OECD ECONOMIC SURVEY OF
BRAZIL Brasília
18 December 2023 oe.cd/brazil-snap
@OECDeconomy @OECD
The economic recovery has been strong GDP Volume, base 2019Q4 = 100 120
Brazil
OECD
India
Mexico
United States
115 110
105 100 95 90 85 80 75
19Q4 20Q1 20Q2 20Q3 20Q4 21Q1 21Q2 21Q3 21Q4 22Q1 22Q2 22Q3 22Q4 23Q1 23Q2
Note: Seasonally and calendar adjusted data. Source: OECD Economic Outlook.
2
Inflation has fallen, allowing further monetary policy easing % 14
Inflation and policy rate Year-on-year % changes Headline inflation (left axis)
Core inflation (left axis)
Target (left axis)
Policy rate (right axis)
% 21
12
18
10
15
8
12
6
9
4
6
2
3
0 2016
0
2017
2018
2019
2020
2021
2022
2023
Note: Inflation is measured by the IPCA consumer price index. Core inflation excludes energy and food products. The shaded area corresponds to the inflation tolerance band. Source: OECD Economic Outlook database; Central Bank of Brazil; and OECD calculations.
3
Growth will remain solid 2023
2024
2025
Real GDP growth, %
Consumer price index, % change
Unemployment, %
Source: OECD Economic Outlook database. 4
Addressing fiscal challenges
Rebuilding fiscal space is important Evolution of public debt % of GDP 100 95 90 85 80 75 70 65 60 55 50
Source: CEIC; Central Bank of Brazil. 6
6
Growth-enhancing reforms will improve fiscal sustainability Public debt % of GDP
2050
2049
2048
2047
2046
2045
2044
2043
2042
2041
2040
2039
2038
2037
2036
2035
2034
2033
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
Slower fiscal adjustment scenario Baseline scenario including tax reform and new fiscal framework Ambitious structural reform package
2020
% 130 120 110 100 90 80 70 60 50 40
Note: In the baseline scenario, the primary fiscal result improves from -1.2% in 2022 to +1.0% of GDP by 2026, in line with projections by the Treasury and the OECD. After 2026 compliance with the new fiscal framework is assumed. The exchange rate and the interest rate are assumed to remain constant after 2025. The tax reform is assumed to boost GDP growth to 2.0% from 2026. The ambitious reforms scenario assumes structural reforms that add an additional 0.5 percentage point as of 2026 (see table 1.3). The slower fiscal adjustment scenario assumes that compliance to the new fiscal rule is not strict, and the primary balance surplus is 1 percentage points below the baseline. Source: OECD calculations based on National Treasury, IBGE (Instituto Brasileiro de Geografia e Estatística), Central Bank of Brazil and OECD projections.
Lower mandatory spending would create room for policy initiatives Central government expenditure by spending category % of total central government expenditure 2020
2021
2022
Mandatory expenses with personnel
Other mandatory spending
Discretionary spending
60 50 40
30 20 10
0
Mandatory welfare benefits
Note: Annual aggregates of monthly data. The spike in “Other mandatory spending” in 2020 was due to Covid-related spending. Source: National Treasury; and OECD calculations.
8
8
Making growth stronger and more inclusive
Productivity growth needs to become stronger GDP per person employed In constant 2017 PPP thousand $, 2022 110 100 90
80 70 60 50 40 30 20 10 0
IND
PER
IDN
BRA
CHN
COL
MEX
ZAF
CRI
ARG
CHL
TUR OECD
Source: World Bank; and OECD calculations. 10
10
Regulations have improved but further action is needed to boost competition OECD Product Market Regulation Indicator Index scale from 0 to 6, from most to least competition-friendly regulations 3.5
2018
2023
3 2.5 2 1.5 1 0.5
0
CHL OECD MEX
PER
COL
VNM
TUR
CRI
ZAF
MYS
BRA
ARG
IDN
CHN
Note: The 2023 PMR value for Brazil is still preliminary and pending further information from the Brazilian authorities. The PMR value for all other countries in the figure has not been updated yet and reflects the regulations in place in 2018. The PMR methodology has changed in 2023 and the PMR values in 2018 and 2023 are not directly comparable. Source: OECD PMR database.
11
Lowering trade barriers could strengthen integration into global value chains Trade tariffs Effectively applied weighted average, %, 2020 or latest 10 9
8 7 6 5 4 3 2
BRA
ARG
IND
KOR
ZAF
CHN
COL
JPN
IDN
FRA
USA
DEU
CAN
GBR
MEX
AUS
0
CHL
1
Note: Effectively applied weighted average, or AHS weighted average, refers to the average of tariffs weighted by their corresponding trade value.
Source: World Integrated Trade Solution database (WITS).
12
Prioritising educational investment in early years of schooling would improve educational outcomes Total expenditure on educational institutions per full-time student equivalent USD PPP, direct expenditure, 2019 21000
Brazil
OECD
18000 15000 12000 9000 6000
3000 0
Primary
Lower secondary
Source: OECD education at a glance database; and OECD calculations.
Upper secondary
All tertiary 13
Spending on active labour market programmes could be increased with a focus on training Public expenditure on active labour market policies % of GDP, 2020 or latest 4.5 4 3.5 3 2.5 2 1.5
1
0
MEX CHL LVA ISR SVN CZE ITA NOR ARG PRT BRA EST HUN CHE DEU KOR JPN FRA AUT POL LUX FIN BEL SWE OECD ESP SVK LTU IRL USA DNK NLD AUS CAN NZL
0.5
Source: OECD labour market programmes database; ILO (2016), What works: Active labour market policies in Latin America and the Caribbean, International Labour Office, Geneva.
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Improving access to early childhood education would reduce gender gaps in the labour market Gender gaps Percentage points, 2022 35
Female participation gap
Employment rate gap
30 25
20 15 10 5 0
OECD
BRA
CHL
Source: IBGE; ILOstat; OECD labour market statistics; and OECD calculations.
CRI
COL
MEX 15
Scaling up infrastructure investment
More infrastructure investment would improve competitiveness Brazil's infrastructure gap by sector 2019
Energy 24%
Transport 53%
Water & sanitation 12%
Digital development 11% Note: Infrastructure gap refers to investment necessary to close the shortage in infrastructure needs. World Bank estimated a total infrastructure gap of US$778 billion (or 3.7% of GDP per year) to achieve the Sustainable Development Goals, with the transport sector having the largest financing gap (53% of the total). Source: World Bank; and OECD calculations.
17
Efficiency of public infrastructure investment should be increased Scores in each infrastructure project cycle phase for public investment From 0 (worst performance) to 100 (best performance) 100 90
Brazil
Peer countries with similar income levels
80 70 60 50 40 30 20 10 0
Preparation
Procurement
Contract management
Infrastructure asset management
Note: Data collected by World Bank through standardised questionnaires designed to assess the regulatory quality for preparation, procurement, and management of large infrastructure projects. Survey responses were scored and normalised for international comparisons, with higher scores representing better performance. Peer countries in the upper middle income group of 54 countries defined by World Bank. Source: World Bank (2020b), “Benchmarking Infrastructure Development 2020”.
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Attracting more private finance for infrastructure projects will be key Stock of infrastructure loans by lender March 2023 Domestic private, 9% Foreign private, 6%
Other public banks, 31%
BNDES, 54%
Note: BNDES is the Brazilian Development Bank. Source: Central Bank of Brazil.
19
Making growth more sustainable
Reducing deforestation and greening agriculture and energy production would reduce net emissions Net greenhouse gas emissions by sector of origin Million tons of CO2 equivalent 3500
Waste
Industrial processes
Energy
Agriculture
Land use and forestry
2025 Paris Target
3000 2500 2000 1500 1000
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
500
Note: Based on the global warming potential fifth assessment report by the Intergovernmental Panel on Climate Change (GWP-AR5). Source: Observatório do Clima (SEEG), http://plataforma.seeg.eco.br/total_emission. Brazil's NDC submitted to UNFCCC as of 21 March 2022.
21
Tackling deforestation requires strong enforcement Annual deforestation km2 30000
25000 20000 15000 10000 5000 0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Note: Data refer to the legal definition of the Amazon region, comprising the states of Acre, Amapá, Amazonas, Pará, Rondônia, Roraima and Tocantins, most of Mato Grosso and the western part of Maranhão. Source: Prodes, Instituto Nacional de Pesquisas Espaciais (INPE), http://www.obt.inpe.br/OBT/assuntos/programas/amazonia/prodes. 22
Reforms to agricultural support schemes could contribute to reducing emissions Direct GHG emissions from the agricultural sector Kg CO2 equivalents 600
Application of urea Soil management Enteric fermentation
500
Liming Rice cultivation
Burning of agricultural waste Waste management
400 300 200
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0
1990
100
Source: Emissões de GEE por Subsetor, Ministério da Ciência, Tecnologia e Inovação; and Estimativas Anuais de Emissões de Gases de Efeito Estuda no Brasil (6ª Edição), Ministério da Ciência, Tecnologia e Inovação.
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oe.cd/brazil-snap
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