Is it mainly Brazil? Rogerio Studart Non resident senior fellow, Brookings Institutions

Transcription

1 Rogerio Studart Non resident senior fellow, Brookings Institutions 27th Annual Hyman P. Minsky Conference on the State of US and World Economies Financial Stability in a World of Rising Rates and the Repeal of Dodd Frank Is it mainly Brazil? 1

2 Exhibit 2: Country Contribution to Aggregate Real GDP Growth LA-IT6 Aggregate Growth, % yoy; Contribution by country, ppts Since the 2009 crisis economic performance of LAC has deteriorated very fast and a lot of that has to do with Brazil (ppts) BRA (lhs) MEX (lhs) (yoy, %) CHL - COL - PER (lhs) ARG(lhs) 7.5 Real GDP Growth (rhs) F 2018F 2019F 2020F Source: Goldman Sachs Global Investment Research 2

3 The commodities boom created opportunities 3

4 Used to accumulate reserves and create policy space 4

5 That allowed for policy space, used successfully for reducing poverty and inequality 5

6 Long term public and private investment crisis ( ) Global crisis and the burst of the global commodities bubble (2010) Failed counter cyclical policies ( ) Political crisis and disastrous adjustment (2015) A suicidal mixture of austerity and government incompetence (2015 ) A perfect storm of overlapping problems

7 Infrastructure investment: Govt retrenched, and the private sector never took the lead Figure 12. Brazil: Public and Private Infrastructure Investment (In percent of GDP) Tot al Public Private Source: The chart shows data till 2006 from Calderón and Servén, 2010; and for the period from Frischtak,

8 LATIN AMERICA AND SELECTED REGIONS: GROSS FIXED CAPITAL FORMATION, (as a percentage of GDP) 8 Common to most LAC economies Source: Economic Commission for Latin America and the Caribbean (ECLAC) and World Bank on the basis of official figures.

9 Long term loss of dynamism 9

10 A boat drifting in the China sea 10

11 Disastrous adjustment In President Dilma tried to address the loss of economic dynamics with subsidies and credit In 2015, the recently elected Dilma government chooses to promote a dramatic fiscal adjustment This adjustment was done in tandem with a hike of public tariffs Inflation rises, and the central banks increases the benchmark rate to over 14% in a question of months 11

12 The government tries to respond by expanding credit 12

13 Political turmoil in making: one earthquake a day BBVA Research s index of political tensions in Brazil* (7-days moving average) formal start of Rousseff s impeachment process news about a recording in which Temer supposedly endorses bribery Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 13

14 A high price paid for austerity at all costs Interest rates: SELIC (% end of period; forecasts from 2018 onwards) GDP growth (% YoY) 16,0 14,25 13,75 14, ,0 11, ,00 10,0 9,50 0 8,0 7,25 7,00-2 6,75 6,0-4 4,0-6 2,0-8 Dec-16 0, (f) 2019 (f) 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 Mar-17 Jun-17 Sep-17 14

15 A perfect storm 15

16 Exports, private consumption and investment (% YoY) 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 Mar-17 Jun-17 Sep-17 But aggregate demand collapses Exports Private consumprion Investment in Fixed Capital 16

17 The picture today: slow jobless recovery 17

18 Conclusions 1. This crisis is exceptional, and the politics as usual will play a significant role in shaping how the country comes out of that 2. Challenges for future government is huge Downward trend of industrial investments that generates a increasingly vulnerable manufacturing sector aggravated by the wrong exchange rates and excessive costs of capital Significant infrastructure and logistics gaps, further contributing to near to the ground factor productivity and low competitiveness (our topic here) Very sophisticated, but short term private financial institutions; shallow capital markets; and a does it all public financial sector: scarce and expensive long term financing A rapid changing international landscape that makes it necessary to build a long term strategy that maximizes using and enhancing the efficiency of vast domestic resources 18

19 Thank you 19