Macro Research Economic outlook

Transcription

1 Macro Research Economic outlook Macroeconomic Research Itaú Unibanco January 2018

2 Roadmap Global Economy Goldilocks scenario continues Global growth to remain at 3.8% in Growth in developed countries should remain a bit above 2.0%. A modest slowing in China, to 6.3% (from 6.8%), is a soft landing. Beyond China, EM growth will broaden and accelerate to 4.2% (from 3.7%). As growth remains above potential in developed countries, the output gap will turn positive, gradually pushing inflation up, particularly in the U.S., but we see little risk of inflation overshooting central banks targets this year. DM central banks will use the global recovery to assure inflation converges to 2% (or a bit above it) and hence remove monetary accommodation in a very gradual fashion. An adjustment to the monetary policy framework is an increasingly plausible move in the U.S. Broad global economic growth, moderate inflation and cautious central banks support low volatility, high-risk asset prices and EM inflows. Brazil A better fiscal reading, for now We revised our estimate for the primary budget deficit in 2017 to 1.9% of GDP from 2.3%, but the structural fiscal rebalancing still depends on reforms. The activity recovery continues: our growth forecasts are 3.0% in 2018 and 3.7% in The Brazilian currency tends to depreciate somewhat: we forecast BRL 3.50 per USD by YE18 and 3.60 by YE19. The inflation scenario remains benign: we estimate 3.8% this year and 4.0% in We expect a 25-bp cut in the benchmark Selic interest rate in February and another 25-bp cut in March, ending the monetary easing cycle at 6.5% p.a.

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

4 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 U.S.: A cautious Fed is still warranted in 2018 We forecast U.S. GDP growth to accelerate to 2.4% in 2018 from 2.3% in 2017, supported by easy financial conditions and a moderate fiscal impulse. Fiscal policy is likely to become a tailwind for private demand. Inflation expected to rise gradually, to 2%. We foresee three 25-bp Fed rate hikes in 2018, with balanced risks in the current inflation target regime. GDP Growth %, annualized 5.5% 4.5% 3.5% 2.5% 1.5% 0.5% -0.5% -1.5% 2.3% 2.4% 2.1% -2.5% Source: Itaú, Haver Analytics QoQ Annual

5 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 Europe: Good growth, low inflationary and political risks We expect Eurozone GDP to expand 2.1% in 2018 and 2019, after an estimated 2.3% in With a better economic outlook, the ECB will likely end its asset purchases in 2018 but raise interest rates only in Political risks seem relatively low. EU-UK Brexit negotiations could see progress this year. Italy s election could present some significant downside risk, but this is unlikely to lead to a euro breakup. GDP Growth (Eurozone) % annualized 3.0% 2.5% 2.0% 2.3% 2.1% 2.1% 1.5% 1.0% 0.5% 0.0% QoQ Annual Source: Haver Analytics, Itaú

6 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 China: Soft-landing is manageable Economic activity in China continued to moderate. We expect GDP to moderate in 2018, in line with a soft-landing scenario. We maintained growth forecasts at 6.8% for 2017 and at 6.3% for For 2019, we expect growth to moderate further to 5.9%. China s government can likely manage a soft landing. The credit-to-gdp ratio remains high but has started to stabilize with more rigid financial regulations on alternative credit products. Also, the government is managing a gradual reduction in state-owned enterprise (SOE) debt, which is the main problem. The low level of public debt allows some degree of freedom for the government to manage the SOE debt over time. GDP Growth %, annualized 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 6.8% 6.3% 5.9% Source: Haver Analytics, Itaú, NBS QoQ Annual

7 LatAm: Growth set to improve in 2018 The external environment for Latin America remains favorable, supporting export prices, sovereign risk and exchange rates. Growth is improving in most countries within our coverage, and a pickup is expected in 2018, with the exception of Mexico. Helped by negative output gaps and exchange-rate strengthening, most countries are facing low (or falling) inflation, allowing for further interest rate cuts. However, in Mexico where inflation has surprised to the upside the central bank resumed interest rate hikes. Inflation in Argentina is also high, but the government set higher targets for inflation, leading the central bank to cut interest rates modestly. 5.0% GDP Growth 4.0% 3.0% 2.0% 3.5% 1.6% 3.0% 2.0% 2.9% 2.5% 2.1% 4.0% 4.0% 1.0% 0.0% -1.0% -2.0% -3.0% -2.2% F 2018F Argentina Chile Colombia Mexico Peru Source: Itaú

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

9 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)

10 Better primary result in 2017 does not change the challenging fiscal picture We revised our estimate for the primary budget result in 2017 to -1.9% of GDP (or BRL -120 billion) from -2.3% of GDP (or BRL -150 billion), vs. a target of BRL -163 billion (or -2.5% of GDP). The revision was driven by surprises in extraordinary revenues, particularly under tax amnesty program Refis, as well as in results from states and municipal governments. However, the revision does not mean a permanent improvement in fiscal readings. Large extraordinary revenues in 2017 will not be repeated in 2018, while results from states and municipalities will probably remain relatively stable compared with a year earlier, given the challenging fiscal situation faced by many Brazilian states. Unfavorable debt dynamics %GDP 75% 70% 65% 60% 55% 50% 45% General Government Gross Debt Source: BCB, Itaú

11 Activity: gradual recovery continues We reduced our forecast for GDP growth in 4Q17 to 0.0% qoq/sa, down from 0.2% (2.1% yoy). The adjustment incorporates somewhat disappointing data for October. This forecast is below what fundamentals and confidence surveys suggest (back to levels see chart) due to two factors: i) agricultural GDP is still providing a negative contribution, after a strong reading in 1Q17; and ii) persistent weakness in some service components. Nevertheless, our forecast for 2017 GDP growth still stands at 1.0%. We forecast 3.0% GDP growth for 2018 and 3.7% for 2019, but the balance of risks is tilted to the downside. These forecasts assume that the reform agenda will continue going forward. If an interruption or even reversal of this process is anticipated, the recovery in activity will be in jeopardy. Confidence Surveys Seasonally adjusted Industry Commerce Services Construction GDP Growth and Domestic Demand QoQ s.a. 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% Dec-09 Dec-11 Dec-13 Dec-15 Dec-17 Source: IBGE, Itaú -1.5% -2.0% Realized Forecast -2.5% 2013.IV 2014.IV 2015.IV 2016.IV 2017.IV 2018.IV

12 Gradual recovery in the labor market continues In November, 12,300 formal jobs were eliminated in net terms (according to the Ministry of Labor s CAGED registry). However, the seasonally adjusted quarterly moving average rose to 21,000 from 13,000 and has been improving gradually since 2Q16. According to the national household survey (PNAD Contínua - IBGE), Brazil s nationwide unemployment rate fell to 12.0% in the quarter ended in November from 12.2% in the quarter ended in October. Using our seasonal adjustment, unemployment slid 0.1 pp, to 12.5%. We expect the seasonally-adjusted unemployment rate to decline to 11.8% by YE18 and to 10.9% by YE19, compared with 12.5% in the quarter ended in November. In our view, the decline in unemployment will be increasingly driven by formal jobs rather than informal positions. Unemployment Rate %, seasonally adjusted Formal Job Creation (CAGED) 3MMA, thousands Nov-09 Nov-11 Nov-13 Nov-15 Nov-17 Source: IBGE, Itaú, FGV

13 A weaker currency in the coming years The exchange rate ended 2017 near BRL 3.30 per USD. The external environment was favorable for risky assets during the past year, but domestically, political uncertainties remained high, particularly those related to reform approvals. Our forecasts for the exchange rate are unchanged, at BRL 3.50 by YE18 and BRL 3.60 by YE19. The increase in interest rates in the U.S. (albeit gradual) and the corollary tightening in financial conditions will reduce global risk appetite, supporting a weaker exchange rate in the coming years. There are upside and downside risks to our call. Domestically, the biggest risk is the progress of the reform agenda. Overseas, the evolution of U.S. inflation tends to determine the number of interest rate hikes Exchange Rate BRL/USD, monthly average Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Source: Itaú, BCB, Bloomberg

14 Below-target inflation Consumer price index IPCA climbed 0.44% in December, ending the year with a 2.95% increase, down substantially from 6.29% in For 2018, our call for the IPCA is unchanged, at 3.8%. Breaking down the estimate, we anticipate advances of 3.5% in market-set prices and 4.8% in regulated prices. Our below-target forecast for inflation this year is driven by: lower inertia from past inflation, anchored expectations and a still-negative output gap. Our 2019 forecast for the IPCA remains around 4.0%, with market-set prices advancing 3.9% and regulated prices climbing 4.2%. IPCA Breakdown 20% 18% 16% 14% 12% 10% yoy IPCA Market-set prices (76%) Regulated prices (24%) 10.7% Forecast 8% 6% 6.3% 4% 2% 2.9% 3.8% Source: Itaú, IBGE 0% Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18

15 Monetary policy: Fine-tuning the end of the cycle In December, the central bank s Monetary Policy Committee (Copom) delivered the widely expected outcome, a 50- bp rate cut, taking the Selic to 7.0% p.a., an unprecedented low. The committee signaled, quite clearly, that unless the economy surprises in a major way, it will reduce the Selic by 25 bps, to 6.75% in its next policy meeting, on February 6-7. In the Copom s view, the main downside risks to inflation are second-round effects of the shock to food prices (no longer present) and inertial effects arising from low levels of current inflation. Upside risks include disappointments with the reform agenda and a possible reversal of the external scenario, both pressuring inflation through the exchange rate channel. 14% Selic % p.a. 12% 10% 8.17% 8% 6.50% 7.00% 6% Itau Unibanco Forecast Yield Curve Pricing Source: Itaú, Bloomberg

16 Conclusion Global Economy Goldilocks scenario continues Global growth to remain at 3.8% in Growth in developed countries should remain a bit above 2.0%. A modest slowing in China, to 6.3% (from 6.8%), is a soft landing. Beyond China, EM growth will broaden and accelerate to 4.2% (from 3.7%). As growth remains above potential in developed countries, the output gap will turn positive, gradually pushing inflation up, particularly in the U.S., but we see little risk of inflation overshooting central banks targets this year. DM central banks will use the global recovery to assure inflation converges to 2% (or a bit above it) and hence remove monetary accommodation in a very gradual fashion. An adjustment to the monetary policy framework is an increasingly plausible move in the U.S. Broad global economic growth, moderate inflation and cautious central banks support low volatility, high-risk asset prices and EM inflows. Brazil A better fiscal reading, for now We revised our estimate for the primary budget deficit in 2017 to 1.9% of GDP from 2.3%, but the structural fiscal rebalancing still depends on reforms. The activity recovery continues: our growth forecasts are 3.0% in 2018 and 3.7% in The Brazilian currency tends to depreciate somewhat: we forecast BRL 3.50 per USD by YE18 and 3.60 by YE19. The inflation scenario remains benign: we estimate 3.8% this year and 4.0% in We expect a 25-bp cut in the benchmark Selic interest rate in February and another 25-bp cut in March, ending the monetary easing cycle at 6.5% p.a.

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