THE RECOVERY OF THE BRAZILIAN ECONOMY WALTER BAÈRE FILHO Deputy Executive Secretary of Planning, Development and Management
THE ECONOMY REFLECTS THE ADJUSTED POLICIES BOOMING CAPITAL MARKET 85,032 pts STOCK EXCHANGE AT RECORD HIGHS AVERAGE INDEX OF APRIL 2018 STRONG BALANCE OF PAYMENTS ECONOMIC RECOVERY LOW INFLATION 2.95% LOWER ANNUAL INFLATION RATE SINCE 1998 CONSUMER PRICE INDEX (IPCA) FOR 2017 LOW INTEREST RATE US$ 64.4 billion TRADE BALANCE RECORD HIGH IN 2017 US$ 383 billion STABLE RESERVES FOR THE PAST 6 YEARS 6.50% LOWEST INTEREST RATE IN HISTORY COPOM BASE RATE IN MAY 2018
III - 2015 IV - 2015 I - 2016 II - 2016 III - 2016 IV - 2016 I - 2017 II - 2017 III - 2017 IV - 2017 I - 2018 II - 2018 III - 2018 IV - 2018 I - 2019 II - 2019 THE END OF THE ECONOMIC RECESSION Gross Domestic Product (% change in 4Q ver the previous period) 1.0% 1.4% 1.8% 2.2% 2.5% 2.8% 3.0% -1.2% -0.2% -2.2% -3.5% -4.4% -4.6% -4.2% -3.5% -2.2% Market Projections Source: IBGE and BCB/FOCUS of May 18, 2018
THE LABOR MARKET RECOVERS Net Job Creation/Destruction (YTD) Number of People 2,629,827 2,026,571 1,372,594 1,138,562 420,690 336,855-18,395-1,534,989-1,326,558 Source: CAGED/MTE 2010 2011 2012 2013 2014 2015 2016 2017 2018 - (JAN - APR) 4
BRAZIL ADOPTED A SUCCESSFUL INFLATION TARGET REGIME 12.00 10.67 10.00 8.00 6.00 4.00 5.90 4.31 5.91 6.50 5.84 5.91 6.41 6.29 2.00 2.95 3.50 4.01 4.00-2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 IPCA (acum. 12m) Meta de Inflação Limite para efeito de cumprimento da meta Source: IBGE and BCB 2017-2020: BCB/Focus of of May. 18, 2018
Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17 Apr-18 REAL INTEREST RATES ARE FALLING Real interest rate ex-ante* (%) 10.0% 9.0% 8.6% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 1.4% 2.3% 0.0% Source: Brazilian Central Bank - BCB * Swap DI-Pre of 360 days over expected IPCA inflation in 12 months
Bovespa Index THE STOCK EXCHANGE IS AT RECORD HIGHS 95000 85000 75000 May 17, 2018 January 26, 2016 Change % Ibovespa 83,622 37,497 123% Petrobras (PETR3) 30.21 5.96 407% Vale do Rio Doce (VALE3) 55.38 8.94 519% Banco do Brasil (BBAS3) 32.86 12.89 155% Eletrobras (ELET3) 18.98 4.88 289% Closing prices as of Mar. 17, 2018 65000 55000 45000 35000 Source: Bloomberg
Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 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 Feb-18 Apr-18 TRADE BALANCE AT RECORD HIGH Trade Balance Accumulated in 1 year US$ mm. FOB 80,000 70,000 60,000 50,000 40,000 30,000 Trade Balance Exports Imports Exports and Imports Daily average accumulated in 1 year US$ mm. FOB 64,060 1200 1000 901 800 637 600 20,000 400 10,000 0 200-10,000 0 Source: MDIC
EXTERNAL FINANCIAL NEEDS COVERED BY FOREIGN INVESTMENTS % of GDP 3.4% 3.6% 2.8% 3.3% 3.3% 2.9% 3.1% 2.2% 2.2% 2.7% -1.6% -3.4% -2.9% -3.0% -3.0% -4.2% -3.3% -1.3% -0.5% -0.4% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 * Current Account Result Direct Investment in the Country Source: BCB *2018: 12-mo accumulated until March
STABLE INTERNATIONAL RESERVES FOR THE PAST 6 YEARS mar-09 jun-09 set-09 dez-09 mar-10 jun-10 set-10 dez-10 mar-11 jun-11 set-11 dez-11 mar-12 jun-12 set-12 dez-12 mar-13 jun-13 set-13 dez-13 mar-14 jun-14 set-14 dez-14 mar-15 jun-15 set-15 dez-15 mar-16 jun-16 set-16 dez-16 mar-17 jun-17 set-17 dez-17 mar-18 400.0 383.1 350.0 300.0 250.0 200.0 150.0
ECONOMIC RECOVERY Fiscal Consolidation Structural Reforms ECONOMIC GROWTH Public-Private Partnership Improvement of the regulatory framework and business environment
FISCAL CONSOLIDATION New Fiscal Regime: Constitutional Amendment 95/2016 of the Public Expenditure Cap. Modernization of Public Management: improvement of electronic systems and processes, strengthening and expanding Digital Government practices. Modernization of State Enterprises Management: Strict rules for purchases, bids and for the appointment of managerial positions and reduction in the effective staff of non-dependent state companies. 12
% GDP EXPENDITURES ARE EXPECTED TO DECLINE Total Primary Expenditure 21.0% 20.0% 19.4% 20.0% 19.5% 19.7% 19.0% 18.8% 18.0% Average 2002-2018: 17,4%. 17.4% 18.2% 17.3% 18.1% 18.3% 17.8% 17.0% 16.0% 15.9% 15.6% 16.4% 16.8% 16.9% 16.2% 16.8% 16.9% 15.1% 15.0% 14.0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018* 2019** 2020** 2021** Source: until 2017, National Treasury. * 2018: Evaluation Report for the 2 nd bimester of 2018. ** 2019-2021, PLDO-2019. 13
THE FISCAL CHALLENGE Fiscal recovery of States Federal Government posts primary deficits since 2014: Fiscal challenges involve both expenditures and revenues. The fiscal crisis promotes the search for efficiency of public expenditures. At the same time, the Federal Government implements an agenda of modernization of public management. Better public services are related to the revision of public expenditures and to the improvement in revenues. 14
PRIMARY EXPENDITURES IN 2017 Personnel expenses and social costs (working servants) 12.6% Other Expenditures 11.9% Old Age and Survivor Benefits 53.2% Social Assistance 11.2% Health care (exc.personnel) 7.5% Education (exc. personnel) 3.6% Source: National Treasury 15
% GDP PIB A REFORM OF THE SOCIAL SECURITY SYSTEM IS NEEDED Resultado (RGPS) Receita Revenues Líquida RGPS Despesa Net Expenditures Revenues Líquida RGPS 10.0% 8.0% 6.4% 6.7% 6.6% 6.4% 6.6% 6.7% 6.8% 7.3% 8.1% 8.5% 8.5% 8.4% 8.6% 8.8% 6.0% 4.0% 5.3% 5.5% 5.5% 5.6% 5.7% 5.8% 5.8% 5.8% 5.7% 5.7% 5.6% 5.7% 5.7% 5.7% 2.0% 0.0% -2.0% -4.0% -0.8% -1.2% -1.3% -1.1% -0.8% -0.9% -1.0% -1.4% -2.4% -2.8% -2,9% -2.8% -2.9% -3.1% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018* 2019** 2020** 2021** Source: until 2017, National Treasury. * 2018: Evaluation Report for the 2 nd bimester of 2018. ** 2019-2021, PLDO-2019. 16
THE AGE PATTERN IS CHANGING People over 60 y.o. were 6.3% of the population in 1990 Homens Men Age Pyramid 1990 / 2010 / 2030 / 2060 Mulheres Women 12000 10000 8000 6000 4000 2000 0 2000 4000 6000 8000 10000 Thousand Milhares people 1990 > 80 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4 Men Homens Women Mulheres 10000 8000 6000 4000 2000 0 2000 4000 6000 8000 10000 Thousand people Milhares 2010 > 80 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4 In 2010, they reached 10.0% of the population In 2030, they will be 18.6% of the population Homens Men 2030 Women Mulheres In 2050, the share of elderly > 80 people 75-79 Brazil is expected 70-74 65-69 to 60-64 55-59 reach 29.4% of the 50-54 population 45-49 40-44 (or 66.5 35-39 mm people). 30-34 25-29 Homens > 80 Mulheres Homens > 80 Mulheres 75-79 75-79 > 80 70-74 70-74 75-79 65-69 65-69 70-74 60-64 60-64 65-69 55-59 55-59 60-64 50-54 50-54 55-59 45-49 45-49 40-44 50-54 40-44 45-49 35-39 35-39 40-44 30-34 30-34 35-39 25-29 25-29 20-24 30-34 20-24 15-19 25-29 15-19 10-14 20-24 10-14 5-9 15-19 5-9 0-4 10-14 0-4 5-9 10000 8000 6000 4000 2000 0 2000 4000 6000 8000 10000 10000 8000 0-46000 4000 2000 0 2000 4000 6000 8000 10000 Thousand 10000 8000 6000 4000 2000 0 Milhares people Thousand 2000 4000 6000 8000 10000 10000 8000 6000 4000 2000 0 Milhares people 2000 4000 6000 8000 10000 Milhares Milhares Men Homens 2050 Women Mulheres 20-24 15-19 10-14 5-9 0-4 Source: IBGE.
% PIB % GDP GENERAL GOVERNMENT GROSS DEBT 90.0% 80.0% 70.0% 65.5% 70.0% 74.0% 75.7% 77.7% 79.7% 81.1% 60.0% 50.0% 56.0% 59.2% 51.8% 51.3% 53.7% 51.5% 56.3% 40.0% 30.0% 20.0% 10.0% 0.0% Sources: BCB and National Treasury. *PLDO-2019. 18
PPI - INVESTMENTS, CONCESSIONS AND PRIVATIZATIONS 74 Projects Auctioned or Renewed US$ 10.6 billion* in signature bonuses US$ 42.1 billion* In expected investments Electric Power Airports * R$ 36 billion and ** R$ 143.6 billion (Exchange rate of 3.4092 BRL per USD, Apr. 2018 monthly average) +Liquefied Petroleum Gas 46 Transmission Lots Aug. and Dec. 2017 4 Concessions of Hydroelectric Plants: São Simão, Jaguara, Miranda e Volta Grande Sep. 2017 Extension for the Small Hydroelectric Plant of Pery/SC Jul. 2017 Privatization of CELG-D Feb. 2017 Florianópolis, Fortaleza, Porto Alegre e Salvador Jul. 2017 Oil and gas Port Terminals 4 th Marginal Fields Round May 2017 14 th and 15 th Exploratory Blocks Bidding Round Sept. 2017 and Mar. 2018 2 nd and 3 rd Pre-Salt Production Sharing Bidding Rounds Oct. 2017 Salvador-Tecon and Paranaguá-Fospar Nov. 2016 STM 04 e 05 Santarém Mar. 2017 Santa Catarina Tesc Jul. 2017 Wheat Terminal RJ and Itaqui/MA - Tequimar Aug. 2017 Vila do Conde/PA Convicon, Nitport and Nitshore RJ Nov. 2017 3 LPG + Terminals - Miramar/PA Apr. 2018
ONGOING PROJECTS 101 PPI Projects US$ 39.4 billion* in expected investments Highways Railways 8 8 4 Biddings 5 Renewals 4 Studies Airports 17 13 Concessions 4 Shareholding selling 3 Biddings Port Terminals 25 Electric Power 32 UHE - 1 Extension Privatization 6 Distributors and Eletrobras Concession 24 Transmission Lots COMAER 1 Public-Private Partnership (PPP) Oil and gas 2 1 Pre-salt sharing 1 Marginal accumulation Lottery 1 Concession of the right to exploit Currency House 1 Privatization Mining 4 Concession to exploitation of Mining areas Supply 2 CEASAMINAS CASEMG Privatization *R$ 134.3 billion (Exchange rate of 3.4092 BRL per USD, Apr. 2018 monthly average) 20
PRIORITY AGENDA Tax simplification: Social Contribution Reform Central Bank autonomy New legal framework for tenders and public procurements New public finance law Regulation on civil servants salaries Business improvement and recovery program of state-owned companies New real estate purchase contracts law Update of the General Telecommunications Law Privatization of Eletrobras Strengthening of Regulatory Agencies 21
BRASIL INVESTMENT FORUM 2018 May 29-30, in São Paulo, Brazil Unique opportunity for direct meetings with high-level Brazilian authorities High-level event for CEOs 2 full days of Panels with Ministers and CEOs Macroeconomic Scenario Investment Opportunities Regulatory Framework More information and pre-register: www.brasilinvestmentforum.com
THANK YOU! WALTER BAÈRE FILHO Deputy Executive Secretary of Planning, Development and Management