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Macroeconomic Perspectives after the Crisis Nelson Barbosa Secretary of Economic Policy

Macroeconomic Perspectives after the Crisis Nelson Barbosa Secretary of Economic Policy New York, 4 November 2009. ECONOMIC RECOVERY AND THE “DDD” SYNDROME. INDUSTRIAL PRODUCTION Seas. Adjust. Index (jan/2007 = 100). Source: IBGE. Ellaborated by: MF/SPE. Unemployment rate.

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Macroeconomic Perspectives after the Crisis Nelson Barbosa Secretary of Economic Policy

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  1. Macroeconomic Perspectives after the Crisis Nelson Barbosa Secretary of Economic Policy New York, 4 November 2009

  2. ECONOMIC RECOVERY AND THE “DDD” SYNDROME

  3. INDUSTRIAL PRODUCTION Seas. Adjust. Index (jan/2007 = 100) Source: IBGE. Ellaborated by: MF/SPE

  4. Unemployment rate Source: IBGE. Elaborated by: MF/SPE 4

  5. GDP GROWTH (SAAR) Source: IBGE. Ellaborated by: MF/SPE.

  6. Evolution of the Macroeconomic Debate(The DDD Syndrome) Decoupling:the economy will not be hardly hit by the crisis, this time is different. Disaster:the economy will not recover, this time is not different and there will be recession, current account deficits and high unemployment Deficit:the economy recovered, but the fiscal and current-account deficits generated by economic policy will become a problem. 6

  7. An Old Look on Fiscal Policy and Debt: “'At every stage in the growth of the debt it has been seriously asserted by wise men that bankruptcy and ruin were at hand. Yet still the debt went on growing, and still bankruptcy and ruin were as remote as ever." Lord Thomas Macaulay 7

  8. Back to the structural questions: Inflation and monetary policy: How low can the real interest rate go? Is it sustainable? Budget balance and public debt: What is the trend? Is it sustainable? Exchange rate: How low can the BRL/USD exchange rate go? Is it sustainable? 8

  9. INTEREST RATE, INFLATION AND GROWTH

  10. ANNUAL INTEREST RATES */ Up to October 23rd/2009 Sources: BM&F e BCB. Ellaborated by: MF/SPE

  11. 10 years of inflation targetting * Market forecasts (Focus 10/30/09 ) Sources: IBGE e BCB Ellaborated by: MF/SPE 11

  12. GDP ANNUAL GROWTH RATE */ Government forecasts. Source: IBGE Ellaborated by: MF/SPE. 12

  13. FISCAL POLICY AND PUBLIC DEBT

  14. Fiscal Targets and Fiscal Space in 2009-10 Primary balance in 2009: 2.50% of GDP before investment; and 1.56% of GDP after investment Primary balance in 2010: 3.30% of GDP, before investment; and 2.65% of GDP, after investment. Sovereign Wealth Fund: +0.50% of GDP in primary revenues when necessary. Allocation of PAC expenditures: part of the 2009 budget can be transferred to the 2010 budget. 14

  15. Primary and Total Budget balance in % of GDP (*) 12 months up to Sep/09 Source: BCB Ellaborated by: MF/SPE 15

  16. RATIO OF NET PUBLIC DEBT TO GDP Source: BCB Ellaborated by: MF/SPE 16

  17. Net Borrowing by Institutional Sector (in % of GDP, 12-month average) Source: BCB Ellaborated by: MF/SPE

  18. FEDERAL GOVERNMENT: PRIMARY BALANCE */ 12 months up to Sep/09 Source: STN/MF Elaborado: SPE/MF

  19. FEDERAL GOVERNMENT: PRIMARY SURPLUS */ 12 months up to Sep/09 Source: MF/STN Ellaborated by: MF/SPE 19

  20. Central Government Primary Expenditures Composition 2002-2009 2002 2009* • * 12 months up to Sep/09 • **/ Includes Bolsa Família expenditures • Source: MF/STN Ellaborated by: MF/SPE

  21. Long-Term Policy to Control Fiscal Primary Expenditures Income transfers and payroll expenditures comprise 76% of the federal primary expenditures. Payroll management: annual ceiling for the real growth rate of expenditures Social-security challenges: minimum-wage policy, minimum age limits, requirements for risk benefits, and public employment. 21

  22. Central Government Expenditures Composition 2002-2009 2002 2009* * 12 months up to Sep/09 Source: MF/STN Ellaborated by: MF/SPE

  23. EXCHANGE RATE AND BALANCE OF PAYMENTS

  24. Trade Balance(US$ bilions) */ FOCUS – (10/30/2009). Source: MDIC and BCB Elaborated by: MF/SPE

  25. Foreign Direct Investment (net) xCurrent account(US$ billion) */ Focus (10/30/09). Source: BCB Ellaborated by: MF/SPE

  26. Net financial 12.0 Net commercial 7.0 4.9 1.6 4.6 1.6 4.1 3.1 3.1 2.9 1.2 1.6 1.6 1.3 0.8 0.5 - 0.1 - 0.1 - 2.0 - 2.8 - 3.2 - 3.5 - 3.5 - 3.9 - 4.2 - 6.2 - 6.3 - 10.3 Monthly foreign currency flow* (US$ billion) Total financial inflow: $22.3 billion Total financial outflow: $27 billions */ Up to October 23rd/2009 Source: BCB. Ellaborated by: MF/SPE

  27. INTERNATIONAL RESERVES(US$ billion) (*) Up to October 29th /2009. Source: BCB. Ellaborated by: MF/SPE.

  28. Nominal BRL/USD exchange rate 28 Source: BCB. Ellaborated by: MF/SPE.

  29. Effective real exchange rate (*)(Index: Jun/94 = 100) (*) Average of brazilian currency related to the currencies of 15 countries, weighted by the participation of these countries in brazilian exports Source:BCB. Ellaborated by: MF/SPE. 29

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