Brazil Economic Outlook and Investment Opportunities Jorge Arbache University of Brasilia BUSBC...
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Transcript of Brazil Economic Outlook and Investment Opportunities Jorge Arbache University of Brasilia BUSBC...
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Brazil Economic Outlook and Investment Opportunities
Jorge ArbacheUniversity of Brasilia
BUSBC Meeting, Brasilia, April 28, 2015
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Recent economic performanceGDP per capita growth (%)
Source: Central Bank
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
-2
-1
0
1
2
3
4
5
6
7
-0.1
1.7
-0.1
4.3
1.9
2.8
4.8
3.9
-1.3
6.5
2.9
0.8
1.8
-0.7
-1.5
-1.0
-0.2
0.0
Note: 2015-2018: our own estimates based on macroeconometric modelling and CGE analyses
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• End of the low hanging fruit growth model: consumption, easy credit, international liquidity, government spending and commodity boom
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Short term challenges
• Restore the market confidence• Resume growth• Fight inflation: ~ 8.25% in the last 12 months• Keep fiscal accounts under control: significant deterioration in recent
years• Keep BoP deficit under control: -4.5% of GDP in the last 12 months
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Current account balance - % GDPSource: Central Bank
CPI (%) – monthlySource: Central Bank
20012002
20032004
20052006
20072008
20092010
20112012
20132014
-5
-4
-3
-2
-1
0
1
2
3
Jan-10
May-1
0
Sep-10
Jan-11
May-1
1
Sep-11
Jan-12
May-1
2
Sep-12
Jan-13
May-1
3
Sep-13
Jan-14
May-1
4
Sep-14
Jan-150
0.2
0.4
0.6
0.8
1
1.2
1.4
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Pillars of Mr Levy`s policy
• Focus on gross public debt• Accelerate concessions and PPPs opportunities• Increase technical and college-level training• Foster increase in labor supply• Changes in Federal and State VAT• Expansion of the SIMPLES and ‘doing business’ initiatives• Focus on international trade
Source: MoF
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Non financial public sector primary and nominal balance - % GDP
Source: MoF
Government goal
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• Brazil -- combination of a still low unemployment rate (4.9% in the last 12 months) with recession, rising inflation and current account deterioration: trap
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How to explain the trap?
• Low unemployment is partly explained by the decelerating working age population, low labor productivity and service sector boom, which is highly labor intensive
• Exchange rate pass-through
• Falling savings and investment ratios
• Poor international competitiveness
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Medium term challenges
• Output gap has decreased: 2.3% from 3.4% in the last 15 years (our own estimates Jan/2015); IMF estimates (Apr/2015): 2.5%
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How to explain the falling potential output?
• Premature aging and rapid deceleration of the working age population• Premature servicification (70% of GDP), which is highly uncompetitive• Premature deindustrialization (manufacturing sector 13% of GDP from
35% in the 1980s)• Re-primarization of exports• Low and falling savings and investment ratios
• All combined with low and stagnated labor productivity, poor international competitiveness, and secular stagnation in developed countries
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• Despite the poor environment and growth prospects in Brazil, there are plenty of opportunities out there in the short and medium terms
• Demographic changes are creating great opportunities
• The desperate need to increase efficiency and productivity favors smart initiatives and smart businesses
• Expansion of concessions, PPPs and privatizations
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• Huge potential for industrialization of comparative advantages e.g. agribusiness, pre-salt, minerals, renewable energy, biodiversity, etc
• New frontiers of development in the countryside and in fringe states
• Smart cities projects
• Regional markets and the still rising middle class
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Case study: heath sector
• Brazil has a free, universal health service• Public service is widely perceived
as poor• It is unlikely that public
investment in healthcare will improve significantly in the foreseeable future
• Low and stable supply of beds and large regional infrastructure disparities• Hospital sector is highly
fragmented limited capacity to invest• Recent legislation change will
favor new entrants
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Japan
Korea
Russian
Fed.
German
y
Austria
Hungary
Czech Rep
ublic
PolandFra
nce
Belgium
Slova
k Rep
ublic
Finlan
d
Luxe
mbourg
Estonia
OECD25
Switz
erlan
d
Greece
Netherl
ands
Slove
nia
Australi
a
Denmark Ita
ly
Portuga
l
Icelan
d
Norway
Israe
lSp
ain
United St
ates
Irelan
d
United Kingd
om
New Ze
aland
Canad
aChina
Swed
en
Turke
yBraz
il
South Afri
caChile
Mexico
Indonesia
India
2.3
4.9
Note: Total of beds per 100 000 habitants. Source: WHO 2013 and OECD 2013.
Supply of beds: Brazil vs. OECD
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• Demographic changes are already impacting the healthcare demand strongly in terms of level, composition and type of care
• 19% of population above 60 years old in 2030 – it was 11% in 2013
• 2000 • 2030
0-45-9
10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-8485-89
90+
0-45-9
10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-8485-89
90+
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• As a result of the growing income and demographic changes, the coverage of private health insurance has increased from 34 to 51 million people between 2004 and 2014
• Only 1/4 of total population is covered by private health insurance
2004 2006 2008 2010 2012 2014
33.8437.25
41.4745.18
48.2850.93
Mill
ion
of P
eopl
eSource: ANS
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• A substantial share of additional supply of healthcare will have to be provided by the private sector
• Large room for new investments in infrastructure and market consolidation• Hospitals• Diagnosis services• Retail health clinics
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• Limited margin for fiscal maneuver in the short term
• Pursuing a fiscal adjustment will be politically challenging, but emerging awareness on the need to go forward with the reforms proposed by government
• Loss of investment grade and access to credit markets
• Economic slack and political uncertainties globally
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• China`s slowdown and commodity prices
• FED’s policy move
• Protectionism and trade policies
• Exchange rate uncertainties
• Environmental changes