Wajskop França / Thomas Henrique Schreurs Pires / Ellen Regina Steter Brazil: Igor Velecico / Estevão Augusto Oller Scripilliti/ Andréa Bastos Damico / Myriã Tatiany Neves Bast / Daniela Cunha de Lima / Ariana Stephanie ZerbinattiBrazilian sectors: Regina Helena Couto Silva / Priscila Pacheco TrigoProprietary survey: Leandro Câmara Negrão / Ana Maria Bonomi BarufiInternships: Gabriel Marcondes dos Santos / Wesley Paixão Bachiega / Carlos Henrique Gomes de Brito
Team
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