Brazil Economic Weekly

Transcription

1 Macroeconomic Research Department Macroeconomic Research Department Brazil Economic Weekly May 8 th 2015 Recent recovery in oil prices could lead to a new readjustment in gasoline Myriã Tatiany Neves Bast The recent recovery in international oil prices has increased the likelihood of a positive readjustment being made in gasoline prices in Brazil in It is worth noting that, as these prices have been highly volatile, what we are suggesting here is only a monitoring exercise. In a year in which there will be great pressure on inflation, with the end of the policy of blocking rise in a number of controlled prices and the effects of rebuilding taxes and the currency depreciation, any readjustment in gasoline prices would put even more pressure on consumer inflation which could exceed our expectation of a rise of 8.0%. When international oil prices reached levels closer to US$ 50/barrel, the gasoline prices in the United States fell and domestic prices were around 60% higher than external prices in Reais terms. However, the currency depreciation seen this year and the upturn in the international oil price have wiped out this difference. The international prices in Reais terms are now higher than domestic prices at the current levels of the exchange rate and the oil price. We estimate there would need to be a readjustment of approximately 5% in the price at the refinery, which represents a rise of just over 3.5% at the pump, to eliminate the current lag. Obviously, this readjustment depends on how oil prices and the exchange rate perform in the coming months. Although we do not foresee any rise in the gasoline price, we cannot rule out the possibility of this happening in this year when the Amplified Consumer price Index (local acronym IPCA) already assumes great pressure. Any steadier recovery of the Argentinean economy will depend on changes in the economic policy following the October elections Felipe Wajskop França BRAZIL ECONOMIC WEEKLY The Argentinean economy showed some accommodation in the first quarter of this year after cooling sharply in The same goes for inflation which has eased to a reasonable extent since the end of last year. Nevertheless, the country continues to show an unfavorable imbalance of low growth and high inflation that will require the economic policy to be reversed if this discrepancy is to be resolved. As a result, any more consistent upturn in the Argentinean economy will depend on the political transition following the elections scheduled for October. In this situation, we foresee GDP maintaining the slowdown registered last year, with no variation in This will mean another retraction in real terms if we accept the estimates of private observers and analysts. There is also no doubt that the new government will face great challenges and the speed at which the changes are made could vary greatly depending on the result of the poll. The sustained recovery of investments and private consumption will only come about if the economic policy implemented over the last decade is put into reverse. Argentina needs to free up imports which, in turn, demands access to the international capital markets to finance the resulting current account deficit. This will depend on a resolution of the disputes with the holdouts. Furthermore, the relative prices should be rebalanced, with the depreciation of the peso being higher than inflation and the readjustment of subsidized tariffs, particularly energy. The public accounts will also have to be rebalanced and the fiscal deficit reduced. Finally, interest rates will have to be raised which, combined with a greater fiscal discipline, could reduce the inflationary pressures and bring about sustained business and household confidence. 1

2 Recent recovery in oil prices could lead to a new readjustment in gasoline Myriã Tatiany Neves Bast The recent recovery in international oil prices has increased the likelihood of a positive readjustment being made in gasoline prices in Brazil in It is worth noting that, as these prices have been highly volatile, what we are suggesting here is only a monitoring exercise. In a year in which there will be great pressure on inflation, with the end of the policy of blocking rise in a number of controlled prices and the effects of rebuilding taxes and the currency depreciation, any readjustment in gasoline prices would put even more pressure on consumer inflation which could exceed our expectation of a rise of 8.0%. We have recently seen a big recovery in oil prices, with Brent type the European benchmark jumping by more than 8% over the last two weeks to above US$ 57/barrel. WTI type oil the US benchmark has shown a similar increase, rising above US$ 60/barrel ,8 99,8 75,7 93,9 126,2 109,8 77,7 116,9 99,0 84,4 118,9 116,6 97,9 86,7 BRENT WTI 111,2 115,1 108,4 100,3 99,2 99,4 87,1 91,7 80,4 74,2 67,9 60,8 Brent and WTI type oil prices US$/ barrel daily figures /05/ /06/ /07/ /08/ /08/ /09/ /10/ /11/ /12/ /01/ /02/ /03/ /04/ /05/ /06/ /07/ /08/ /08/ /09/ /10/ /11/ /12/ /01/ /02/ /03/ /04/ /05/ /06/ /07/ /07/ /08/ /09/ /10/ /11/ /12/ /01/ /02/ /03/ /04/ /05/ /06/ /07/ /07/ /08/ /09/ /10/ /11/ /12/ /01/ /02/ /03/ /04/ /05/ ,5 Source: Bloomberg Domestic Outlook This recent recovery, on a global scale, reflects a number of factors. The worsening of the geopolitical problems involving Yemen, Saudi Arabia and Iran have certainly pushed prices higher. However, another and perhaps more important contributory factor has been the outlook for American oil production. If the consensus view until recently was that the US production would continue to grow this year, even at lower rates, current expectations point to a decline between the third and fourth quarters. Should this happen, OPEC's strategy of maintaining a high production level, with oversupply in relation to world demand and forcing prices lower, to bring about the reduction in other countries would start to work. The fact is that with prices at the lower levels seen at the end of 2014 and the first quarter of this year, when Brent was selling at an average price of US$ 55/ 1 Organization of Petroleum Exporting Countries. barrel and WTI at US$ 48/barrel, many investments were cut in non-opec producing regions, leading to these revisions in oil production, particularly in the US. Should this reduction be confirmed, the difference between world supply and demand will fall ahead of expectations and the level of world stocks should stop rising. This is why oil prices have reacted and moved higher. Besides this change in expectations for world supply, it is worth pointing out that many analysts have adjusted their estimates for demand upwards, particularly for Europe. Therefore, the recovery of these prices, at least the part that reflects the change in expectations over the oil market fundamentals, should be upheld throughout the year. We expect Brent oil to end the year very close to its current level of US$ 65/ barrel. 2

3 Therefore, an important question for inflation should be analyzed once again: the lagged effect of domestic gasoline prices in relation to the international prices. As Petrobras imports gasoline from the US to serve part of the domestic market, the difference between domestic and international prices, measured in Reais, should be ironed out in the medium term. When international oil prices reached levels closer to US$ 50/barrel, the gasoline prices in the United States fell and domestic prices were around 60% higher than external prices in Reais terms. However, the currency depreciation seen this year and the upturn in the international oil price have wiped out this difference. The international prices in Reais terms are now higher than domestic prices at the current levels of the exchange rate and the oil price 2. 95% 75% DOMESTIC PRICE > INTERNACIONAL PRINCE IN R$ 88,1% 59,3% Lagged effect of gasoline prices monthly average 55% 35% 15% 10,6% 15,0% 25,1% 17,5% -5% -8,3% -4,3% -25% -45% -32,0% -36,6% -23,5% -21,5% -25,1% -12,5% DOMESTIC PRICE< INTERNACIONAL PRICE IN R$ May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Jan-10 May-10 Jan-11 May-11 Jan-12 May-12 Jan-13 May-13 Jan-14 May-14 Jan-15 May-15 Source: Bloomberg As oil prices have been fairly volatile and it is a market that is liable to abrupt changes resulting from geopolitical conflicts and movements on the financial markets in general, it is reasonable to expect a determined period with a lag that is persistently negative (or positive) of gasoline prices before any readjustment is announced. Despite this, should the current levels of the exchange rate and the oil price remain for longer than a few months or this lag strengthens in the shortterm, the likelihood increases of a positive readjustment being made in domestic gasoline prices. This is a very different prospect from what had been discussed until very recently when there was the chance of a cut in the gasoline price as domestic prices were much higher than international prices in Reais terms. The likelihood of a new hike in gasoline prices this year has risen 3. We estimate there would need to be a readjustment of approximately 5% in the price at the refinery, which represents a rise of just over 3.5% at the pump, to eliminate the current lag. Obviously, this readjustment depends on how oil prices and the exchange rate perform in the coming months. In the following table, we have calculated the readjustment the consumer would see for each combination of the exchange rate and Brent type oil, if the differential between the international prices in Reais and domestic prices were evened out in each case. Domestic Outlook Brent US$ % 11.51% 20.50% 23.49% 24.99% 26.49% Brent US$ % 1.40% 9.27% 11.89% 13.20% 14.51% Brent US$ % -3.65% 3.65% 6.08% 7.30% 8.52% Readjustment at the pump should the lag be zeroed in each combination of the exchange rate (R$/US$) and price of Brent 2 Assuming the following exchange rate and oil price: R$/US$ 3.05 and US$ 67.9/barrel of Brent type. 3 The latest readjustment in gasoline prices at the refinery was in December 2014 but the consumer prices rose this year due to an increase in the PIS/ Cofins, taxes that was later replaced by the rebuilding of the CIDE tax. 3

4 This year's inflation is already coming under great pressure and any increase of 5% at the refinery represents an additional 15 bps on the IPCA index. The market consensus is that this is currently running at 8.26% and could rise to 8.41% with all things constant. The Central Bank's expectation of 7.90%, stated in its latest Inflation Report, would advance to 8.05% as a result of this effect alone. If we assume the Central Bank's expectation will come closer to 8% even without the higher gasoline price reflecting some short-term surprises and tariff increases that had not been considered in the outlook this annual projection could reach almost 8.20%. Therefore, although we do not foresee any rise in the gasoline price, we cannot rule out the possibility of this happening in this year when the Amplified Consumer Price Index (IPCA) already assumes great pressure. In terms of the Central Bank's task of reining inflation in closer to the target of 4.5% in 2016, this readjustment should not directly affect its decisions in handling the monetary policy since, at the end of the day, gasoline is a controlled price which is not directly under the Bank's control. Although the inertia effects of a higher inflation level in 2015 could make it difficult albeit marginally to bring about the convergence of inflation next year, we expect the cooling in activity, particularly on the labor market, to offset this impact with room to spare. Domestic Outlook 4

5 Any steadier recovery of the Argentinean economy will depend on changes in the economic policy following the October elections Felipe Wajskop França The Argentinean economy showed some accommodation in the first quarter of this year after cooling sharply in The same goes for inflation which has eased to a reasonable extent since the end of last year. Nevertheless, the country continues to show an unfavorable imbalance of low growth and high inflation that will require the economic policy to be reversed if it this discrepancy is to be resolved. As a result, any more consistent upturn in the Argentinean economy will depend on the political transition following the elections scheduled for October. In this situation, we foresee GDP maintaining the slowdown registered last year, with no variation in This will mean another retraction in real terms if we accept the estimates of private observers and analysts. There is also no doubt that the new government will face great challenges and the speed at which the changes are made could vary greatly depending on the result of the poll. The official figures show that Argentina's GDP grew by 0.5% in 2014, even with the worsening in the domestic imbalances. However, this apparent contradiction can be explained by the divergence between the official data and estimates by analysts in the private sector. For example, activity index calculated by the OJF consultancy, that aims to reproduce the performance of GDP, registered a retraction of 2.5% last year. Nevertheless, the steep fall in relation to the growth of 2.9% registered in 2013 resulted mainly in a reduction of 5.6% in the gross formation of fixed capital, the demand component that was most impacted by the federal government's interventionist policies, restrictions on the currency market and imports, and price controls. On one hand, the restrictions on imports limited investments as they held up the entry of capital goods. On the other hand, the other remaining policies dampened business confidence. Moreover, the construction sector has been hit by the limits imposed on transactions carried out in dollars, the currency that had traditionally been used in house sales. 15,0% 10,0% 12,5% 10,9% 8,3% Net Exports Gross formation of fixed capital Government Spending Consumption GDP Contribution of the demand components and interannual variation in GDP 5,9% 5,0% 5,4% 5,2% 0,8% 0,4% 0,0% -1,4% Global Outlook -5,0% -3,5% Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Dec-09 Mar-10 Jun-10 Dec-10 Mar-11 Jun-11 Dec-11 Mar-12 Jun-12 Dec-12 Mar-13 Jun-13 Dec-13 Mar-14 Jun-14 Dec-14 Some accommodation was seen in the fall in investments in the first quarter. Activity in the construction sector has been recovering gradually in sequential terms, with an accumulated increase of 1.4% over 12 months, as shown in the sector's activity index (following a retraction of 0.4% in December on the same comparison base). Imports of capital goods and spare Source: INDEC parts for capital goods maintained their very weak performance (with accumulated variations of 3.1% and -24.8%, respectively, over the 12 months to March). Despite this, the short-term outlook is not good as the fundamentals underpinning the macroeconomic policy that have led to the drop in investments over the last year are unlikely to be reversed in the near future. 5

6 70,0% 60,0% 50,0% 40,0% 33,6% 30,0% 27,1% 20,0% 14,5% 10,0% 36,0% 56,1% 36,6% 26,3% Gross formation of capital goods Imports of capital goods Imports of parts for capital goods 10,7% Investments variation accumulated over 12 months 0,0% -10,0% 3,1% -5,6% -20,0% -30,0% -40,0% Mar-08 Jun-08 Sep-08 Dec-08 Mar-09-14,6% -31,5% Jun-09 Dec-09 Mar-10 Jun-10 Dec-10 Mar-11 Jun-11 Dec-11 Mar-12 Jun-12-14,7% Dec-12 Mar-13 Jun-13 Dec-13 Mar-14 Jun-14 Dec-14 Mar-15-24,8% Source: Bloomberg Construction sector activity index - variation accumulated over 12 months 14,0% 10,0% 7,4% 6,0% 9,1% 12,4% 11,0% 7,2% 5,0% 2,0% -2,0% 0,3% -0,6% 1,4% Source: CEIC -6,0% -3,8% Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Nov-14 Jan-15 Mar-15-4,3% There has also been a sharp upturn in consumer confidence since the beginning of the year. This was due to the easing of inflation seen in the period that brought real gains in workers' income. Wages rose by 5.2% in real terms in March over the same month of The daily consumer price index published by The Economist shows that inflation dropped from 41.2% a year in November to 26.1% in March. Part of this movement was due to the recent fall in commodity prices on the international market. However, much of it is a reflection of the weakness of the local economy, the federal government's price control policy (particularly energy prices) and the policy of artificially strengthening the currency. Global Outlook 65,0 60,0 55,0 50,0 45,0 44,41 40,0 39,60 37,06 35,0 30,0 Apr-08 Aug-08 Dec-08 45,56 42,35 39,03 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 55,36 Dec-10 Apr-11 59,31 57,35 52,57 43,83 Aug-11 Dec-11 Apr-12 Aug-12 51,85 49,95 47,62 43,89 41,65 33,46 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 52,85 Consumer confidence index Source: CEIC 6

7 Consumer price index interannual variation 45% 40% 35% 41,2% 37,5% 41,2% 30% 25,1% 25% 25,4% 26,6% 26,1% 23,3% 20,8% 20% 15% 14,7% 15,6% 17,5% Source: PriceStats/The Economist 10% Nov-08 Jan-09 Mar-09 May-09 Jul-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Nov-14 Jan-15 Mar-15 Another factor that contributed to the accommodation in economic activity at the beginning of the year and the slowdown in inflation was the stability of the country's foreign currency reserves. Bilateral agreements with China provided Argentina with some relief in the financing of its external accounts. The Chinese Central Bank made available a swap line worth US$ 11 billion to its Argentinean counterpart in the middle of last year, of which the Argentinean Central Bank has already withdrawn US$ 2.7 billion. Furthermore, local companies (and the government itself) have resumed making bond issues in dollars on the domestic market which have been in surprisingly high demand. The state-owned oil company, YPF, and the Argentinean Treasury each made issues of US$ 1.5 billion at the end of April compared with initial offers of US$ 500 million. The government has also applied to multilateral bodies for loans to cater to its need for dollars Currency reserves (US$ million) Mar-01 Jun-01 Sep-01 Dec-01 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Dec-09 Mar-10 Jun-10 Dec-10 Mar-11 Jun-11 Dec-11 Mar-12 Jun-12 Dec-12 Mar-13 Jun-13 Dec-13 Mar-14 Jun-14 Dec-14 Mar-15 Source: Bloomberg Global Outlook However, the recent relief in Argentina's economic conditions has not resolved the imbalances that have built up over the last few years. The sustained recovery of investments and private consumption will only come about if the economic policy implemented over the last decade is put into reverse. Argentina needs to free up imports which, in turn, demands access to the international capital markets to finance the resulting current account deficit. This will depend on a resolution of the disputes with the holdout. Furthermore, the relative prices should be rebalanced, with the depreciation of the peso being higher than inflation and the readjustment of subsidized tariffs, particularly energy. The public accounts will also have to be rebalanced and the fiscal deficit reduced. Finally, interest rates will have to be raised which, combined with a greater fiscal discipline, could reduce the inflationary pressures and bring about sustained business and household confidence. Nevertheless, this does not seem to be among the president Cristina Kirchner's priorities. As a result, any change in this direction should only come about after the presidential elections in October. However, although the likeliest main candidates 1 are leaning in this direction, their commitment could vary 1 (1) Daniel Scioli, governor of Buenos Aires province and the main name to run as a candidate for president Cristina Kirchner's party (FPV); (2) Mauricio Macri, mayor of Buenos Aires and leader of the opposition party PRO; and (3) Sergio Massa, mayor of Tigre and president Cristina Kirchner's former chief of staff. 7

8 substantially. The outcome will not only depend on the president-elect's proximity to the current policy, as would be the case with Daniel Scioli, but also his support in Congress. In this situation, an opposition candidate, such as Mauricio Macri, would have to deal with a support base that is uncoordinated and would probably have a very tight majority. Therefore, the Argentinean political agenda from here on will be a fundamental factor in shaping the future outlook of the economy. The regional primary elections will take place in the coming months and the parties will have to meet the deadline of June 20 for the nomination of their presidential candidates. Nevertheless, any more consistent upturn in the Argentinean economy will depend on the political transition following the elections scheduled for October. In this situation, we foresee GDP maintaining the slowdown registered last year, with no variation in This will mean another retraction in real terms if we accept the estimates of private observers and analysts. Global Outlook 8

9 Bradesco Macroeconomic Forecast * 2015* 2016* DOMESTIC ACTIVITY, INFLATION AND INTEREST RATES GDP (%) Agriculture (%) Industry (%) Services (%) Private consumption (%) Government consumption (%) Investment (%) Exports of goods and services (%) Imports of goods and services (%) GDP (R$ billion - current prices) 2,409 2,718 3,107 3,328 3,886 4,374 4,713 5,157 5,521 5,938 6,412 GDP (US$ billion) 1,107 1,395 1,693 1,666 2,208 2,612 2,411 2,390 2,346 1,989 2,099 Population (million) Per Capita GDP (US$ - current prices) 5,865 7,281 8,716 8,469 11,083 13,232 12,105 11,889 11,571 9,732, 10,187 Industrial Production - IBGE (%) Unemployment Rate - IBGE (%) Retail Sales - (%) CPI - IPCA - IBGE (%) CPI - FIPE (%) WPI - IGP-M - FGV (%) Nominal Interest Rates - Selic target (end of period - %) Nominal Interest Rates - Selic target (12-month - %) ,82 10,81 10,81 Real Interest Rates - Selic (12-month - %) ,25 4,54 4,54 EXTERNAL ACCOUNTS AND FX Trade Balance (US$ billion) Exports (US$ billion) Imports (US$ billion) Trade flow (exports + imports) (% of GDP) Deficit of Services and Income (US$ billion) Current Account Deficit (US$ billions) Current Account Deficit (% of GDP) Foreign Direct Investment (US$ billions) FX - end of period (R$ / US$) FX - yearly average (R$ / US$) Nominal FX devaluation (YoY - %) Nominal FX devaluation (average - %) International Reserves (US$ billion) Total Medium and Long term External Debt (US$ billion) FISCAL ACCOUNTS Primary Surplus (R$ billions) Primary Surplus (% of GDP) Public Sector Nominal Balance (% of GDP) Global Outlook Gross Public Debt (domestic and external) (R$ billion) Gross Public Debt (domestic and external) (% of GDP) As of May 8 th (*) Forecast. na = not available. Source: Official figures Production and forecasts(*): BRADESCO 1,359 1,575 1,784 2,027 2,073 2,369 2,773 2,950 3,513 3,867 4,

10 Team Octavio de Barros - Macroeconomic Research Director Marcelo Cirne de Toledo Global economics: Brazil: Brazilian sectors: Fabiana D Atri / Felipe Wajskop França / Thomas Henrique Schreurs Pires Igor Velecico / Andréa Bastos Damico / Ellen Regina Steter / Myriã Tatiany Neves Bast Regina Helena Couto Silva / Priscila Pacheco Trigo / Leandro de Oliveira Almeida Proprietary survey: Fernando Freitas / Leandro Câmara Negrão / Ana Maria Bonomi Barufi Internships: Ariana Stephanie Zerbinatti / Thomaz Lopes Macetti / Victor Hugo Carvalho Alexandrino da Silva / Davi Sacomani Beganskas / Ives Leonardo Dias Fernandes / Henrique Neves Plens / Mizael Silva Alves Team - BRADESCO does not accept responsibility for any actions/decisions that may be taken based on the information provided in its publications and 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 publication is assumed exclusively by the user, exempting BRADESCO from all responsibility for any actions resulting from the usage of this material. We all point out that access to this information implies acceptance in full of this term of responsibility and usage. The reproduction of the content in this report (partially or in full) is strictly forbidden except if authorized by BRADESCO or if the sources (the name of the authors, publication and BRADESCO) are strictly mentioned. 10