Economic Survey of Brazil - Presentation

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.

14

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”.

18

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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