Macro Research Economic outlook

Transcription

1 Macro Research Economic outlook Macroeconomic Research Itaú Unibanco August 2017

2 Roadmap Global Economy Positive environment for emerging markets continues Global growth remains solid. We revised our GDP forecasts for China to 6.7% in 2017 and 6.3% in 2018, from 6.5% and 5.8%, respectively. Interest rates in developed countries are likely to continue rising, but the pace will be slow, as the Fed and ECB are careful not to derail the global recovery. Flows to emerging markets benefit from this environment and from the improving EM-DM growth differential. Risks remain modest at the moment: geopolitical uncertainty emanating from the Trump administration; a repricing in the inflation pessimism in the U.S.; too much tightening causing a sharp slowdown in China. Brazil Tougher fiscal challenges The tax hike is not enough to meet the primary budget target, which will still require extraordinary revenues and other compensatory measures to be accomplished. We revised downward our forecast for unemployment in 2018, incorporating more informality in the job market. Our estimates for GDP growth are 0.3% in 2017 and 2.7% in We revised our exchange rate estimates to 3.35 reais per U.S. dollar in 2017 (from 3.50) and 3.50 in 2018 (from 3.60), reflecting a more benign international scenario. We increased our estimate for 2017 inflation to 3.4% from 3.3% due to the recent tax hike; our call for 2018 remains at 4.0%. The Selic benchmark interest rate is expected to reach 7.25% by year-end. Macro Research

3 Global Economy: Our forecasts World USA Eurozone Japan China Source: Itaú Unibanco, Haver Analytics Macro Research

4 Positive environment for emerging markets continues The positive environment for emerging markets is still on, as global growth remains solid; Interest rates in developed countries are likely to continue rising, but the pace will be slow, as the Fed and ECB are careful not to derail the global recovery; Flows to emerging markets benefit from this environment and from the improving EM-DM growth differential. Global GDP Growth 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% 2.5% % % 5.5% 5.6% 4.9% 4.3% % % -0.1% % % 3.4% 3.5% 3.4% 3.1% 3.6% 3.6% Source: Itaú, Haver Analytics

5 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 U.S.: positive growth, despite a dysfunctional government GDP growth accelerated to 2.6% qoq/saar in 2Q17, from 1.2% in 1Q17. We believe that the economy will continue to grow at an above-trend pace of 2.5% in 2H17; We forecast U.S. GDP to grow 2.1% in 2017 and 2.3% in 2018; The softer inflation in the first half is likely to be transitory, as wages will likely accelerate with the tightening of labor markets. The Fed has signaled the start of balance-sheet normalization relatively soon and the continuation of gradual interest-rate hikes; Nonetheless, the dysfunctional U.S. government creates downside risks. On the domestic front, a government shutdown and the debt limit (early October) are the main risks, while there is little hope for a tax reform. On the external front, the main risk is North Korea, in particular, its implications for U.S.-China relations GDP Growth %, annualized 5.5% 4.5% 3.5% 2.5% 1.5% 0.5% -0.5% -1.5% -2.5% 1.5% 2.1% 2.3% Source: Itaú, Haver Analytics QoQ Annual

6 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 Europe: solid growth, ECB cautiously preparing to reduce its asset purchases Euro-area GDP expanded 0.57% qoq in 2Q17. Leading indicators suggest that the economy is maintaining its positive momentum; With a better economic outlook, the ECB will likely start a reduction in its asset purchases later this year. We maintain our GDP forecasts at 2.0% and 1.7% for 2017 and 2018, respectively. GDP Growth (Eurozone) % annualized 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% 1.7% 2.0% 1.7% QoQ Annual Source: Haver Analytics, Itaú

7 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 China: stronger growth in 2017 and 2018 China s GDP grew by 6.9% yoy in 2Q17, maintaining the robust growth rate of the previous quarter; We now expect only a modest slowdown ahead, and revised China s GDP to 6.7% in 2017 (6.5%, previously) and 6.3% in 2018 (5.8%, previously); Why do we expect stronger Chinese growth?. First, the external sector is no longer a drag. Second, a recovery in private investment has offset the decrease in public investment. Third, the housing sector is more balanced. GDP Growth %, annualized 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 6,7% 6.7% 6.3% Source: Haver Analytics, Itaú, NBS QoQ Annual

8 LatAm: a benign external environment meets a still-clouded political scenario The external scenario remains benign for emerging market asset prices. Some positive news on the reform agenda led to an outperformance of the BRL in July, while uncertainties over mid-term elections in Argentina made the Argentine peso the worst performing currency last month; Activity remains weak almost everywhere, but the solid activity data in core economies make a recovery seem more likely; Many central banks are still finding room to cut interest rates, but in Argentina the challenging outlook for inflation will likely lead to more gradual rate cuts than we were previously expecting. 5.0% 4.0% GDP Growth 3.9% 4.2% 3.0% 2.0% 2.8% 1.6% 2.0% 2.5% 2.5% 2.1% 2.3% 1.0% 0.0% -1.0% -2.0% -3.0% -2.30% F 2018F Argentina Chile Colombia Mexico Peru Source: Itaú

9 Latam: our forecasts Peru GDP - % PIB - % PEN / USD (dec) MXN / USD (dec) Interest rates - (dec) Interest rates - (dec) IPC IPC Colombia PIB - % PIB - % COP / USD (dec) CLP / USD (dec) Interest rates - (dec) Interest rates - (dec) IPC IPC Argentina PIB - % ARS / USD (dec) Repo 7 d. (dec) - % n/a IPC - % (Buenos Aires) Mexico Chile Source: Itaú

10 Brazil: Our forecasts Economic Activity GDP (%) Unemployment (%) December (PNAD cont.) Inflation CPI (%) Monetary Policy Selic Rate (%) Fiscal Primary Surplus (% GDP) Balance of Payments Exchange Rate (eop) Current Account (% GDP) Macro Research

11 Tax hike is not enough to meet the primary result targets The government increased fuel taxes in order to reinforce its commitment to the fiscal adjustment. However, the target of a deficit of 2.1% of GDP (BRL 142 billion) in 2017 remains under great threat, particularly because of uncertainties on the materialization of large extraordinary revenues. Keeping that in mind, we maintain our forecast for the primary deficit at 2.4% of GDP (BRL 155 billion) in 2017; We revised our estimate for the 2018 primary deficit downward, to 1.8% of GDP (BRL 131 billion) from 2.1%, in line with the target. The greatest risk to next year s target is slower economic growth than we currently anticipate; The pension reform has yet to run through Congress. General Government Gross Debt %GDP 80% 75% 70% 65% 70% 77% 75% 60% 55% 50% Source: Itaú, IBGE 45%

12 Activity: the main economic indicators advanced in April and May The main economic indicators advanced in April and May, signaling a broader recovery in economic activity. Industrial production, broad retail sales and real service revenues expanded 1.9%, 0.5% and 1.1% cumulatively in these two months, respectively (seasonally-adjusted). The decline in confidence indicators in June amid greater political turmoil was not reflected in gross activity figures. Nevertheless, the outlook for 2Q17 GDP is a small contraction. Our estimate is -0.2% qoq/sa, driven by a discrete drop in agriculture GDP and unfavorable statistical carryover from many GDP components after weak March figures; Our GDP growth estimates are 0.3% in 2017 and 2.7% in 2018, in line with a gradual recovery amid slower political progress on reforms. If reforms move forward (particularly the pension reform), the recovery could be stronger next year. Confidence Indicators S.a Industry Commerce Services 60 Jun-09 Jun-11 Jun-13 Jun-15 Jun-17 Source: Itaú, IBGE GDP Growth QoQ s.a. 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -2.0% Actual -2.5% Forecast 2013.IV2014.III 2015.II 2016.I 2016.IV2017.III 2018.II

13 Unemployment nearing its peak In net terms, 9,800 formal jobs were created in June (according to the Labor Ministry s CAGED registry). The seasonallyadjusted quarterly moving average improved to -16,000 from -41,000 and has been on a gradual positive trend since 2Q16; According to the national household survey (PNAD Contínua IBGE), Brazil s nationwide unemployment rate stood at 13.0% in the quarter ended in June vs. 13.3% in the quarter ended in May. Using our seasonal adjustment, unemployment dropped to 12.9% from 13.0% and has remained relatively stable throughout 2017; In sum, unemployment has been prevented from going up by a change in the composition of the labor market toward greater informality (i.e. more people working outside the formal economy). Hence, in our outlook for the labor market, we revised our expectations for the unemployment rate. Unemployment Rate %, seasonally adjusted Formal Job Creation (CAGED) 3MMA, thousands Jun-09 Jun-11 Jun-13 Jun-15 Jun-17 Source: IBGE, Itaú, FGV

14 Benign international scenario for risky assets The Brazilian currency appreciated in a more benign international environment for risky assets. Domestically, the approval of the labor reform in Congress also helped to boost currency gains; We revised our year-end forecasts for the exchange rate to 3.35 in 2017 (from 3.50) and 3.50 in 2018 (from 3.60). Our new estimates incorporate a benign scenario for risky assets in the coming months, higher commodity prices (on average) and a weaker dollar against several currencies. Internally, however, uncertainties surrounding adjustments and reforms are set to continue, pressuring risk premiums. Country Risk Premium and Exchange Rate BRL/USD, CDS 5y BRL CDS (rhs) Exchange Rate BRL/USD, eop Jan-17 Feb-17Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Source: Itaú, BCB

15 We expect inflation to reach 3.4% in 2017 and 4.0% in 2018 The larger-than-expected impact of the hike in fuel taxes more than offset the downward effect of revised exchange rate forecasts and more favorable inflation at the margin. We revised our 2017 forecast upward slightly for the headline consumer price index IPCA, to 3.4% from 3.3%; Our 2018 inflation estimate remains at 4.0%. Our below-target inflation estimate for next year will be driven chiefly by a negative output gap, along with less inertia from 2017 inflation and anchored inflation expectations. Source: Itaú, IBGE 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% IPCA Breakdown yoy IPCA Market-set prices (76%) Regulated prices (24%) 10.7% 6.3% 3.4% Forecast 0% Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec %

16 Monetary policy: cruise speed, for now In its July meeting, the Central Bank s Monetary Policy Committee (Copom) delivered the expected outcome: a 100- bp rate cut, leading the Selic rate to 9.25% p.a. This marks the return of the Selic rate to single digit territory for the first time since November 2013; The minutes from the July meeting suggest that the debate within the committee, regarding the next policy meeting, remains limited to the range of bps and also confirmed the signal, offered in the statement, that the base case for now is a 100-bp cut in September; After that, taking into account the stage of the cycle, the committee is likely to slow down the pace of easing to 50 bps per meeting, with the Selic rate ending the year at 7.25%. Selic % p.a. 16% 14% 12% 10% 8.97% 9.25% 8% 7.66% 7.00% 7.25% 6% Source: Itaú, Bloomberg Itau Unibanco Forecast Yield Curve Pricing Pricing as of Aug 8th

17 Conclusão Global Economy Positive environment for emerging markets continues Global growth remains solid. We revised our GDP forecasts for China to 6.7% in 2017 and 6.3% in 2018, from 6.5% and 5.8%, respectively. Interest rates in developed countries are likely to continue rising, but the pace will be slow, as the Fed and ECB are careful not to derail the global recovery. Flows to emerging markets benefit from this environment and from the improving EM-DM growth differential. Risks remain modest at the moment: geopolitical uncertainty emanating from the Trump administration; a repricing in the inflation pessimism in the U.S.; too much tightening causing a sharp slowdown in China. Brazil Tougher fiscal challenges The tax hike is not enough to meet the primary budget target, which will still require extraordinary revenues and other compensatory measures to be accomplished. We revised downward our forecast for unemployment in 2018, incorporating more informality in the job market. Our estimates for GDP growth are 0.3% in 2017 and 2.7% in We revised our exchange rate estimates to 3.35 reais per U.S. dollar in 2017 (from 3.50) and 3.50 in 2018 (from 3.60), reflecting a more benign international scenario. We increased our estimate for 2017 inflation to 3.4% from 3.3% due to the recent tax hike; our call for 2018 remains at 4.0%. The Selic benchmark interest rate is expected to reach 7.25% by year-end.

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