THE OECD SELECTION Subject Indicator % Brazil % OECD Production, stocks and orders Crude steel production 11.1 7.7 Construction, sales, trade and transport...... 10.9 Labour force...... 1.9 Prices, costs and profits Coffee price 11.1 7.7 Monetary and financial Exchange rate 11.1 26.3 Foreign trade Exports; Terms of trade 22.2 5.1 Economic activity in foreign countries...... 2.6 Business and consumer Business situation, ft; 44.4 37.8 surveys Finished goods stocks; Order books; Order inflow, (industry). 100.0 100.0
THE OECD SELECTION As to the use of the exchange rate, it s worth comparing the effects of two different indicators. The first is the relative price between the Brazilian Real and the American Dollar (USDx). The second is the effective rate, a basket of currencies. Over a longer period of time, it s necessary to neutralize the effects of inflation. There are two versions for real exchange rates in Brazil. The first is constructed using as a deflator, the IPCA, the consumer price index; the second indicator utilizes the IPA-DI, the wholesale price index, as a deflator. The latter is a better representation of export company costs. From an economic point of view, it is possible that there is some redundancy between the predictive effects of the exchange rate USDx and the exports series (both included in the CLI). The exchange rate USDx bears a major impact on determining the result of exports activity.
THE OECD SELECTION Brazilian exports and effective exchange rate 140 Index % 50 130 40 120 110 100 90 80 30 20 10 0 70-10 60-20 mar/89 out/90 mai/92 dez/93 jul/95 fev/97 set/98 abr/00 nov/01 jun/03 jan/05 Effective exchange rat e (deflator: IPA-DI) Left Scale Exports volume (3m moving average of 12m rates)
THE OECD SELECTION The production of steel destined for export markets represents close to 40% of the total supply which once again reinforces the influence of external markets in the construction of the indicator. (The Brazilian economy is relatively closed). When looking at coffee, 50 years ago, the export sales of the product represented two thirds of Brazilian exports. Today, coffee only represents 2% of this export basket. Products such as soybeans and its derivatives or iron ore have a much greater expression.
THE OECD PRE - SELECTION On the list of 21 pre-selected indicators, the number of series extracted form business surveys grows to 10, almost half of the group. As part of a qualitive surveys harmonization project in Latin America, commanded by CEPAL (ECLA), with support from the OECD, the FGV, that produces these series, will begin to send out monthly questionnaires as from January 2006 with the following variables: Business situation (present conditions and future tendency); Order books; Finished goods stocks; Production (future tendency and present tendency compared to previous period). The forecasts for purchase of raw materials in the internal and external markets are not part of the pre-selection, perhaps in function of their short extension, only beginning in 2000.
THE OECD PRE - SELECTION There are two interest rates among the pre-selection list although neither one was actually chosen: a short-term rate, known in the market as the SELIC and a long-term interest rate known as the TJLP. The TJLP is established quarterly by the National Monetary Council to correct the long-term loans conceded by the National Bank of Economic and Social Development (BNDES). More precise indicators for mid and long-term interest rates are the 360 day Pre - DI swap rates, that may possibly exercise some effect on company s investment intentions more than the TJLP. The effects of interest rates on industrial activities may also be evaluated by the average spread between borrowing and lending rates.
THE OECD PRE - SELECTION 75 Brazilian Interest Rates and Industrial Production % yearly Index (Base 2002 = 100) 115 65 110 55 105 45 100 35 95 25 90 15 jan/98 jan/99 jan/00 jan/01 jan/02 jan/03 jan/04 jan/05 Av erage spread between lending and borrowing rates (yearly percentage points) SELIC - ov ernight rate (% yearly) Industrial production (seasonally adjusted) IBGE 85
THE OECD PRE - SELECTION In Brazil, there are two stock prices indicators that at certain moments move farther apart. The first one is the IBOVESPA, the stock market in São Paulo. It s made up of 54 public and private securities weighted by their daily traded volume. Parallel to this we find the FGV -100 index, comprised of share values from a group made up of 100 private sector companies. The weight of each share in the indicator is directly proportional to the size of the company it represents.
THE OECD PRE - SELECTION 1200 1000 800 Brazilian Stock Exchange Indexes and Industrial Production FGV100 Ibovespa Industrial Production - Right Scale 120 110 100 600 90 400 80 200 70 0 jan/86 ago/87mar/89 out/90 mai/92 dez/93 jul/95 fev/97 set/98 abr/00 nov/01 jun/03 jan/05 60
SUGGESTIONS Potential Leading Indicators for the Brazilian Industrial Production 300 Index (Base: Jan/92=100) 250 200 150 100 50 jan/92 fev/93 mar/94 abr/95 mai/96 jun/97 jul/98 ago/99 set/00 out/01 nov/02 dez/03 jan/05 Real Industrial Sales Hours Worked in São Paulo Industry Cardboard shipments Industrial Production
SUGGESTIONS Import volumes is another candidate as long as some care is taken. Trade liberalization in the 90 s provoked a change of level, expanded by exchange rate appreciation. Import movement demonstrates a cyclical nature, but strongly influenced by exchange rate fluctuations. The apparent consumption of diesel fuel oil is a useful economic activity indicator that does not only correlate with industrial production. Cargo and passenger transportation are part of GDP and may fill in the blank space of the Construction, Sales, Trade and Transport category. The series representing retail consumer sales issued by the IBGE, covering the national territory is in fact less than 5 years old. A possibility exists to include retail sales series from the state of São Paulo. However the regional focus of this series has been avoided.
SUGGESTIONS Greater approximation between the OECD and the FGV could facilitate the work of selection and maintenance of series related to the Brazilian economy. The FGV maintains a data bank called the FGVDADOS made up of the series created by the foundation and also includes series created by other institutions. More than two thirds of the approximately 3.000 series are issued on a monthly or quarterly basis. The FGV team that updates this data bank will inform the dates for release of information and can supply explanatory documentation on the series available in the data bank as well as answer related questions.