Brazilian Economic Outlook | 17 Edition (Dec/2012)

17 Edition | December | 2012th

Brazilian Economic

OUTLOOK Ministry ofFinance

B R A Z I L I A N G O V E R N M E N T

Ministry of Finance

December Edition | Year 2012

3

Foreword

Economic Activity

Employment and Income

Inflation

Interest Rates and Credit

Fiscal Policy

External Sector

International Overview

Glossary

Summary

7

9

35

53

61

81

93

111

135

NOTE

The “Brazilian Economic Outlook” Report is published by the Ministry of Finance. It consolidates and updates the main macroeconomic variables related to the Brazilian economy. The report is coordinated by the Economic Policy Secretariat (SPE) with the contribution of the following Ministry of Finance´s bureaus: National Treasury Secretariat (STN), International Affairs Secretariat (SAIN), Secretariat for Economic Monitoring (SEAE) and Federal Revenue Secretariat (RFB). Data used in the report were updated until December 6th, 2012.

Ministry of Finance


7

Ministry of Finance

Foreword

7

Brazilian economy prepared for a sustained economic growth

The Brazilian economy has shown strength in 2012, even with advanced economies remaining sluggish and world trade stagnated. Growth accelerated in the third quarter, and the economic outlook for 2013 is strong.

In order to boost the country’s productive capacity even further, this Administration has given incentives for investment and production, which have been showing consistent results. Not only do public sector investments play an important role, with emphasis on the Growth Acceleration Program (PAC 2), but also private investments are key to economic growth.

Public-private partnerships to fund relevant infrastructure projects are being stimulated, and incentives for the development of a long-term private credit market in Brazil are being implemented. As for production, payroll tax exemptions measures as well as energy cost actions have been taken, with benefits for several economic sectors.

Brazil is experiencing a very promising new macroeconomic balance with low interest rates and reduced financial costs of investment, a more competitive exchange rate, and sound fiscal results. The outcome of these measures has started to take effect, but a large part of their effects is still in the pipeline.

Brazilian Economy

OUTLOOK

Ministry ofFinance


Economic Activity

Ministry of Finance


10

Economic Activity

10

Under the world economic slowdown, the Brazilian economy grew 2.4% in annual terms during the third quarter of 2012, showing that the country´s economic activity is resilient. In addition to that, data already released show positive results for fourth quarter. The economic outlook for 2013 is promising.

This Administration has taken a series of measures to increase the country´s competitiveness, encouraging investment and production. For instance, infrastructure investments, through the PAC 2 and concession programs, are already in place. Moreover, the payroll tax relief for 40 sectors, the program for reducing energy costs, and the new automotive regime for 2013-2017 are other measures which ensures growing productive capacity.

Recovery in economic activity

Ministry of Finance


Economic Activity

11

GDP Growth (% QoQ, sa)

Data: % change from preceding quarter, seasonally adjusted

Source: IBGEProduced by: Ministry of Finance

Growth accelerates

Even lower than expected, the GDP growth in the third quarter of 2012 is higher than the previous quarters, indicating a recovery path. The Government stimulus measures have shown initial results, which tend to strengthen in the coming months.

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Q3 2012Q2 2012Q1 2012Q4 2011Q3 2011Q2 2011Q1 2011

0.7 0.50.1 0.1 0.1

0.2 0.6

Ministry of Finance


Economic Activity

12

GDP Growth Rate: Demand and Supply (% QoQ, sa)

Q2 2012 Q3 2012



Economic growth: supply and demand

From a supply-side perspective, the 3rd-quarter output was driven by the performances of the agricultural (2.5%) and industrial sectors (1.1%), highlighted by manufacturing and civil construction industries. From a demand-side perspective, household consumption supported GDP growth (0.9%).

-2

-1

0

1

2

3

4

5

6

7

8

Gross Fixed Capital

Formation

GovernmentConsumption

HouseholdConsumption

GDPServicesIndustryAgricultural

Supply Demand

2012Q3 2012Q2

2.5 1.

1

0.0 0.6 0.

9

0.1

6.8

0.5

0.2 0.7 1.0

-2.0

-1.8

-1.6

Ministry of Finance


Economic Activity

13

Contributions to GDP Growth: Supply Side (% YoY)

GDP Taxes Services Industry Agricultural

Data: % change from preceding year

* On a 4-quarter basis


Brazil: supply-side GDP growth

2007 2008 2009 2010 2011 2012*

GDP

Services

Industry

Agriculture

Taxes

6.1

5.2

7.5

-0.32.7

0.91.1

3.5

1.3

0.2

1.1

2.8

1.0

0.3-1.3-0.2

0.0

1.2

1.6

3.2

2.4

0.3

0.61.60.4

0.2

0.20.8

0.03

-0.2

Ministry of Finance


Economic Activity

14

Contributions to GDP Growth: Demand Side (% YoY)

GDP Inventories Exports GFCF Government Consumption Household Consumption Imports


* On a 4-quarter basis


Brazil: demand-side GDP growth

2007 2008 2009 2010 2011 2012*

6.15.2

-0.3

7.5

2.70.9

GDP

Inventories

GFCF

Government consumption

Household consumption

Imports

Exports

0.9

2.3

3.7

1.0

0.5

-2.3

0.5

2.4

3.4

0.1

0.6

-1.8

1.00.62.6

-2.1-1.2-1.3

3.9

0.9

4.2

-4.0

1.31.3

0.50.90.42.4

-0.4

-1.2

0.6

1.6

0.1

-0.7

-0.5

-0.2

Ministry of Finance


Economic Activity

15

Components of the Service Sector (% QoQ, sa)



GDP growth in 3rd quarter: the behavior of the service sector

Brazil’s service sector did not grow in the 3rd quarter of 2012, as the finance sector shrank by 1.3%.

-1.5

-1.2

-0.9

-0.6

-0.3

0.0

0.3

Administration, health and education

Real estate and rentals

Other services

Financial intermediation

and related services

Information services

Transport, storage and mail

Trade

0.6

0.4

-0.1

0.5

-1.3

0.3 0.4 0.1

Ministry of Finance


Economic Activity

16

GDP, Household Consumption and Investment (% YoY)

GDP Household Consumption Investment



Investment growing more than GDP since 2006

Except for the 2008 financial crisis, since 2006 investment in Brazil has grown much faster than GDP. On the 2006-2011 average GDP rose 4.2 percent, whilst Investment grew 9.1 percent. This is also more than household consumption growth (5.4 percent growth on average).

-10

-5

0

5

10

15

20

25

-0.3

9.8

13.9

13.6

-6.7

21.3

4.7

9.1

5.2

6.1

5.7 4.

4

6.9 4.

1

5.44.

0

6.1

5.2

7.5 2.

7 4.2

Average 2006-2011

201120102009200820072006

GDPGFCF Household Consumption

Ministry of Finance


Economic Activity

17

Industrial Production Index (index number, sa)

Data: index number, seasonally adjusted (average 2002 = 100)


Industrial production points to growth recovery

Industrial production increased by 0.9% in October 2012 against September, sustained mainly by the manufacturing of intermediate goods (0.6%). The third quarter of 2012 had already recorded an 1.1% expansion. The result strengthens the optimism in relation to the activity recovery for the industrial sector.

90

95

100

105

110

115

120

125

130

135

Oct 2012

Sep 2012

Jun 2012

Mar 2012

Dec 2011

Sep 2011

Jun 2011

Mar 2011

Dec 2010

Sep 2010

Jun 2010

Mar 2010

Dec 2009

Sep 2009

Jun 2009

Mar 2009

Dec 2008

Sep 2008

Jun 2008

Mar 2008

Dec 2007

Sep 2007

127.0

Index-number (average 2002=100)

Ministry of Finance


Economic Activity

18

Installed Capacity Utilization Level (%)

FGV FIESP*

Data: %

* Sao Paulo State, only

Source: CNI, FGV and FIESPProduced by: Ministry of Finance

Capacity utilization

FGV’s Installed Capacity Utilization Level (NUCI) registered a 84% level in November 2012, whereas the CNI NUCI has been relatively unchanging between August and September. It is expected an increase towards a full-load sustained output in the fourth quarter, reflecting the recovery in industrial production and reduction in inventories.

75

77

79

81

83

85

87

89

84.0

81.1

NUCI - FIESP** NUCI - FGV

Nov 2012

Sep 2012

Jul 2

012

Apr 2012

Jan 2012

Oct 2011

Jul 2

011

Apr 2011

Jan 2011

Oct 2010

Jul 2

010

Apr 2010

Jan 2010

Oct 2009

Jul 2

009

Apr 2009

Jan 2009

Oct 2008

Jul 2

008

Apr 2008

Jan 2008

Oct 2007

Ministry of Finance


Economic Activity

19

Retail Trade Survey (% YoY)

PMC Broad PMC*


* Including vehicles, motorcycles, parts and pieces, and building materials


Robust retail sales

Both retail sales indicators follow an acceleration trend, registering 8.1% and 6.6% on a 12-month basis, respectively.

8.1

6.6

0

2

4

6

8

10

12

14

Sep 2012

Jul 2

012

May 2012

Mar 2012

Jan 2012

Nov 2011

Sep 2011

Jul 2

011

May 2011

Mar 2011

Jan 2011

Nov 2010

Sep 2010

Jul 2

010

May 2010

Mar 2010

Jan 2010

Nov 2009

Sep 2009

Broad PMC Restricted PMC

Ministry of Finance


Economic Activity

20

Confidence Indexes: Services and Industry (points, sa)

Services Confidence Index Industry Confidence Index

Data: points, seasonally adjusted

Source: FGVProduced by: Ministry of Finance

Stronger confidence

Services and Industry Confidence Indexes are showing grounds for optimism. Services confidence showed a third consecutive monthly rise, and industry confidence has also improved. Both indicators signal the continuation of the economic recovery during the fourth quarter of 2012.

9095

100105110115120125130135140

125.4

105.2

Industry Con�dence IndexServices Con�dence Index

Nov 2012

Oct 2012

Sep 2012

Aug 2012

Jul 2

012

Jun 2012

May 2012

Apr 2012

Mar 2012

Feb 2012

Jan 2012

Dec 2011

Nov 2011

Oct 2011

Sep 2011

Aug 2011

Jul 2

011

Jun 2011

May 2011

Apr 2011

Mar 2011

Feb 2011

Jan 2011

Dec 2010

Nov 2010

Ministry of Finance


Economic Activity

21

Vehicle Production (% YoY)

Data: % change from same month previous year

Source: AnfaveaProduced by: Ministry of Finance

Vehicle production boosted by Government stimulus measures

Vehicle production has been expanding, driven by stimulus measures, such as IPI rate benefit for vehicles, effective until December 31, 2012. In October, production increased by 20.2%, compared to the same period of 2011. It is expected an annual record in production in the last two months of the year.

-30-25-20-15-10

-505

10152025

Oct 2012

Sep 2012

Aug 2012

Jul 2

012

Jun 2012

May 2012

Apr 2012

Mar 2012

Feb 2012

Jan 2012

Dec 2011

Nov 2011

Oct 2011

Sep 2011

Aug 2011

Jul 2

011

Jun 2011

May 2011

Apr 2011

Mar 2011

Feb 2011

Jan 2011

Dec 2010

Nov 2010

Oct 2010

10.1

2.4

24.5

2.6

2.3 4.

1 6.2

4.5

1.2

20.2

-4.2

-7.2 -6.2 -2

6.1

-3.6

-11.

4

-7.5

-7.7

-7.5

-9.7

-9.1

-1.0

5.5

6.9

8.2

Ministry of Finance


Economic Activity

22

Manufacturing PMI (index)

Data: index

* Values above 50 indicate growth

Source: BloombergProduced by: Ministry of Finance

Promissing economic activity outlook according to PMI indicators

Manufacturing PMI points to economic activity expansion. It shows clear recovery trend, increasing five months in a row since July. In November, it was the highest level since April 2011.

44

46

48

50

52

54

56

58

60

PMI Brazil Manufacture

52.20

Nov 2012

Sep 2012

Jul 2

012

May 2012

Mar 2012

Jan 2012

Nov 2011

Sep 2011

Jul 2

011

May 2011

Mar 2011

Jan 2011

Nov 2010

Sep 2010

Jul 2

010

May 2010

Mar 2010

Jan 2010

Ministry of Finance


Economic Activity

23

Household Consumption in 2020: Selected Countries (R$ trillion)

Data: R$ trillion

Source: Exame Magazine, Mckinsey Consulting and FecomercioProduced by: Ministry of Finance

Brazilian consumer market will be the world’s 5th largest

In 2020, Brazil will be the world’s 5th largest consumer market (around R$ 3.5 trillion forecast for household consumption). It is the result of the outstanding income improvement for Brazilians over the last years, besides being a great encouragement for new investments.

0

5

10

15

20

25

ItalyUK

France

Brazil

Germany

Japan

ChinaUSA

20.4

10.9

7.0 4.

4

3.5

3.2

3.0

2.8

2010 2020

2.2 3.5trillion

trillion

trillion

Ministry of Finance


Economic Activity

24

Consumer Market (position)

Data: position

Source: Exame Magazine, Mckinsey Consulting, Escopo, Euromonitor, Anfavea and AbracicloProduced by: Ministry of Finance

Brazilian consumer market will attract more and more investments

Investors recognize the growing trend of the Brazilian consumer market and, despite the international crisis, Brazil continues as one of the leading investment destinations.

Brazilian ConsumptionSector 2012 2020

Perfumery Articles 1st 1st

Automobiles 4th 3rd

Food and beverages 4th 3rd

Clothing 5th 3rd

Domestic Aviation 4th -

Motorcycles 4th 3rd

Computers 3rd -

Refrigerators 3rd -

Products for Pet Animals 3rd 2nd

Ministry of Finance


Economic Activity

25

Brazilian Grain Harvest (millions of tons)

Data: millions of tons

* Conab forecasts

Source: Conab/MAPAProduced by: Ministry of Finance

Record for the Brazilian harvest

The Brazilian grain harvest in 2011/2012 states a new record-breaking achievement, equal to 166.2 million of tons, despite the lower increase in the planted area. The growing trend of agricultural production is a result of increasing investment in the sector, and an even better result is expected for 2012/2013.

70

80

90

100

110

120

130

140

150

160

170

180

2012/2013*

2011/2012

2010/2011

2009/2010

2008/2009

2007/2008

2006/2007

2005/2006

2004/2005

2003/2004

2002/2003

2001/2002

2000/2001

1999/2000

83.0

100.3 96.8

123.2 119.1114.7

122.5

131.8

144.1135.1

149.3

162.8 166.2

180.2

Ministry of Finance


Economic Activity

26

Agricultural Production in Selected Countries (index number)

Brazil Russia India China USA Canada European Union

Data: index number (average 2005 = 100)

Source: FAOProduced by: Ministry of Finance

Brazilian agriculture pushed to the forefront

Brazil is one of the world’s largest producer of agricultural goods and its production will grow even further in the coming years. Due to outstanding agricultural production, the country has already established itself as one of the main exporters of primary goods.

40

60

80

100

120

140

160

180

20192016

20132010

20072004

20011998

19951992

Brazil

Russia

China

CanadaEU*

United States

India

Estimates

2014

Ministry of Finance


Economic Activity

27

Federal Government Investment (R$ billion and %)

2011 2012

Data: R$ billion and % change in the period

* YTD: year-to-date

Source: STN/Ministry of FinanceProduced by: Ministry of Finance

Federal investment has increased

Federal Government investment pace has increased in the last 12 months. Until October 2012, investments are 22.9% above the same period last year.

0

10

20

30

40

50

60

OctSepAugJulJunMayAprMarFeb Jan

27.9% 23.3%22.9%

-1.0%3.3%

23.5%28.9%

30.2%

29.4%

30.7%

7.7

9.6

15.7

21.1

26.2

32.8

38.8

42.5

45.2

50.9

7.8

9.3

12.7

16.4

20.2

25.1

30.0

33.2

36.7

41.4

Ministry of Finance


Economic Activity

28

Public Sector Investment* (% of GDP)

State-owned companies States and Municipalities Government

Data: % of GDP

* Only investments carried out directly by the National Government (not including transfers to States and Municipalities, to private institutions or MCMV, which are accounted by the IBGE as GFCF);

** Ministry of Finance forecast


Public investment is also increasing fast

The consolidated public investment is on an expansion track in 2012, contributing to better long-term economic prospects.

0

1

2

3

4

5

1.6 1.51.5

1.3

0.80.8

0.9

1.1

1.1 1.0 1.0

1.0 1.1

1.4

1.8

1.9

1.7

1.9

1.7 1.81.5

2.0

1.31.5 1.5

1.8

1.3 1.4 1.3

1.61.4

1.8 1.7

2.0

1.71.8

2012**2011

20102009

20082007

20062005

20042003

20022001

20001999

19981997

19961995

0.5 0.4 0.4 0.5 0.3 0.3 0.4 0.5 0.2 0.2 0.3 0.4 0.4 0.5 0.6 0.8 0.6 0.7

1.7 1.81.5

2.0

1.31.5 1.5

1.8

1.3 1.4 1.31.6

1.4

1.8 1.7

2.0

1.71.8

1.6 1.51.5

1.3

0.80.8

0.9

1.1

1.1 1.0 1.01.0 1.1

1.41.8

1.9

1.71.9

State-owned Companies States and Municipalities Federal Government

Ministry of Finance


Economic Activity

29

“Minha Casa Minha Vida” Housing Program (R$ million)

Data: R$ million


Booming Federal investments

For 2011-2014, it is expected massive investment on government programs, specially for “Minha Casa Minha Vida” housing program (R$ 2.4 billion by 2014). One million of homes have been delivered and 2 million have been contracted up to October.

0

50

100

150

200

250

300

350

400

2012*201120102009

76.960 275.138 289.642 359.399

“Minha Casa Minha Vida1”Housing Program

“Minha Casa Minha Vida 2” Housing Program

Ministry of Finance


Economic Activity

30

PAC Spending: 2011-2012 (R$ billion)

2011 2012

Data: R$ billion

* YTD: year-to-date


PAC speeds up investments

PAC 2 investments have moved consistently upwards in 2012 compared to last year. For example, amounts paid up to October 2012 (R$ 26.6 billion) are larger 27.7% than in 2011 (R$ 20.8 billion). As a result, there will be increasing economic activity and higher country’s productive capacity.

0

5

10

15

20

25

30

5.6% 19.1%

46.9%50.0%

44.8%

52.6%36.3%

33.5%35.1%

27.7%

3.1

4.1

8.0

11.3

14.2

18.6

20.3

22.3

24.3

26.6

2.9

3.5

5.5

7.6

9.8

12.2

14.9

16.7

18.0

20.8

2012 2011

OctSepAugJulJunMayAprMarFebJan

Ministry of Finance


Economic Activity

31

Petrobras Business Plan (US$ billion)

Data: US$ billion

* Released on June 14, 2012

Source: PetrobrasProduced by: Ministry of Finance

Petrobras: top 2 global energy investor

According to the International Energy Agency (IEA), Petrobras will invest US$ 47.3 billion in new projects in 2012, just below Petrochina (US$ 48 billion). Also, Petrobras will remain as a major worldwide investor over the next four years, based on the company’s business plan, which states a US$ 236.5 billion investment for 2012-2016.

Business Plan - Petrobras*, 2012 to 2016 (US$ billion)

Exploration and Production 141.865.5

Gas and Energy 13.8Petrochemical 5.0Distribution 3.6Biofuel 3.8Corporate 3.0Total 236.5

Re�ning, Transportation and trading

Ministry of Finance


Economic Activity

32

Public Service Concession

Source: Secretariat of Civil AviationProduced by: Ministry of Finance

Concession Program will leverage investments in infrastructure

Infrastructure investments in Brazil will count on the private sector’s active involvement. The airport sector total investment will be approximately R$ 16 billion in the coming years, considering only airport concessions in Brasilia, Guarulhos and Viracopos. Also, the Logistics Investment Program considers R$ 133 billion for renovation and construction of federal highways and railways. Around 60% (R$ 79.5 billion) will be invested within 5 years.

Total Investment: R$ 133 billion (R$ 79.5 billionin 5 years and R$ 53.5 billion from 20 to 25 years

Airport Concession: Planned Investment R$ 16.2 billion

Investment on Highways R$ 42 billion

(7.500 km)(R$ 23.5 bi in 5 years and R$ 18.5 bi in 20 years)

Investment in Railways R$ 91 billion (10,000 km)

(R$ 56 bi in 5 years and R$ 35 bi in 25 years)

Guarulhos

Total in 25 years

R$ 2.85 bi

Total in 30 years

R$ 8.70 bi

ViracoposBrasília

Total in 20 years

R$ 4.70 bi

Planned Investment = 16.2 bi

Ministry of Finance


Economic Activity

33

Energy Cost Reduction

* From January 2013

Source: Ministry of Mining and EnergyProduced by: Ministry of Finance

Government has adopted incentives to improve competitiveness

Among the measures aimed at increasing domestic firms’ competitiveness, the 20.2% average reduction in energy prices is directed to the industrial sector. The measure will also benefit consumers, reducing their energy bill.

Average reduction in eletricity prices*

Group Tari� Voltage level Deduction (%)

High Voltage A

A1 230 kV or more 28.0A2 88 to 138 kV 24.7A3 69 kV 21.5

A3a 30 to 44 kV 20.0A4 2,3 to 25 kV 19.4AS Underground 19.7

Low Voltage B B lower than 2,3 kV 16.2

Average 20.2

Ministry of Finance


Economic Activity

34

Payroll Tax Exemption: 40 Sectors (R$ billion)

Data: R$ billion

* Without R$ 970 million in cash flow relief

Source: Ministério da FazendaProduced by: Ministry of Finance

Tax benefits also stimulate competitiveness

The payroll tax relief for 40 sectors is another government measure to strengthen domestic firms’ competitiveness and encourage formal employment. Also, the construction sector has been included in this tax benefit increasing the tax exemption in more R$ 2.85 billion in 2013.

Estimates for 2013 (R$ billion)

Sectors

AFTER:

Payroll TaxRelief*

40 Sectors 21.60 8.70 12.8

Civil construction 6.28 3.43 2.85

Total 27.88 12.13 15.65

BEFORE:Social Security

Payroll Contribution

Social SecurityContribution onGross Revenues

(1% to 2%)

Brazilian Economy

OUTLOOK

Ministry ofFinance


Employment and Income

Ministry of Finance


36

Employm

ent and Income

The labor market remains a key element in the process of upward social mobility. In this context, the unemployment rate reached 5.3% in October 2012 and approximately 1.7 million formal jobs were created in the year. Thus, it is expected that the increasing formalization and the expansion of policies related to guarantee of basic income, access to public services and productive inclusion continue driving the socioeconomic inclusion of the poorest.

The prospect is that the Brazilian economy will be even stronger with the increase of the middle class, or “C” class. According to the IPEA, the “C” class will incorporate 15 million people by 2014, reaching 59% of the population. This means an enormous consumption potential, which is fundamental to stimulate an increase in the productive capacity in Brazil.

It is also important to emphasize that the strengthening of the social safety net increases not only household consumption, but also the quality of the workforce that enters the labor market. The pro-equity social policies have contributed substantially towards the rise in labor productivity. In this sense, the share of the employed population with 11 years or more of schooling has increased from 33.6% to 46.3% between 2004 and 2011. This is another stimulus towards new investment.

Inclusive growth driven by increased schooling

Ministry of Finance


37

Employm

ent and Income

Unemployment Rate* (%, nsa)

Data: % share of economically active population, not seasonally adjuste

Source: IBGE/PMEProduced by: Ministry of Finance

Lower unemployment rate at the lowest level

The job market has shown strong dynamism in 2012, expressed by the 5.3% unemployment rate in October 2012, the lowest rate ever for the month.

3

6

9

12

15

5.30

Oct 2012

Apr 2012

Oct 2011

Apr 2011

Oct 2010

Apr 2010

Oct 2009

Apr 2009

Oct 2008

Apr 2008

Oct 2007

Apr 2007

Oct 2006

Apr 2006

Oct 2005

Apr 2005

Oct 2004

Apr 2004

Oct 2003

Ministry of Finance


38

Employm

ent and Income

Formal Employment: New Jobs** (thousands of jobs)

Data: thousands of jobs

* On a 12-month basis up to October 2012

Source: MTE/CAGED and RAISProduced by: Ministry of Finance

Solid labor market in Brazil

Even with the downturn in economic activity, there was an increase of 1,689 million jobs year-to-date. From January 2003 to October 2012, more than 19.3 million jobs were created in Brazil. The constant creation of formal jobs shows that the Brazilian economy is ready to return to the growth path.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2012*201120102009200820072006200520042003

Formal employment (thousands)**

861

1,86

3

1,83

1

1,91

7

2,45

2

1,83

4

1,76

6

2,86

1

2,24

2

1,68

9

Ministry of Finance


39

Employm

ent and Income

Rate of Formalization and Contributors to Social Security (% of employed population)

Employed population with a formal contract Contributors to Social Security

Data: % share of employed population

* Until 2003: except the population of the rural area of Rondonia, Acre, Amazonas, Roraima, Para, and Amapa States

Source: IBGE/PMEProduced by: Ministry of Finance

Greater social protection for workers

The quality of jobs in Brazil can be noticed by the level of formalization. According to the Monthly Employment Survey, the proportion of formally employed workers reached 53.7% on a 12-month basis up to October. Likewise, the share of contributors to social security reached 72.6% of the total employed population in the same period.

20

35

50

65

80

2012*2011201020092008200720062005200420032002

Contributors to Social Security

Employed population with a formal contract

63.0

60.1

60.1

62.8

63.2

64.8

66.4

66.1

69.2

71.9

72.6

45.5

43.5

43.8

45.5

46.1

47.6

49.2

49.3

51.6

53.6

53.7

Ministry of Finance


40

Employm

ent and Income

Nominal Minimum Wage Evolution (R$)

Data: R$

* PLOA 2013 forecast

Source: Central Bank of BrazilProduced by: Ministry of Finance

Minimum wage policy insures real gain

The growth acceleration in recent years has caused a significant expansion of per capita income in Brazil. As a result of governmental policies, minimum wage will increase 72% in real terms from 2003 to 2013.

0

100

200

300

400

500

600

700

Jan 2013*

Jan 2012

Mar 2011

Jan 2011

Jan 2010

Feb 2009

Mar 2008

Apr 2007

Apr 2006

May 2005

May 2004

Apr 2003

Apr 2002

72%

200

240

260

300

350

380

415

465

510

540

545

622

671

Ministry of Finance


41

Employm

ent and Income

Minimum wage purchasing power for Washing Machine: 1994-2012 (R$)

Minimum Wage (R$) Nominal Price of Washing Machine (R$) Washing Machine/Minimum Wage Ratio

Data: R$

Source: IBGE, GfK and LCAProduced by: Ministry of Finance

Restoring the purchasing power of the minimum wage

0

200

400

600

800

1,000

1,200

20122011

20102009

20082007

20062005

20042003

20022001

20001999

19981997

19961995

19940

1

2

3

4

5

6

7

8

9

1.5

622

930

Minimum Wage (R$) Nominal Price of Washing Machine (R$) Washing Machine/Minimum Wage Ratio

(R$)

• 1994: a worker would spend 8 months’ worth of minimum wage to be able to afford a Washing Machine.

• 2012: he/she would spend only 1.5 month’s worth of minimum wage.

Ministry of Finance


42

Employm

ent and Income

Minimum wage purchasing power for stoves: 1994-2012 (R$)

Minimum Wage (R$) Nominal Price of Stove (R$) Stove/Minimum Wage Ratio

Data: R$

Source: IBGE, GfK and LCAProduced by: Ministry of Finance

Restoring the purchasing power of the minimum wage

0

100

200

300

400

500

600

700

20122011

20102009

20082007

20062005

20042003

20022001

20001999

19981997

19961995

1994

0.00.2

0.4

0.6

0.8

1.01.2

1.4

1.6

1.8

2.0

0.5

622

330

Minimum Wage (R$) Nominal Price of Stove (R$) Stove/Minimum Wage Ratio

(R$)

• 1994: a worker would spend 1.9 months’ worth of minimum wage to be able to afford a stove.

• 2012: he/she would spend only 0.5 month’s worth of minimum wage.

Ministry of Finance


43

Employm

ent and Income

Bolsa Familia: Income Transfer Program (R$ billion, millions of households and % of GDP)

R$ billions Millions of households % of GDP

Data: R$ billion, millions of households and % of GDP


Source: MDSProduced by: Ministry of Finance

“Bolsa Família” Program helps to reduce poverty

“Bolsa Familia” Program is recognized as one of the most efficient programs in reducing inequality due to its focus on the poorest population. Besides being cost efficient, it reaches more than 13.7 million households.

0

5

10

15

20

25

0.0

0.1

0.2

0.3

0.4

0.5

2012*20112010200920082007200620052004

(% of GDP) R$ billion Number of households (million)

20.41

13.76

0.2 0.3 0.3 0.3 0.3 0.4 0.4 0.4 0.5

Ministry of Finance


44

Employm

ent and Income

People with No Specific Social Need (% of population)

2001* 2011

Data: % share of population

* Except the rural population of Rondonia, Acre, Amazonas, Roraima, Para and Amapa States

Source: IBGE/PNADProduced by: Ministry of Finance

Reduction of social needs

The social safety net has impacted the promotion of rights significantly. It has enabled people to have access to education, social security, housing and basic services. Under the human rights perspective, it has been possible to ensure the well–being of the most vulnerable.

50

60

70

80

90

100

Access to Basic ServicesQuality HomesAccess to Social SecurityNo Educational Delay

68.8 78.7 96.0 67.860.7 63.6 95.1 59.1

2001*2011

Ministry of Finance


45

Employm

ent and Income

Real Income Growth in Income Groups: 2004-2011* (%)

Data: % of simple classes, average monthly income from all jobs

* Except information from people with no declaration of income from all jobs. Deflated by INPC index.


Income growth especially for the poorest

The real income growth was significant for the period from 2004 to 2011. Even more relevant than the 29.8% total expansion was the income growth for the 20% poorest of the population, which amounted to around 75%.

0

10

20

30

40

50

60

70

80

More th

an

90 to 100

More th

an

80 to 90

More th

an

70 to 80

More th

an

60 to 70

More th

an

50 to 60

More th

an

40 to 50

More th

an

30 to 40

More th

an

20 to 30

More th

an

10 to 20

Up to 10

Tota

l

29.8 73.8 75.3 48.5 49.9 43.8 38.4 36.5 30.3 24.8 20.8

2004-2011 Change

20%poorest

20%richest

Income deciles

Ministry of Finance


46

Employm

ent and Income

Gini Index: Average Real Earnings** (index)

Data: Measurement ranges from zero (perfect equality) to 1 (maximum inequality)

* Excludes the rural population of the following states: Rondônia, Acre, Amazonas, Roraima, Pará and Amapá** People over 10 years of age. Based upon the per capita Income


Declining income inequality in Brazil

The Gini Index, used to measure income inequality, has fallen steadily, from 0.559, in 2004, to 0.508, in 2011. The decrease comes from more years of schooling of the poorest population, alongside with the expansion of conditional income transfer programs and more social inclusion opportunities.

0.50

0.55

0.60

0.6

0.6

0.6

0.6

0.6

0.5

20112009

20082007

20062005

20042001*

1990*

1981*

0.564

0.602

0.552 0.5480.534 0.530 0.524

0.508

0.5720.559

0.65

Ministry of Finance


47

Employm

ent and Income

Recent-Progress SEDA Score (index)

Brazil Average BRIC

Data: index

* SEDA assesses the performance of 150 nations around the world across a series of dimensions including governance, education, infrastructure and economic stability with the aim of seeing which countries are performing best in improving well-being and economic opportunities for their citizens.

Source: Boston Consulting GroupProduced by: Ministry of Finance

Brazil stands out in the SEDA score

For most of the 10 categories of New Sustainable Economic Development Assessment (SEDA) launched by the Boston Consulting GroupBoston Consulting Group index, Brazil has scored better than the BRICS average. Brazil, Poland, Indonesia and New Zealand are improving faster than GDP growth would suggest. When it comes to translating wealth into citizen well-being the report reveals a strong correlation between the best performing nations and good governance.

0

20

40

60

80

100

Infr

astr

uctu

re

Envi

ronm

ent

Hea

lth

Educ

atio

n

Gov

erna

nce

Civi

l Soc

iety

Inco

me

Equa

lity

Empl

oym

ent

Econ

omic

Stab

ility

Inco

me

29

2027

21

58

Brazil

AverageBRIC

Ministry of Finance


48

Employm

ent and Income

Social Classes (million of people)

Data: million of people

* Forecasts. Baseline: 6,5% YoY income growth rate

Source: IBGE and IPEAProduced by: Ministry of Finance

15 million additional Brazilian people can be included in the new middle class

The growth of ABC classes and consequent reduction of DE classes have been translated into poverty reduction and better income distribution, both playing a key role to the expansion of the domestic market. According to IPEA forecasts, C class should correspond to 59% of population by 2014.

A Class

B Class

C ClassD and EClasses

Total: 175 million Total: 188 million Total: 192 million Total: 196 million

2003 2009 2011 2014*

6.3

7.0

65.9

96.2

9.6

10.4

73.3

94.9

12.6

14.5

115.2

53.8

10.5

11.2

100.3

69.6

Ministry of Finance


49

Employm

ent and Income

Household Consumption and Broadly Defined Payroll* (% Q/Q)

Household consumption Broadly defined payroll

Data: % change same quarter previous year, annualized

* Including lwages, dividends, saaries, social security benefits, “Bolsa Familia”and others. YTD October.

Source: IBGE, MDS, FGTS and STNProduced by: Ministry of Finance

Impact of social inclusion on demand

The 8.3% interannual increase of broadly defined payroll in the third quarter of 2012 boosted household consumption, sustaining the domestic market strength.

-6

-4

-2

0

2

4

6

8

10

12

14

Sep 2012

Jun 2012

Sep 2011

Dec 2010

Mar 2010

Jun 2009

Sep 2008

Dec 2007

Mar 2007

Jun 2006

Sep 2005

Dec 2004

Mar 2004

Jun 2003

Sep 2002

Dec 2001

Mar 2001

Jun 2000

8.3

3.4

Expanded Wage MassHousehold Consumption

Ministry of Finance


50

Employm

ent and Income

People Employed with more than 11 Years of Schooling (% of total)

Data: % of total


More qualified workers

One of the main elements for reducing income inequality and improving productivity is the educational level. Between 2004 and 2011, occupied population with more than 11 years of schooling went from 33.6% to 46.4%, respectively.

20

26

32

38

44

50

2011200920082007200620052004200320022001

28.8 30.7 32.5 33.6 35.2 37.4 39.0 41.2 43.2 46.4

Ministry of Finance


51

Employm

ent and Income

“Qualified” Beginning Employees** and First Job Admissions (% and millions)

Share of “Qualified” Beginning Employees First Job Admissions (millions)

Data: % share and millions

* On a 12-month basis up to October 2012 ** At least completed High School

Source: MTE/CAGEDProduced by: Ministry of Finance

Growing opportunities in the youth labor market

The growth of the Brazilian economy increased the number of job opportunities for young people, which has been accompanied by an improvement in their level of education. According to CAGED, in 1996, 1.7 million new workers were hired, while 17.2% had at least completed high school. On a 12-month basis up to October 2012, the figures were 2.8 million and 54.9%, respectively.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

10

20

30

40

50

60

2012*2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

First Job Admissions Share of "Quali�ed" Beginning Employees*

2.83.13.02.52.82.52.32.32.11.81.91.91.91.61.81.7 1.7

54.953.953.351.3

48.847.246.043.3

39.636.4

33.631.5

28.725.7

22.019.4

17.2

Brazilian Economy

OUTLOOK

Ministry ofFinance


Inflation

Ministry of Finance


54

Inflation

Consumer price inflation rates increased in the third quarter of 2012, driven mainly by the impact of extreme weather conditions on agricultural production. The combination of higher than usual pressures in some fresh food prices in the Brazilian domestic market, and in important agricultural commodities in the international market, due to the drought in the US, caused an acceleration of inflation in mid-2012, which peaked in October.

Since then, inflation pressures have begun to ease, as producer prices related to important items such as soybeans, corn and wheat are clearly pointing to a retreat to lower levels. As well as that, several fresh food items are showing monthly deflation rates. This scenario shows that more relief should arrive in coming months, helping bring down consumer price inflation and also helping to drive the yearly IPCA to the center of the target set by the National Monetary Council.

Inflation rate under control

Ministry of Finance


55

Inflation

CPI Inflation - IPCA Index (% YoY)

Inflation Target Upper and Lower Bounds IPCA


* According to the Central Bank of Brazil’s Inflation Report (September 2012)

Source: IBGE and Central Bank of BrazilProduced by: Ministry of Finance

Inflation within the target range

In the first half of 2012, the reduction of monthly inflation was signaling that the 12-month inflation rate would move around the inflation central target in Brazil. In the second half, however, significant increases in some agricultural commodities, primarily related to the effects of the U.S. drought, pressured consumer prices, driving IPCA inflation to a level slightly above the central target, but within the tolerance bounds.

0

2

4

6

8

10

12

14

2012*2011

20102009

20082007

20062005

20042003

20022001

2000 1999

8.9 6.0 7.7 12.5 9.3 7.6 5.7 3.1 4.5 5.9 4.3 5.9 6.5 5.2

IPCA Target Center Upper and Lower Bounds

, ,

Ministry of Finance


56

Inflation

Agricultural Prices and IPCA Index (% 3-mth ma)

IPCA IPA-DI Agricultural Index

Data: % change on a 3-month moving average


Agricultural shocks affected CPI inflation

The CPI-Food inflation represents 25% of the total Brazilian IPCA and responds with lags to changes in producer food prices. It means that the current slowdown in PPI-Food inflation, measured by the IPA-Agricultural index will ease IPCA inflation in the coming months.

-1.5

-0.5

0.5

1.5

2.5

3.5

4.5

Oct 2012

Aug 2012

May 2012

Feb 2012

Nov 2011

Aug 2011

May 2011

Feb 2011

Nov 2010

Aug 2010

May 2010

-5

0

5

10

15

20

IPCAIPA-DI Agricultural

IPCA, IPA-DI Agricultural

Ministry of Finance


57

Inflation

CPI Inflation - Chained IPCA and IPCA-15 Indexes (% MoM)

Data: % change from preceding month


After reaching its peak in October, inflation starts to decline

Consumer prices in Brazil rose at their fastest pace in October 2012, mainly due to the effects of the drought in the US. Since then, IPCA inflation has started to decline, which is a trend that is expected to continue in the coming months.

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

IPCA

-15

IPCA

IPCA

-15

IPCA

IPCA

-15

IPCA

IPCA

-15

IPCA

IPCA

-15

IPCA

IPCA

-15

IPCA

IP

CA-1

5 IP

CA

IPCA

-15

IPCA

IP

CA-1

5 IP

CA

IPCA

-15

IPCA

IP

CA-1

5 IP

CA

IPCA

-15

IPCA

IP

CA-1

5 IP

CA

IPCA

-15

IPCA

IP

CA-1

5

Nov 2012

Oct 2012

Sep 2012

Aug 2012

Jul 2012

Jun 2012

May 2012

Apr 2012

Mar 2012

Feb 2012

Jan 2012

Dec 2011

Nov 2011

Oct 2011

Sep 2011

0.53

0.53

0.42

0.43

0.46

0.52

0.56

0.50

0.65

0.56

0.53

0.45

0.25

0.21

0.43

0.64

0.51

0.36

0.18 0.

080.

330.

430.

390.

410.

480.

570.

650.

590.

54

Ministry of Finance


58

Inflation

Inflation: IGP-M and Main Components (% YoY)

IGP-M IPA-M INCC-M IPC-M

Data: % change from preceding year on a 12-month basis


General Price Index already decelerating

After two consecutive quarters of acceleration, the 12-month General Price Index (IGP-M) inflation started a decreasing trend, reaching a percentage below 7.0% in November 2012. Lower producer prices (measured by the IPA index) in the past two months have played an important role in easing the pressure on the Brazilian IGP inflation.

-6

-3

0

3

6

9

12

15

Nov 2012

Sep 2012

Jul 2

012

May 2012

Mar 2012

Jan 2012

Nov 2011

Sep 2011

Jul 2

011

May 2011

Mar 2011

Jan 2011

Nov 2010

Sep 2010

Jul 2

010

May 2010

Mar 2010

Jan 2010

Nov 2009

7.33

6.967.30

5.77

INCC-MIPC-MIPA-MIGP-M

Ministry of Finance


59

Inflation

General Price Indexes (chained) (% MoM)

Data: % change from preceding month


Deflationary trend in producer prices

As prices of agricultural commodities began to decline, producer prices in Brazil also started to cool down, and the latest IPA measurements have been showing deflation since October 2012. Raw materials, for instance, decreased by 1.86% in the October IGP-DI. The trend is likely to affect other prices along the supply chain.

October 2012 November 2012IGP-10 IGP-M IGP-DI IGP-10 IGP-M

IGP 0.42 0.02 -0.31 -0.28 -0.03IPA 0.40 -0.20 -0.68 -0.57 -0.19

Production stageFinal goods 0.60 0.07 -0.44 -0.70 -0.5Intermediate goods 0.67 0.41 0.07 0.09 0.25Basic goods -0.16 -1.24 -1.86 -1.24 -0.41

OriginAgriculture 0.53 -0.57 -1.34 -1.10 -0.41Industrial 0.34 -0.05 -0.42 -0.35 -0.1

IPC 0.57 0.58 0.48 0.36 0.33INCC 0.24 0.24 0.21 0.22 0.23

Construction services and materials 0.50 0.49 0.42 0.35 0.22Labor 0.00 0.01 0.01 0.09 0.24

Brazilian Economy

OUTLOOK

Ministry ofFinance



Ministry of Finance


62


From August 2011 up to October 2012, the Central Bank of Brazil lowered the policy rate by 525 basis-points, bringing both nominal and real rates to their lowest levels in the recent Brazilian monetary history. In fact, spreads and lending rates in the financial system have also fallen to record lows, although still at high levels.

Brazil is now even more focused on encouraging the development of the capital and long-term private credit markets. The country’s financial system is sound, operating in accordance with Basel principles, and it is actively participating in the development of important financial instruments, such as financial bills, FDICs, debentures, and other long-term corporate bonds.

As a matter of fact, this new environment of lower interest rates and investment opportunities has already begun to influence the decision-making process of economic agents. It will positively impact investment and production even further, as investors leave behind the time when the Brazilian economy was used to high short-term interest rate.

Interest rate at its lowest level ever

Ministry of Finance


63


Brazil: Real Ex-Ante Interest Rates* (% pa)

Data: % per annum

* 360-day swap deflated by inflation expectations for the 12 months ahead; 2012: November 30; 2001-2011: December 31


Real interest rate at its lowest level due to sound macroeconomic fundamentals

Short-term real interest rates in Brazil have been showing a significant decrease for the past ten years, from 14.0% in December 2002 to 1.8% in November 2012. For the last 10 years, it has been a result of credible and sound monetary and fiscal policy coordination.

0

4

8

12

16

2012**2011201020092008200720062005200420032002

Average2002-2005 = 11.5

Average2006-2010 = 6.9

Average2011-2012 = 3.2

14.0 9.4 11.2 11.4 7.9 7.7 6.9 5.8 6.2 4.5 1.8

Ministry of Finance


64


Real and Nominal Interest Rates* (% pa)

SELIC interest rate target Real ex-ante interest rate*

Data: % per annum

* 360-day swap deflated by inflation expectations for the 12 months ahead


Selic benchmark interest rate at its lowest level ever

Central Bank of Brazil has reduced its benchmark interest rate (Selic) since August 2011. The latest reduction in October 2012, from 7.50% to 7.25%, implied the lowest rate ever. The real interest rate reached 1.80% on November 30, 2012.

1.80

7.25

0

5

10

15

20

25

30

Real Ex-Ante Interest Rates Selic benchmark

Nov 2012

Oct 2012

Apr 2012

Oct 2011

Apr 2011

Oct 2010

Apr 2010

Oct 2009

Apr 2009

Oct 2008

Apr 2008

Oct 2007

Apr 2007

Oct 2006

Apr 2006

Oct 2005

Apr 2005

Oct 2004

Apr 2004

Nov 2003

Ministry of Finance


65


Interest Rates: DI Contracts* (% pa)

Jan 2013 Jan 2014 Jan 2015

Data: % per annum

* DI: one-day interbank deposits


Long-term interest rates declining in Brazil

After a widespread decline throughout the last 12 months, the long-term rates traded in the futures DI stabilized at a level close to the current Selic rate. The difference between the curves expresses the risk associated with the exposure duration.

7.2 7.8

7.1 7

8

9

10

11

12

13

Nov 2012

Oct 2012

Jul 2

012

Apr 2012

Jan 2012

Oct 2011

Jul 2

011

Apr 2011

Jan 2011

Oct 2010

Jul 2

010

Apr 2010

Jan 2010

Jan 2015Jan 2013 Jan 2014

Ministry of Finance


66


Interest Rates and Average Maturity (% pa and days)

Average maturity (days) Interest rates (% YoY)

Data: % per annum and number of days


Lower Selic rate and banking spreads benefit borrowers

Lower interest rates and banking spreads have been benefitting final borrowers. Interest rates on loans to individuals reached 35.4 percent, whereas rates on loans to corporations reached 22.1 percent. These percentages are well below the 2011 average and show sharp decline throughout 2012, with reductions of 9.7 p.p. and 6.6 p.p. for individuals and corporations, respectively. In the opposite direction, average maturity signaled slight increase in the period.

300

350

400

450

500

550

600

650

40

45

50

55

60

Oct 2012

Jun 2012

Dec 2011

Jun 2011

Dec 2010

Jun 2010

Dec 2009

Jun 2009

Dec 2008

May 2008200

250

300

350

400

450

Average Maturity

20

24

26

28

30

32

34

Interest Rates

Oct 2012

Jun 2012

Dec 2011

Jun 2011

Dec 2010

Jun 2010

Dec 2009

Jun 2009

Dec 2008

May 2008

Individuals Corporations

620.5

35.4

431.8

22.1

Average MaturityInterest Rates

Ministry of Finance


67


Average Interest Rate on Lending for Individuals and Corporations (% YoY)

Jan 2012 Oct 2012

Data: % change from the preceding year


Credit becomes easier and cheaper

Credit has become easier and cheaper to individuals and corporations in Brazil. The average interest rate on lending to individuals dropped 9.7 percentage points year-to-date up until October 2012, from 45.1% to 35.4%. As for the average rate on lending to corporations, it fell by 6.6 percentage points over the same period, from 28.7% to 22.1%.

0

10

20

30

40

50

CorporationsIndividualsOct 2012 Jan 2012

35.4 22.145.1 28.7

Ministry of Finance


68


Banking Spread to Individuals and Corporations (pp)

Jan 2012 Oct 2012

Data: percentage point

* Spread = Lending Rate - Funding Rate


Lower banking spread to individuals and corporations

Although still high in comparison with other economies, spreads on loans to individuals and corporations have been declining in Brazil lately. The former went from 34.9 p.p. in January 2012 to 27.8 p.p. in October 2012, while the latter went from 18.5 p.p. to 15.0 p.p. in the same period.

0

5

10

15

20

25

30

35

40

45

50

CorporationsIndividualsOct 2012 Jan 2012

27.8 15.034.9 18.5

Ministry of Finance


69


Individuals: Credit Transactions (R$ billion)

Real Estate Loans Car Loans Payroll Loans

Data: R$ billion


Housing credit stands out

Housing credit has showed an outstanding performance in recent years, encouraging investment, growth and employment in the construction sector and other segments of the economy. Over the past 12 months, total housing credit grew by 39%, reaching R$ 263 billion in October 2012, proving far superior performance than other segments.

0

50

100

150

200

250

300

350

Payroll Loans Car LoansReal Estate Loans

Oct 2012

Jan 2012

Jan 2011

Jan 2010

Jan 2009

Jan 2008

263.0

319.0

184.3

Ministry of Finance


70


Families who cannot Afford to Pay their Debts (% of total)

Data: % of total

Source: CNCProduced by: Ministry of Finance

Families keeping debt under control

The percentage of families unable to pay their overdue bills keeps falling, standing at a level below the same period in 2010 and 2011.

5

6

7

8

9

10

11

Oct 2012

Sep 2012

Aug 2012

Jul 2

012

Jun 2012

May 2012

Apr 2012

Mar 2012

Feb 2012

Jan 2012

Dec 2011

Nov 2011

Oct 2011

Sep 2011

Aug 2011

Jul 2

011

Jun 2011

May 2011

Apr 2011

Mar 2011

Feb 2011

Jan 2011

Dec 2010

Nov 2010

Oct 2010

9.5

9.0

8.3

7.9

7.7

8.4

7.8

8.6

8.4

8.1

8.2

8.0

8.2

7.3

7.2

6.9

7.3

6.7

6.9

7.8

7.5

7.3

7.1

7.1

7.0

Ministry of Finance


71


Outstanding Credit: Earmarked and Non-Earmarked Resources (R$ Billion and % of GDP)

% of GDP Earmarked resources Non-earmarked resources

Data: R$ Billion and % of GDP


Earmarked credit at the forefront of credit expansion

In October 2012, the total credit volume in Brazil reached the amount of R$ 2.27 trillion, corresponding to 51.9% of GDP. Total non-earmarked resources recorded R$ 1.44 trillion, with annual increase of 14.2%, whereas total earmarked credit summed R$ 830 billion, a rise of 20.9% as compared to the same period last year.

0

500

1,000

1,500

2,000

2,500

Oct 2012

Oct 2011

Oct 2010

Oct 2009

Oct 2008

Oct 2007

Oct 2006

Oct 2005

Oct 2004

Oct 2003

44.1%

44.5%

47.5%

51.9%

39.6%

33.6%30.0%

27.3%25.7%24.3%

155 177 190222

262

337435

565

687

830

248 310 386 476619

848 9321,079

1,2601,439

Earmarked Non-Earmarked % of GDP

Ministry of Finance


72


CAIXA Housing Credit (R$ billion)

Disbursed Contracted

Data: R$ billion

Source: Caixa Economica FederalProduced by: Ministry of Finance

CAIXA contributes heavily to the expansion of housing credit

Since 2008, CAIXA housing credit has grown on a 40% yoy pace. The expected volume for 2012 represents an amount to around R$ 100 billion (2.4% of GDP).

0

20

40

60

80

100

2012*201120102009200820072006200520042003

Contracted Disbursed

4.1 5.9 8.

8

13.9

20.7

22.7

47.1

75.9

80.1

100.

0

4.2

4.4

7.1

10.6

11.7

18.1

31.4

55.6

69.6

92.1

Ministry of Finance


73


Credit Operations in Brazil (% of GDP)

Earmarked resources* Non-Earmarked Resources

Data: % of GDP

* YTD October 2012


Sustained rates of credit growth in Brazil

Credit operations as a share of GDP have been growing in a sustained pace in Brazil. In October 2012, lending with non-earmarked funds represented 32.9% of GDP, while earmarked credit stood at 19.0% of GDP. Mortgage has expanded at a rate of approximately 40% per annum, and now represents 6.0% of GDP.

0

10

20

30

40

50

60

Non-Earmarked Resource/GDP

2012*2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001 19.013.012.211.59.88.78.48.28.08.28.27.2

32.9

31.529.629.528.724.821.018.816.415.016.317.0

Earmarked Resource/GDP

Ministry of Finance


74


Capital Market Issuance (R$ billion)

Other CRI FIDC Promissory Notes FIP Stocks + CDA Debentures

Data: R$ billion

* YTD September of each year

Source: CVMProduced by: Ministry of Finance

Growing capital market issuances

The volume of financial instruments issued by corporations in the Brazilian capital market has been growing gradually, amounting to R$ 130 billion in September 2012. Excluding Petrobras issuance in 2010 (R$ 120.25 billion), there has been a gradual growth in the last four years, and it is already 86% higher than September 2009 level.

0

50

100

150

200

250

0.4

1.91.1

0.2

0.5

4.85.7

0.8

0.93.7

2.5

9.2

7.95.4

8.6

7.511.1

2.3

3.8

7.84.7

3.7

8.2 16.0

21.6

29.4

12.716.3

5.7

16.8 17.6

7.3

9.67.6

22.746.4 34.4 21.6

10.4

FIDCOthersCerti�cate of Real Estate Receivables Promissory Notes FIP Common Stock Debentures

Sep 2012

Sep 2011

Sep 2010

Sep 2009

Sep 2008

Sep 2007

Sep 2006

Sep 2005

Sep 2004

Sep 2003

Sep 2002

Sep 2001

Sep 2000

Sep 1999

Sep 1998

Sep 1997

Sep 1996

Sep 1995

Ministry of Finance


75


Real Estate Investment - Public Offers - FIDC, CRI and FII (R$ billion*)

FIDC CRI FII

Data: R$ billion

* Current values


Significant increase in Real Estate Credit

0

5

10

15

20

25

30

3.8

7.8

4.7

4.1

13.1

7.1

FIDC

0.2 0.2 0.2 0.2 0.6 0.8 0.9 3.7 2.5 5.47.99.20.1 0.3

0.70.2

0.40.6 1.0

4.1 13.17.1

Sep 2012

Sep 2011

Sep 2010

Sep 2009

Sep 2008

Sep 2007

Sep 2006

Sep 2005

Sep 2004

Sep 2003

Sep 2002

Sep 2001

Sep 2000

FII CRI

0.3 0.31.0

2.65.0

8.67.5

11.1

2.3

3.8

7.8

4.7

Ministry of Finance


76


Real Estate Investment - Public Offers - LCI (R$ billion*)

Data: R$ billion

* Current values


Significant increase in Real Estate Credit

-4

-2

0

2

4

6

8

10

12

14

16

12 month

s

20112010

20092008

2007

Ministry of Finance


77


Financial Bills (R$ billion)

Data: R$ billion

* November 30, 2012

Source: CetipProduced by: Ministry of Finance

Long term bank funding

Created in 2010, Financial Bills (FB) are securities issued by financial institutions (IFs), representing important long-term bank funding. As minimum maturity is 24 months, FB have been allowing the lengthening of credit operations (for both individuals and corporations). Also, FB are the most appropriate instrument for matching maturities of assets and liabilities of IFs.

0

50

100

150

200

250

2012*20112010

31.0 148.5 235.0

Ministry of Finance


78


Basel index (% risk-adjusted assets)

Basel index in Brazil Lower bound by BACEN Basel index

Data: % risk-adjusted assets


Resilience in the Brazilian financial market

The main Brazilian banks demonstrate comfortable situation according to Basel Index. Strong regulation consolidates the resilience of the Brazilian financial system when facing systemic financial crisis such as those that occurred in the major world economies over the past four years.

0

4

8

12

16

20

Jun 2012

Dec 2011

Dec 2010

Dec 2009

Dec 2008

Dec 2007

Dec 2006

Dec 2005

Dec 2004

Dec 2003

Dec 2002

16.7 19.0 18.5 17.4 17.8 17.3 17.7 18.8 16.9 16.3 16.4

Basel index in Brazil Lower bound by BACEN Basel Index

Ministry of Finance


79


Produced by: Ministry of Finance

Measures for the development of the capital market

The Development of Capital Markets

Financial Products Objective / Expected Result

Financial Bills -tutions (Law 12,249/2010)

Expand credit by increasing long-term

Reducing the cost and simplifying the process of issuing

476/2009)Increase credit to non-�nancial �rms

Receivables - CRI

Extension of investment and infrastructure debentures Increase the range of instruments avai--

-term investment in infrastructure

Reduction to 0% the income tax (Law 11,033/2004)Reduce the cost and increase the amount of resources available for real estate companies

Real Estate Credit Line Reduction to 0% the income tax (Law 11,033/2004) Reduce the cost and increase the fun-ding to mortgages

Ministry of Finance


80


Produced by: Ministry of Finance

Measures for the development of the capital market

The Development of Capital Markets

Financial Products Objective / Expected Result

Investment DebenturesDecrease to 0 percent the rates of Financial Transaction Tax and Income Tax to foreign in-vestors (Law 12.431/11)

Encourage long-term Capital Markets as a way to broadenthe sources of funding for investments

Infrastructure Debentures

Decrease to 0 percent the rates of Financial Transaction Tax and Income Tax to foreign in-vestors, to 0 percent of income tax to individual domestic investors and decrease of 10 p.p. of

-panies (Law 12.431/11)

Develop long-term Capital Markets as a way to broaden the sources of funding for investments

Brazilian Economy

OUTLOOK

Ministry ofFinance


Fiscal Policy

Ministry of Finance


82

Fiscal PolicyIn 2012 Federal Government used fiscal policy instruments in order to avoid downturns on domestic economy due to the international crisis. The strategy also means to maintain fiscal fundamentals in a sound situation.

The strong fiscal results allows the Public Sector Net Debt at 35.2 percent of GDP close to the lowest series values. Also, the continuous improvement in Federal Public Debt profile, both in terms of composition and maturity, has been reflected on the declining rates of external issuances. The issuance of Global 2023 bond, in September, resulted on the lowest rate of all times for a Brazilian external public debt bond.

Moreover, consistent fiscal situation has still placed Brazil in a privileged position when compared to other G20 countries. It is expected the country should perform one of the greatest primary surpluses in the group, and one of the lowest nominal deficits.

Fiscal consolidation favors investment

Ministry of Finance


83

Fiscal Policy

Public Sector Fiscal Result (% of GDP)

Public Sector Primary Result Central Government Primary Result Subnational Entities Primary Result (States and Municipalities) State-owned Companies Primary Result Public Sector Nominal Result

Data: % of GDP



Economic growth with fiscal consolidation

The public sector continues to pursue the fiscal target in line with fiscal responsibility principles, one of the pillars of Brazilian economic policy. In fact, the fiscal and monetary policy coordination has sought to mitigate the effects of international crisis on domestic activity. Also, the projected targets will reduce even more both nominal deficit and public debt.

-6

-5

-4

-3

-2

-1

0

1

2

3

4

0.0

2.6

2.2

2012*2011201020092008200720062005200420032002

3.2 3.3

3.7 3.8

3.2 3.3 3.4

2.0

2.7

3.1

2.2

-4.4

-5.2

-2.9

-3.6 -3.6

-2.8

-2.0

-3.3

-2.5 -2.6 -2.7

3.2 3.33.7 3.8

3.2 3.3 3.4

2.02.7

3.1

2.2

-4.4-5.2

-2.9-3.6 -3.6

-2.8-2.0

-3.3-2.5 -2.6 -2.7

Nominal Result Primary Result State-owned Companies

State and Municipalities Central Government

0.1

0.00.

8

0.6

0.0

0.10.

6

0.5

1.3

2.1

2.20.1

0.2

-0.0

0.1

0.9

1.0

0.8

1.1

1.00.3

0.20.

7 0.8

2.2

2.3

2.7

2.6

2.2

2.2

2.40.2

1.6

Ministry of Finance


84

Fiscal Policy

Primary and Nominal Results (% of GDP)

Primary Result Nominal Result

Data: % of GDP

* IMF forecasts - Fiscal Monitor October 2012. For Brazil, Focus Market Report - Central Bank of Brazil (November 30, 2012)

Source: Central Bank of Brazil and IMFProduced by: Ministry of Finance

Brazil stands out in the international fiscal scenario

Brazilian sound fiscal results stand out in comparison advanced and other emerging countries. For 2012, Brazil has one of the strongest levels of nominal and primary results, both as a share of GDP.

-10 -8 -6 -4 -2 0 2Japan

India

USA

UK

France

Canada

Italy

Mexico

Brazil

China

Germany

Russia

-10 -8 -6 -4 -2 0 2 4Japan

USA

UK

India

Canada

France

China

Mexico

Russia

Germany

BrazilItaly

Primary Fiscal Result (% of GDP) - 2012 Nominal Result (% of GDP) - 2012

-0.6

-2.2

-3.2

-5.2

-5.6

-6.5

-9.0

2.6

2.6

1.4

1.1

0.2

0.5

-0.4

-1.3

-2.3

-2.4

-2.7

-3.8

-4.7

-8.2

-8.7

-9.5

-10.0

Ministry of Finance


85

Fiscal Policy

Net Public Debt (% of GDP)

Mexico Italy USA France Germany Brazil

Data: % of GDP

* IMF forecasts - Fiscal Monitor October 2012

Source: IMFProduced by: Ministry of Finance

Brazilian public debt falls in adverse international scenario

Even with the adverse international scenario, the country’s net debt as a percentage of GDP keeps on a declining perspective, which helps to differentiate the fiscal situation of Brazil in relation to many advanced and emerging economies.

20

30

40

50

60

70

80

90

100

110

2017*

2016*

2015*

2014*

2013*

2012*2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

56.23

39.58

26.56

80.2389.44

98.68

Italy

France

Germany

MexicoBrazil

USA

Ministry of Finance


86

Fiscal Policy

Central Government Primary Fiscal Result - Above the Line (% of GDP)Data: % of GDP

* On a 12-month basis up to October 2012 ** Including social security benefits, allowance and unemployment insurance, assistential benefits (LOAS and RMV) and “Bolsa Família” Program *** Including only investments classified as GND 4 **** Including the Sovereign Wealth Fund constitution (2008) and the capitalization operation of Petrobras (2010)

Source: National Treasury Secretariat/Ministry of Finance/SenateProduced by: Ministry of Finance

Brazil is improving its public expenditure profile

The Central Government fiscal results have gone through significant changes since 2002, due to the positive impact of job formalization on the economy, as well as the focus on reducing inequalities. The growth in net revenues has been directed to income transfers to households and to public investments.

% GDP 2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

*

Gross revenue 21.7 21.0 21.6 22.7 22.9 23.3 23.6 22.8 22.4 23.9 23.9Transfers to states and municipalities 3.8 3.5 3.5 3.9 3.9 4.0 4.4 3.9 3.7 4.2 4.1Net revenue 17.9 17.4 18.1 18.8 19.0 19.3 19.2 18.9 18.7 19.7 19.8Primary expenditure 15.7 15.1 15.6 16.4 17.0 17.1 16.4 17.7 17.4 17.5 18.2

- Payroll 4.8 4.5 4.3 4.3 4.5 4.4 4.3 4.7 4.4 4.3 4.2 - Income transfers to households** 6.8 7.2 7.6 8.1 8.4 8.5 8.1 8.7 8.5 8.6 9.1 - Investments*** 0.8 0.3 0.5 0.5 0.6 0.7 0.9 1.0 1.2 1.0 1.1

1.7 1.6 1.7 1.8 1.7 1.8 1.7 1.9 2.0 2.0 2.11.6 1.6 1.5 1.8 1.8 1.8 1.4 1.4 1.4 1.5 1.7

2.1 2.3 2.5 2.5 2.1 2.2 2.8 1.2 1.2 2.3 1.6

0.0 0.0 0.0 0.0 0.0 0.0 -0.5 0.0 0.8 0.0 0.0

Final primary results (above the line) 2.1 2.3 2.5 2.5 2.1 2.2 2.4 1.2 2.1 2.3 1.6

11.1 10.3 10.5 10.8 10.6 10.8 11.1 10.2 10.2 11.1 10.7Net revenue minus transfers

- Health and education - Other expenses

Primary result without sovereingwealth fund and onerous assignment

Impact of socereing wealth fund andonerous assignment****

Ministry of Finance


87

Fiscal Policy

Selected Public Expenditures (% of GDP)

Transfers to families Payroll Expenses and Changes

Data: % of GDP


Source: National Treasury Secretariat/Ministry of Finance and Federal SenateProduced by: Ministry of Finance

Stability of the payroll expenditure and increase in transfers

Despite salary adjustments and the efforts to enhance civil servant workforce, payroll costs have reached 4.2% of GDP in October 2012 on a 12-month basis, below the average for the past 10 years. Meanwhile, income transfers to households have increased.

4.0

5.5

7.0

8.5

10.0

6.8

7.2

7.6

8.1

8.48.5

8.1

8.7

8.58.6

9.1

4.8

4.54.3 4.3

4.44.4 4.3

4.7

4.44.3

4.2

2012*

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

Transfers to familiesPayroll Expenses and Charges

4.84.5 4.3 4.3 4.4 4.4 4.3

4.7 4.4 4.3 4.2

6.87.2

7.68.1

8.4 8.58.1

8.7 8.5

9.1

8.6

Ministry of Finance


88

Fiscal Policy

Federal Public Debt Profile** (% of total debt)

Exchange Rate Linked Floating Rate* Inflation Linked Fixed Rate

Data: % of total debt

* Including SELIC, TR and other ** Including domestic and external debts managed by the National Treasury

Source: National Treasury Secretariat/Ministry of FinanceProduced by: Ministry of Finance

Brazil makes good progress in Public Debt composition

The share of floating rate bonds in Federal Public Debt decreased to 23.0%, the second lowest value since November 1997. On the other hand, the share of fixed rate plus inflation linked bonds, which ensures greater predictability for the public debt, reached 72.6%, the second highest historical level.

0

10

20

30

40

50

60

70

80

90

100

Oct 2012

20122011

20102009

20082007

20062005

20042003

20022001

20001999

19981997

19961995

19941993

19921991

1990

Exchange Rate Floating Rate* In�ation Linked Fixed Rate

4.4

23.0

33.8

38.7

40.2

48.3

5.0

6.5

Ministry of Finance


89

Fiscal Policy

Gross General Government Debt and Net Public Sector Debt (% of GDP)

Gross General Government Debt* Net Public Sector Debt**

Data: % of GDP

* Methodology since 2008 ** Excluding assets and liabilities of Petrobras and Eletrobras


Public debt drops consistently

Fiscal policy in Brazil has been able to keep the Public Debt-GDP ratio in a downward trend. For instance, Gross General Government Debt went from 63.1 percent in October 2009 to 59.2 percent in October 2012, whereas Net Public Sector Debt went from 42.9 to 35.2 percent in the same period, the second lowest value in the series since its first release in 2001.

30

35

40

45

50

55

60

65

46.7

57.1

35.2

59.2

42.9

63.1

Data de elaboração: 23-11-12 Nome do Arquivo: DLSP_Divida Bruta_do_Governo Central--PT--23-11-12_PF.xls copiar célula acima e colar valores na célula abaixo

Net Public Sector Debt **

Gross General Government Debt**

Oct 2012

Jul 2

012

Apr 2012

Jan 2012

Oct 2011

Jul 2

011

Apr 2011

Jan 2011

Oct 2010

Jul 2

010

Apr 2010

Jan 2010

Oct 2009

Jul 2

009

Apr 2009

Jan 2009

Oct 2008

Jul 2

008

Apr 2008

Jan 2008

Oct 2007

Jul 2

007

Apr 2007

Jan 2007

Ministry of Finance


90

Fiscal Policy

Average Maturity of Domestic Federal Public Debt (years)

Data: years


The lengthening of Federal Public Debt average maturity

The average maturity of the Domestic Federal Public Debt has been increasing constantly, reaching 3.9 years. The same applies to the outstanding Federal Public Debt, with average maturity rising to 4.0 years. The lengthening of debt average maturity contributes to reducing the risk of refinancing debt in Brazil.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Oct 2012

Oct 2011

Oct 2010

Oct 2009

Oct 2008

Oct 2007

Oct 2006

Oct 2005

Oct 2004

Oct 2003

Oct 2002

Oct 2001

Oct 2000

Stock

3.93.53.43.43.33.12.52.32.42.62.72.92.4

Ministry of Finance


91

Fiscal Policy

Non-Resident Share in Federal Public Debt (% of total DFPD*)

Data: % of total DFPD*

* Domestic Federal Public Debt


Increasing number of non-resident investors in Brazilian public debt

The Brazilian domestic public bonds have remained attractive for foreigners, reaching the highest level of the series. Typical non-resident investors differ from domestic ones as they demand more fixed rate bonds and have more appetite for longer maturities, which contributes to the improvement of domestic debt profile.

0

2

4

6

8

10

12

14

Oct 2012

Sep 2012

Jul 2

012

May 2012

Mar 2012

Jan 2012

Nov 2011

Sep 2011

Jul 2

011

May 2011

Mar 2011

Jan 2011

Nov 2010

Sep 2010

Jul 2

010

May 2010

Mar 2010

Jan 2010

Nov 2009

Sep 2009

Jul 2

009

May 2009

Mar 2009

Jan 2009

Nov 2008

Sep 2008

Jul 2

008

May 2008

Mar 2008

Jan 2008

Nov 2007

Sep 2007

Jul 2

007

May 2007

Mar 2007

13.8IOF: 1.5% onForeign InvestmentIn�ow Tax

IOF: 0% onForeign InvestmentIn�ow Tax

IOF: 2.0% onForeign InvestmentIn�ow Tax

IOF: 6.0% onForeign InvestmentIn�ow Tax

Non-Resident Share

Ministry of Finance


92

Fiscal Policy

Yields of 10-year Brazilian and USA bonds (% per annum)

Brazilian Sovereign Bonds US Treasury Bonds

Data: % per annum

* Measured by the differential of yields from 10-year Brazilian bonds denominated in USD and yields from US Treasury bonds (same maturity), traded on the secondary market on the same date


Increase of investors confidence for sovereign bonds

Commitment to fiscal responsability throughout the years combined with economic growth have contributed to the reduction of credit risk* in Brazil and reinforced the appealing of Brazilian sovereign bonds. Brazilian National Treasury issued, on September 5, the Global 2023 at a yield of 2.686% per year, the lowest rate ever for a Brazilian Global bond issuance.

0

3

6

9

12

15 14,6

12,6

10,6

10,8

8,27,9 7,7 7,8

6,25,9

5,36,1 5,8

2,7

4,8 5,04,5 4,2

3,44,2

6,2

4,9

3,34,5 4,4 4,0

4,6 4,7 4,73,8

2,53,3 3,6 3,8

3,0 3,12,0

1,6

Sep 2012

Jan 2012

Jul 2

011

Jul 2

010

Apr 2010

Dec 2009

May 2009

Jan 2009

May 2008

Apr 2007

Nov 2006

Nov 2005

Jun 2005

Feb 2005

Dec 2004

Jul 2

004

Jun 2003

Jan 2002

Oct 1999

Brazilian Economy

OUTLOOK

Ministry ofFinance


External Sector

Ministry of Finance


94

External Sector

In 2012, the Brazilian trade balance has been influenced by external factors, resulting in decreases in exports and imports, in the 12 months accumulated up to October 2012. It is due to a weaker global demand and new bureaucratic procedures faced by Brazilian exporters. In fact, trade barriers imposed by Argentina, one of our main trade partners, have resulted in delays in the import approval process. However, Brazil shows a relevant export market diversification quality, which has mitigated such difficulties.

Even under this adverse scenario in 2012, Brazil’s low external vulnerability lies in its excellent macro fundamentals. As opposed to previous crisis episodes, the volume of foreign reserves has considerably exceeded external debt and the current account deficit remains around 2.3% of GDP, being entirely financed by foreign direct investment. As a matter of fact, Brazil has been one of the main receptors of FDI in the world.

External factors influencing the Brazilian trade balance

Ministry of Finance


95

External Sector

Trade Balance* (US$ billion)

Exports Imports Balance

Data: US$ billion

* 1994-2011: yearly accumulated, 2012: on a 12-month basis up to October 2012

Source: MDICProduced by: Ministry of Finance

Weak global demand affects Brazilian foreign trade

The Brazilian trade balance has been negatively affected by weak global demand and red tape problems abroad. In October 2012, Brazil´s trade surplus amounted US$ 21.8 billion, due to lower exports (US$ 246.3 billion) and imports (US$ 224.5 billion).

0

50

100

150

200

250

300

2012*2011

20102009

20082007

20062005

20042003

20022001

20001999

19981997

19961995

19940

5

10

15

20

25

30

35

40

45

50Exports

Imports

Balance

21.8

33.1

50.0

53.3

59.7

57.7

49.2

55.8

55.6

47.2

48.3

62.8

73.6

91.4

120.

6

173.

1

127.

7

181.

8

226.

2

224.

5

43.5

46.5

47.7

53.0

51.1

48.0

55.1

58.2

60.4

73.1

96.5

118.

3

137.

8

160.

6

197.

9

153.

0

201.

9

256.

0

246.

3

Ministry of Finance


96

External Sector

Brazilian Exports: Major Partners* (US$ million)

2011 2012

Data: US$ million FOB

* Comparisons from January to October 2012 and 2011 (1) Including Puerto Rico (2) Including Venezuela from August 2012


Export performance in 2012

Brazilian exports have reduced slightly in comparison to 2011. Sales to major trading partners declined, except those to the US. From January to October 2012, compared with the same period in 2011, exports decreased to China, Argentina and the European Union. On the other hand, sales to the US grew about 10.0% in the period analyzed.

-2.5%

2011 2012

0

10

20

30

40

50

60

70

80

62.4

35.2

42 23.3 15

.1

41 22.8 9.

9

9.5

3.7

64 37.1

46.9

26.7

18.9

44.3

20.6 9.

9

10.3

4.7

Eastern

Europe

Middle EastAfri

ca

USA(1)EU

Argentin

a**

Mercosur*

Latin Americ

a and

the Carib

beanChinaAsia

-5.2%

-10.4%

-12.8%-20%

-7.5%

10.6%0% -7%

-20.2%

Ministry of Finance


97

External Sector

Brazilian Exports to Argentina (% YoY)



Decline in exports to Argentina

In February 2012, Argentina imposed that companies had to fill out a Sworn Affidavit of Intention to Import (DJAI) with the Argentine Revenue and Customs Authority, prior to completing a purchase order for imported goods. This meant more delay in the import approval process and, as a result, Brazilian exports to Argentina have fallen into negative territory since March 2012.

-40

-30

-20

-10

0

10

20

30

40

50

Oct 2012

Sep 2012

Aug 2012

Jul 2

012

Jun 2012

May 2012

Apr 2012

Mar 2012

Feb 2012

Jan 2012

Dec 2011

Nov 2011

Oct 2011

Sep 2011

Aug 2011

Jul 2

011

Jun 2011

May 2011

Apr 2011

Mar 2011

Feb 2011

Jan 2011

February 1: Beginning of DJAI

42.7

39.8

24.3

34.7

31.4

32.8

25.5

27.8

18.0

20.5

16.2

2.7 5.

0

-14.

3

-18.

8

-23.

2

-15.

9

-34.

0

-27.

0

-24.

3

-32.

9

-18.

5

Ministry of Finance


98

External Sector

Brazil: Largest Trading Partners (% of total exports)

1990 1998 2004 2012*

Data: % share of total exports

* YTD October 2012 ** Venezuela not included


Greater export diversification

Market diversification has been one of the strategies to increase Brazilian exports. The share of exports to China grew in importance in recent years, from 1.2% in 1990 to 17.4% in year-to-date. Share of exports to Mercosur** partners also increased, from 4.2% in 1990 to 9.4% in 2012.

0

5

10

15

20

25

30

35

1.817.4 11.2 20.3 9.45.6 20.8 25.5 9.21.8 19.1 29.8 17.429.2 33.3 4.21.2

1990

1998

2008

2012

MercosurEuropean UnionUSAChina

Ministry of Finance


99

External Sector

Brazilian Exports: Manufactured Goods* (% of total manufactured exports)

Argentina United States China European Union

Data: % share of total manufactured exports

* YTD October 2012


Main destinations of Brazilian manufactured exports

Manufactured exports to Argentina have grown in importance since 2002, while sales of manufactured sales to the US have decreased over the last years. Since 2010, however, there has been a recovery in sales to the USA and a drop to our main Mercosur partner. Nowadays, the EU is the main destination of Brazilian manufactured exports, purchasing about 20% of these products.

0

5

10

15

20

25

30

35

2012*2011

20102009

20082007

20062005

20042003

20022001

2000

19.618.314.8

2.7

European UnionArgentina

ChinaUSA

Ministry of Finance


100

External Sector

Reduction in Exports* to the Eurozone: GDP Impact (pp)

Data: percentage points

* Between the first half of 2011 and first half of 2012

Source: OECDProduced by: Ministry of Finance

Brazil: the lowest impact on its exports due to the crisis

OECD analysis shows that, among emerging countries, Brazil has experienced the lowest impact of reduction (-0.2 p.p) in exports to the Eurozone, comparing the first half of 2012 with the same period in 2011. South Africa, on the other hand, has experienced a reduction four times higher.

-0.8

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0.0

S. AfricaRussiaIndia China IndonesiaBrazil

-0.8

-0.7

-0.5-0.5

-0.3

-0.2

Ministry of Finance


101

External Sector

Current Account Balance* (US$ billion and % of GDP)

Balance (US$ billion) Current Account (% of GDP)

Data: US$ billion and % of GDP

* 2012: on a 12-month basis up to October 2012


Current account deficit relatively stable

Current account deficit in Brazil, which totaled US$ 50 billion in 2011, reached US$ 52.2 billion in the 12 months through October 2012. The lower volume of profits and dividends remittances, a result of the currency devaluation, has been the major factor responsible for the stability of the deficit to GDP ratio at 2.3%.

-60

-50

-40

-30

-20

-10

0

10

20

20122011

20102009

20082007

20062005

20042003

20022001

20001999

19981997

1996-10

-8

-6

-4

-2

0

2

4

Current Account Balance (US$ billion) Current Account (% GDP)-7

.6

-23.

2

-24.

2

-25.

3

-33.

4

-30.

5

-23.

5

1.6

13.6

14.0

11.7

4.2

-52.

2

-52.

5

-47.

3-24.

3

-28.

2 -2.3-2.1-2.2-1.5-1.7

0.1

1.31.61.8

0.8

-1.5

-4.2-3.8

-4.3-4.0-3.5

-2.8

Ministry of Finance


102

External Sector

Foreign Direct Investment (US$ billion)

Data: US$ billion

* Focus Market Report - Central Bank of Brazil (November 30, 2012)


FDI might reach more than US$ 60 bi in 2012

The volume of FDI flows in Brazil remains high, reaching US$ 55.3 billion from January to October 2012. This pattern led the Central Bank to raise its projection of foreign investments in the country from US$55 billion to US$60 billion in 2012. This is the same projection of market analysts for 2012 and 2013*, but figures can be even higher than expected.

0

10

20

30

40

50

60

70

80

2013*

2012*2011

20102009

20082007

20062005

2004

18.1 15.1 18.8 34.6 45.1 25.9 48.5 66.7 60.0 60.0

FDI total

Ministry of Finance


103

External Sector

Foreign Direct Investment, Portfolio Foreign Investment and Current Account Balance (% of GDP)

Foreign Direct Investment Foreign Portfolio Investment Current Account Balance

Data: % of GDP



FDI more than enough to finance current account deficit

The volume of FDI flows (2.9% of GDP on a 12-month basis up to October) has been more than sufficient to finance the Brazilian current account deficit of 2.3% of GDP. As for Foreign Portfolio Investment, it has remained stable, at around 0.6% of GDP, since the beginning of 2012.

0.6

-2.3

2.9

Current Account BalanceForeign Portfolio Investment

Foreign Direct Investment

-3

-2

-1

0

1

2

3

4

Oct 2012

Sep 2012

Jun 2012

Mar 2012

Dec 2011

Sep 2011

Jun 2011

Mar 2011

Dec 2010

Sep 2010

Jun 2010

Mar 2010

Dec 2009

Sep 2009

Jun 2009

Mar 2009

Dec 2008

Sep 2008

Ministry of Finance


104

External Sector

Foreign Liability Composition* (% of total participation)

Other Liabilities Fixed Income Stocks FDI

Data: % of total participation

* Preliminary data YTD October 2012


FDI accounts for just about half of foreign liabilities

Despite the crisis, the percentage share of FDI in total external liabilities increased to 46.4% in October 2012. Investments in the local fixed income market have also risen and offset the decline in foreign inflows to the Brazilian stock market.

Other Liabilities Fixed Income Stocks FDI

0102030405060708090

100

26.4 30.6 26.5 22.4 14.2 13.4 11.0 16.8 10.4 10.5 13.1 13.2

30.9 32.1 27.8 24.121.5 18.0 15.8

19.917.2 15.0 16.4 17.8

9.97.9

13.117.3

25.1 30.739.6

21.635.0 29.4 24.7 22.6

29,4

26.4 30.6 26.5 22.4 14.2 13.4 11.0 16.8 10.4 10.5 13.1 13.2

30.9 32.127.8 24.1

21.5 18.0 15.819.9

17.2 15.0 16.4 17.8

9.97.9

13.117.3

25.1 30.7 39.621.6

35.0 29.4 24.7 22.6

32.8 32.7 36.1 39.2 37.933.6

41.6 37.345.0 45.8 46.4

2012*2011

20102009

20082007

20062005

20042003

20022001

Ministry of Finance


105

External Sector

Global FDI inflows: top 10 host economies (US$ billion)

2011 (1st half) 2012 (1st half)

Data: US$ billion

* Global Investment Trends Monitor n. 10

Source: UNCTADProduced by: Ministry of Finance

Brazil among top FDI destinations

Emerging economies continue to absorb more than half of global FDI flows. Comparing the first half of 2012, with the same period in 2011, FDI received by Latin America and the Caribbean countries rose by 8.0%. Brazil appears as the world’s 5th largest FDI host during the same period.

China

USA

Hong Kong, China

France

UK

Brazil

Singapore

Canada

Australia

Belgium

2012 2011

21.4

23.5

24.5

27.4

29.7

30.8

34.7

40.8

57.4

59.1

34.4

20.2

30.8

27.9

32.5

31.2

9.8

55.2

94.4

60.9

Ministry of Finance


106

External Sector

BDO Index of Global Investment Opportunity (index)

Data: index

* BDO Global Market Opportunity Index: the arithmetic average of 100 is the average intention of global expansion from data collected in interviews across countries and regions

Source: BDO Accountancy NetworkProduced by: Ministry of Finance

Brazil is one of the best places to invest in

Over the last years, Brazil has seen a boom in productive capital flows, with companies from across the world investing in or planning to enter the Brazilian market. The country’s position has changed from sixth place, in 2011, to third, in 2012. China remains the number one investment destination, for the third year running.

0

60

120

180

240

300

AustraliaUK

Russia

Germany

India

Brazil

USAChina

251.0 212.0 198.0 158.0 147.0 108.0 104.0 77.0

Ministry of Finance


107

External Sector

International Reserves (US$ billion)

IMF loans - annual Total International reserves liquidity concept - annual

Data: US$ billion

* Up to November 30, 2012


Foreign reserves reduce external vulnerability

International reserves, which amounted to US$ 378.6 billion in November 2012, continue to be higher than total foreign debt. As so, the country remains a strong net external creditor. International reserve accumulation is one of the pillars of Brazilian economic policy for external vulnerability reduction, especially in a crisis environment.

0

50

100

150

200

250

300

350

400

0.0 0.00.0

0.0

0.00.0

2012*2011

20102009

20082007

20062005

20042003

2002

IMF loans - annualTotal international reserves liquidity Concept - Annual

20.8 28.3 24.9

17.0 21.0 28.0 53.8 85.8 180.3 193.8 238.5 288.6 352.0 378.6

Ministry of Finance


108

External Sector

External Vulnerability Indicators (% of GDP)

Total External Debt International Reserves Current Account

Data: % of GDP

* October 2012


Indicators point to low external vulnerability

Brazil has maintained its low external vulnerability conditions throughout 2012. Unlike previous crises episodes, the volume of foreign reserves has exceeded external debt considerably. Furthermore, our current account deficit remains at a level easily financed by long-term investments.

-10

0

10

20

30

40

50

201220081998198719821974

Current Account (%GDP) International Reserves (%GDP) Total External Debt (%GDP)

First oilshock impact

ExternalDebt Crisis

External DebtMoratorium

Before �exibleexchange

rate regime

Presentsituation

(october/12)

WorldFinancial Crisis

(subprime)

4.8

1.5 2.6 5.

3

11.7

16.4

18.1

31.5

26.5

12.0

13.4

-6.8

-6.0 -0

.5

-4.0 -1

.7

-2.3

42.9

Ministry of Finance


109

External Sector

Real Effective Exchange Rate* (index)

Yuan: China Real: Brazil Dollar: U.S. Euro: Eurozone

Data: index

*Deflator: CPI index. Positive changes means appreciation and negative changes means depreciation

Source: BISProduced by: Ministry of Finance

More competitive Brazilian real exchange rate

Despite the sizeable liquidity recently injected by developed economies, the Brazilian Real has not appreciated. Measures adopted by the Government have contributed to preventing the loss of country’s competitiveness in a scenario of currency war provoked by advanced economies.

85

90

95

100

105

110

115

Oct 2012

Sep 2012

Aug 2012

Jul 2

012

Jun 2012

May 2012

Apr 2012

Mar 2012

Feb 2012

Jan 2012

Dec 2011

Nov 2011

Oct 2011

Sep 2011

Aug 2011

Jul 2

011

Jun 2011

May 2011

Apr 2011

Mar 2011

Feb 2011

Jan 2011

Dec 2010

Nov 2010

Oct 2010

Sep 2010

Aug 2010

Jul 2

010

Jun 2010

May 2010

Apr 2010

Mar 2010

Feb 2010

Jan 2010

97.8

90.289.6

107.6

Dollar: USA Euro: Eurozone Yuan: China Real: Brasil

Ministry of Finance


110

External Sector

Nominal Exchange Rate (RS/US$)

Data: R$/US$


Winning the currency war: Brazilian Real in a more competitive level

The Brazilian Government has dealt with the so-called currency war by implementing macroprudential policies to manage short-term foreign capital inflows. The financial operations tax (IOF), charged on short-term foreign loans, contributed to the increase in the average exchange rate (R$/US$) from R$ 1.72 in 2011 to current values around R$ 2.10 at the beginning of December 2012.

2.11

1.5

1.6

1.7

1.8

1.9

2.0

2.1

Dec 2012

Nov 2012

Oct 2012

Sep 2012

Aug 2012

Jul 2

012

Jun 2012

May 2012

Apr 2012

Mar 2012

Feb 2012

Jan 2012

Dec 2011

Nov 2011

Oct 2011

Sep 2011

Aug 2011

Jul 2

011

Jun 2011

May 2011

Apr 2011

Mar 2011

Feb 2011

Jan 2011

20112nd halfAverage: R$ 1.72

20121st halfAverage:R$ 1.87

20122nd halfAverage: R$ 2.04

20111st halfAverage: R$ 1.63

Average Exchange Rate - Free- US Dollar (purchase) - u.m.c./US$

Brazilian Economy

OUTLOOK

Ministry ofFinance



Ministry of Finance


112


The 2008 financial turmoil has not yet come to an end, as the world is still waiting to see advanced economies address important financial and political problems. In the United States, the Federal Reserve has become the main source of economic stimulus, having implemented the third round of quantitative easing, without satisfactory results for the US, but with negative consequences for emerging economies. From the fiscal point of view, the debate has dragged on since 2011, resulting in the so-called “Fiscal Cliff”, which is a series of budget cuts and tax increases to go into effect at the beginning of 2013. If this fiscal tightening fully takes place then the economy would suffer a serious recession, negatively impacting the global economy. Thus, the US politicians must make a deal on the budget deficit, in order to avoid a recession.

In Europe, the crisis still persists in countries like Greece, Portugal and Spain, with severe economic and social consequences. The crisis is also starting to affect more solid economies, such as Germany. Therefore, it is important that Euro zone countries come up with rapid and durable solutions, specially in terms of banking supervision and fiscal consolidation, so that economic growth picks up in the region.

Advanced economies still face major challenges

Ministry of Finance


113


2013 2014


* WEO October 2012


2013-2014 GDP Growth: more dynamism of emerging economies

Canada

Brazil

ArgentinaSouthAfrica

EgyptSaudi

Arabia India

Russia

Japan

Australia

SouthKorea

Indonesia

China

Turkey

UnitedKingdom

Mexico

UnitedStates

2.42.0

2.92.1

3.53.5

4.24.0

3.83.13.93.0

4.53.0

2.21.1

4.03.5

3.84.2 6.46.0

8.58.2

3.93.8

1.11.2

4.03.6

6.56.3

3.23.0

1,20,2EuroZone

Spain Italy

France0.4 1.1

-1.3 1.0 -0.7 0.5

Germany1.40.9

Ministry of Finance


114


2013 2014


* WEO October 2012

Source: IMF and Brazilian GovernmentProduced by: Ministry of Finance

2013-2014: inflation forecasts

2014

2013

SaudiArabia

Brazil*

Russia

Argentina

India

China

Indonesia

SouthKorea

Australia

JapanUSA

South Africa

Mexico

Canada Eurozone

4.9

9.7

3.5

5.2

4.69.6

6.6

2.7

5.1

3.0

2.6

-0.21.8

2.0 1.6

4.8

5.0

4.98.3

6.5

2.1

3.0

3.0

4.9

2.39.8

3.0

2.0

2.01.4

Ministry of Finance


115


2013 2014

Data: % of GDP

* WEO October 2012

Source: IMF and Central Bank of BrazilProduced by: Ministry of Finance

2013-2014: current account balance forecasts

2013

2014

SaudiArabia

Brazil

Russia

Argentina

India

China

Indonesia

SouthKorea

Australia

JapanUnited States

South Africa

Mexico

Canada

Eurozone

-0.1

-1.1

-5.8

22.7-3.3

3.8

1.7

-2.4

2.5

-5.5

2.3-3.1

-3.71.3

-2.8

z

-6.1

19.12.8

2.3

2.5

1.4

2.8

-2.3

6.1-0.7

-1.0

-3.1

-3.7

1.1

-3.3

Ministry of Finance


116


Deviation of Actual and Potential GDP Growth Rates* (pp)

Very strong (<-2.5) Strong (between -2.5 and -2.0) Moderated (between -2.0 and -1.5) Limited (between -1.5 and 0.0)


* IMF calculations


Brazil will be the least affected in the case of crisis worsening

The IMF analyzed the effects of an intensification of the European crisis, taking into account factors such as a sharp drop in global demand and commodity prices, among others. Under this scenario, Brazil would be among the least affected economies by the financial crisis in Europe.

Strong (between -2,5 and -2,0)

Very strong (<-2,5)

Limited (between -1,5 and 0,0)

Moderated (between -2,0 and -1,5)

Ministry of Finance


117


GDP Growth: Advanced and Emerging Economies (% YoY)


* WEO October 2012


Global Economy: slow recovery in the short-term scenario

Due to the current financial crisis, the global economy will not be able to fully recover in all regions at the same time. In the next two years, the prospects for economic growth in Latin America, Emerging Asia and Africa are much more positive than in advanced economies, such as in Europe and Japan.

-10

-5

0

5

10

15

2014*

2013*

2012*2011

20102009

20082007

20062005

20042003

20022001

2000-10

-5

0

5

10

15

2014*

2013*

2012*2011

20102009

20082007

20062005

20042003

20022001

2000

7.5

4.1

5.5

2012 2013

Emerging Asia 6.7 7.2

Latin America 3.2 3.9

Sub Saharan Africa 5.0 5.7

2014

2012 2013

United States 2.2 2.1

Euro Area -0.4 0.2

Japan 2.2 1.2

2014

2.9

1.2

1.1

Ministry of Finance


118


Eurozone GDP Growth (% QoQ)

Data: % change from preceding quarter

Source: BCEProduced by: Ministry of Finance

Recession in the Eurozone

Since the fourth quarter of 2011, quarter-over-quarter economic growth in the Eurozone has been zero or below. In third quarter of 2012, the Eurozone economy shrank for a second consecutive quarter, falling by 0.1% over the previous one. European leaders are still struggling to find a consistent solution in order to put the region back on track.

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.60.8

1.0

1.2

3 Q 2012

2 Q 2012

1 Q 2012

4 Q 2011

3 Q 2011

2 Q 2011

1 Q 2011

4 Q 2010

3 Q 2010

2 Q 2010

1 Q 2010

0.5

1.0

0.40.3

0.6

0.20.1

-0.3

0.0

-0.2-0.1

Ministry of Finance


119


G20 and Europe: Gross Public Debt (% of GDP)

G20 countries G20 European countries Eurozone members

Data: % of GDP

* WEO October 2012 forecasts


Public debt in Europe is still a concern

The current economic crisis is deeply related to the high level of debt over GDP in countries such as Italy, Ireland and Portugal. The projections for 2012 show that these three countries have debt-to-GDP ratio above 110%. The Greek situation is even worse, as its debt-to-GDP ratio is 170%. The US and Japan debt levels have increased as well.

2007 2012*

Argentina 67,09 45,22 Australia 9,71 27,07 Brazil 65,19 64,08 Canada 66,52 87,52 China 19,59 22,16 India 75,46 67,59 Indonésia 35,05 23,90 Japan 183,01 236,56 Mexico 37,56 43,08 Russia 8,51 11,03 South Africa 28,29 41,25 South Korea 30,66 33,46 Turkey 39,92 37,70 UK 67,16 107,18 USA 66,43 93,62

2007 2012*

France 64,22 89,97

Germany 65,36 83,04

Italy 103,08 126,33

UK 43,71 88,68

Belgium 84,01 99,03

Greece 107,45 170,73

Ireland 24,99 117,74

Netherlands 45,30 68,20

Poland 44,99 55,10

Portugal 68,27 119,07

Spain 36,30 90,69

Sweden 39,73 37,15

Ministry of Finance


120


Manufacturing Value Added Growth (% YoY)

Data: % change from preceding year (US$ at 2000 prices)

Source: UNIDO - United Nations Industrial Development OrganizationProduced by: Ministry of Finance

Industrial production still weak in 2012 worldwide

Global industrial production growth has remained weak in 2012, due to the uncertainties related to the international financial crisis. Estimates show that the value added of the world manufacturing should grow by 3.0% in 2012. But industrial production in emerging economies will expand much more than in advanced countries: 4.5% and 1.4%, respectively.

Sector 2011 Expectations for 2012

World 2.9 3.0

Industrialized Countries 0.4 1.4

North America 0.4 1.7

East Asia -1.6 4.1

Europe 1.8 -1.7

Developing Countries 5.4 4.5

China 10.6 9.0

Recently Industrialized countries 5.7 4.4

Other developing countries 3.7 4.4

Ministry of Finance


121


Economic Climate Index* (points)

Oct 2012 Jul 2012

Data: points

* ECI oscillates between 1 and 9 points and refers to the average net optimists minus pessimists for qualitative questions

Source: IFO/FGVProduced by: Ministry of Finance

Brazil overcomes other BRICS countries in economic climate

The Economic Climate Index (ECI) seeks to capture the sense of experts regarding the current economic situation and expectations for the next six months. According to the latest ratings released by Getulio Vargas Foundation (FGV), as of October 2012, the Brazilian ICE grew to 6.1 points, against 5.2 registered in the previous quarter. This score is higher than in other BRICS, as well as in advanced economies.

0

1

2

3

4

5

6

7

Brazil

India

United Kingdom

Germany

United Sta

tes

China

Russia

European U

nionJa

pan

France

South Afri

ca

Oct 2012Jul 2012

2.9

3.3

3.6

4.1

4.3

4.7

4.7

4.8

4.8

5.4

6.1

4.1

3.8

4.2

4.4

4.5

5.0

4.6

5.4

4.7

5.0

5.2

Ministry of Finance


122


OECD Leading Indicator (points)

China Brazil USA Euro

Data: points

* The horizontal line at 100 represents the long-term trend of economic activity

Source: OCDEProduced by: Ministry of Finance

OECD leading indicator shows Brazilian recovery

The OECD leading indicator, which anticipates in six months the inflection of long-term trend of economic activity, continues to point to weak growth prospects in many major economies of the world, especially in the Eurozone. But there are already signs of improvement in countries like China and the US The prospects for Brazil point to a recovery in economic growth.

BrazilChina EuroUSA

92

94

96

98

100

102

104

20122011

20102009

20082007

20062005

20042003

200292

94

96

98

100

102

104

20122011

20102009

20082007

20062005

20042003

2002

Ministry of Finance


123


Unemployment Rate*: Brazil, Eurozone and the US (%, sa and nsa)

US (sa) Eurozone (sa) Brazil (nsa)

Data: %, Brazil data: not seasonally adjusted, United States and Eurozone data: seasonally adjusted

* Data up to October 2012, aside from Eurozone (September 2012)


Unemployment rates dynamics in the US, Europe and Brazil

Unemployment rates have presented different dynamics in Brazil, US and Eurozone. In the U.S, the unemployment rate has been declining, but it is still above its historical average. In Europe, the poor performance of the labor market is a major concern. On the other hand, unemployment has fallen consistently in Brazil, reaching 5.3% in October 2012.

7.9

5.3

11.6

4

5

6

7

8

9

10

11

12

Oct 2012

Jul 2

012

Apr 2012

Jan 2007

Oct 2006

Jul 2

006

Apr 2006

Jan 2006

Oct 2005

Jul 2

005

Apr 2005

Jan 2005

Oct 2009

Jul 2

009

Apr 2009

Jan 2009

Oct 2008

Jul 2

008

Apr 2008

Jan 2008

Oct 2007

Jul 2

007

Apr 2007

Jan 2007

Oct 2006

Jul 2

006

Apr 2006

Jan 2006

Oct 2005

Jul 2

005

Apr 2005

Jan 2005

BrazilEurozoneUnited States

Ministry of Finance


124


CRB Commodity Prices* (index-number)

CRB Spot CRB Food CRB Metals

Data: index-number (Dec 2005 = 100)

* On November 15, 2012


Food commodities influenced by weather-related issues in 2012

In the 12 months ended in November 2012, commodity prices showed some stability. For instance, the CRB Food Index fell 0.2% and Metals decreased by 0.1%, compared to the average price of November 2011. However, the prices of agricultural commodities rose considerably between June and September 2012, due to adverse weather conditions in the US. Since then, prices have started to decrease.

50

90

130

170

210

250

Nov 2012

Sep 2012

Jun 2012

Mar 2012

Dec 2011

Sep 2011

Jun 2011

Mar 2011

Dec 2010

Sep 2010

Jun 2010

Mar 2010

Dec 2009

Sep 2009

Jun 2009

Mar 2009

Dec 2008

Sep 2008

Jun 2008

Mar 2008

Dec 2007

Sep 2007

Jun 2007

Mar 2007

Dec 2006

Sep 2006

Jun 2006

Mar 2006

Dec 2005

196.23181.62

158.10

CRB Metals CRB Food CRB Spot

Ministry of Finance


125


Brent Oil Price (Barrel in US$)

Data: barrel in US$


Oil prices at 2011 level

Oil price’s upward trend, which started after the 2008-2009 financial turmoil, lasted until the beginning of 2011. After dropping in the middle of 2012, oil prices recovered again, reaching the 2011 level.

0

20

40

60

80

100

120

140

Nov 2012

Sep 2012

Jul 2

012

May 2012

Mar 2012

Jan 2012

Nov 2011

Sep 2011

Jul 2

011

May 2011

Mar 2011

Jan 2011

Nov 2010

Sep 2010

Jul 2

010

May 2010

Mar 2010

Jan 2010

Nov 2009

Sep 2009

Jul 2

009

May 2009

Mar 2009

Jan 2009

108.2

Ministry of Finance


126


United States: Leading and Coincident Economic Indicators (index-number)

Leading Economic Indicator (LEI) Coincident Economic Indicator (CEI)

Data: index-number (2004 = 100)

Source: The Conference BoardProduced by: Ministry of Finance

Leading indicators show slow rebound pace in US economy

Despite the slow pace of recovery, the US economy is showing some positive signs. The Conference Board Leading Economic Index is continuing to improve and it is well above 2009 levels, when economic activity shrank considerably. The Coincident Economic Index, which measures current economic conditions, has increased despite a slight drop in October 2012.

80

85

90

95

100

105

110

Oct 2012

Sep 2012

Jun 2012

Jan 2012

Jun 2011

Jan 2011

Jun 2010

Jan 2010

Jun 2009

Jan 2009

Jun 2008

Jan 2008

Jun 2007

Jan 2007

Jun 2006

Jan 2006

Jun 2005

Jan 2005

Jun 2004

Jan 2004

Jun 2003

Jan 2003

Jun 2002

Jan 2002

Jun 2001

Jan 2001

Jun 2000

Jan 2000

Jun 1999

Jan 1999

104.8

96

Coincident Economic Indicator (CEI)Leading Economic Indicator (LEI)

Ministry of Finance


127


United States: Sales of Existing Homes and Housing Starts (millions, sa)

Sales of Existing Homes Housing Starts

Data: millions, seasonally adjusted


US housing market: timid signs of recovery

The US housing market is steadily improving with consistent increases in sales and new constructions. Privately-owned housing starts reached 894,000 units in October 2012. It is more than 40% above the October 2011 rate of 630,000 units. Total existing-home sales rose 10.9% in October 2012, from October 2011 (a total of 4.79 million units). This is the 16th consecutive month of year-over-year increases in existing-home sales in the US.

0

500

1,000

1,500

2,000

2,500

Oct 2012

Jul 2

012

Apr 2012

Jan 2012

Oct 2011

Jul 2

011

Apr 2011

Jan 2011

Oct 2010

Jul 2

010

Apr 2010

Jan 2010

Oct 2009

Jul 2

009

Apr 2009

Jan 2009

Oct 2008

Jul 2

008

Apr 2008

Jan 2008

Oct 2007

Jul 2

007

Apr 2007

Jan 2007

Oct 2006

Jul 2

006

Apr 2006

Jan 2006

Housing StartsSales of Existing Homes

4.79894

3

4

5

6

7

8

Ministry of Finance


128


United States: Government Revenue and Expenditure, Debt and GDP (US$ trillion)

Expenditure Revenue Debt GDP

Data: US$ trillion

* Fiscal data are Government expectations. Public debt: October 2012

Source: US Official Press and BloombergProduced by: Ministry of Finance

US public debt is now higher than annual GDP

The fiscal results in the show that, over the last years, revenues have decreased and expenses increased, either due to the economic crisis or to political decisions. The US public debt has reached US$ 16 trillion (higher than GDP), meaning that the country’s fiscal trajectory must be reversed. But a tighter fiscal squeeze could lead the country to recession, with repercussions on the rest of the world.

0.00.5

1.0

1.5

2.02.5

3.0

3.5

4.0

2012*2011

20102009

20082007

20062005

20042003

20022001

20000

2

4

6

8

1012

14

16

18

2012*2011

20102009

20082007

20062005

20042003

20022001

2000

Japão

ExpenditureRevenue

3.5

2.4

9.9

10.3

10.6

11.1

11.8

12.6

13.4

14.0

14.3

14.0

14.5

15.1

15.6

5.7

5.9

6.4

7.0

7.6

8.2

8.7

9.2

10.7

12.3

14.0

15.2

16.3

USA GDPUSA Debt Level

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United States: Fiscal Cliff and Consequences (billions and % of GDP)

Data: billions and % of GDP

* Congress implements all spending cuts and tax increases ** Spending cuts and tax increases are partially implemented

Source: Congressional Budget Office (CBO)Produced by: Ministry of Finance

The Fiscal Cliff debate

The “Fiscal Cliff” is a term used to describe the end of tax incentives implemented in the Bush administration and the beginning of budget cuts and social military that are due to take effect shortly. Unless politicians come to an agreement, this fiscal tightening may lead to a fall in the GDP of 0.5% in 2013 and an unemployment rate of 9.1% in the 4th quarter of 2013, although improving public debt.

Fiscal Cli� Scenario* Alternative Scenario**

1,128.0 1,128.0

(US$ bi) 641.0 1,037.0

2012 (US$ bi) 487.0 91.0

Economic Growth in 2013 (4Q2013/4Q2012) -0.5% 1.7%

Unemployment Rate (4Q2012) 9.1% 8.0%

Gross Public Debt (% GDP) 2012 = 73% 2022 = 58%

2012 = 73%2022 = 90%

De�cit Reduction compared to

Budget De�cit in 2013

De�cit in 2012 (US$ bi)

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Possible Scenarios of Economic Slowdown in Different Regions (pp)



Global effects of the crisis in the US and Europe

The economic problems facing the Eurozone are already having important consequences in various regions of the world. The US fiscal debate tends to add more uncertainty in the global economy. It is expected Latin America be less affected by those aspects.

-7

-6

-5

-4

-3

-2

-1

0

Latin Americ

a

Emerging Asia

Japan

Other c

ountries

USAWorld

Central E

urozone

Periphera

l Euro

zone-2.0

-1.8

-1.6

-1.4

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

Latin Americ

a

Emerging Asia

Japan

Other c

ountries

USAWorld

Central E

urozone

Periphera

l Euro

zone

Eurozone depression scenario

(Fall in GDP, 2013 base scenariopercentage deviation)

(Fall in GDP, 2013 base scenariopercentage deviation)

USA �scal crisis

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China: Real GDP Growth (% YoY)


* WEO October 2012 forecasts

Source: Bloomberg and IMFProduced by: Ministry of Finance

More moderate Chinese economic growth

In 2012, the Chinese economy will grow at a slower pace than in past years, mainly due to the weakness of global demand. It is expected a recovery still more modest than in 2010 and 2011. In 2013, the Chinese GDP growth rate is expected to be higher (8.1%).

0

3

6

9

12

15

2013*

2012*2011

2010

2009

2008

2007 2006

20052004

20032002

2001

8.3 9.1 10.0 10.1 11.3 12.7 14.2 9.6 9.2 10.4 9.3 7.7 8.1

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China: Confidence Indexes (index)

Business Confidence Index Real Estate Confidence Index

Data: index


Confidence indexes shows China cooling off

Chinese confidence indices have been trending downwards since mid-2011, due to greater economic uncertainty. The result is a less buoyant economic activity, as shown by the GDP growth, which is expected to reach 7.7% in 2012, having already reached much higher growth rates in the recent past.

90.2

82.9

60

65

70

75

80

85

90

95

100

105

Sep 2012

Jun 2012

Mar 2012

Dec 2011

Sep 2011

Jun 2011

Mar 2011

Dec 2010

Sep 2010

Mar 2010

Dec 2009

Sep 2009

Jun 2009

Mar 2009

Dec 2008

Sep 2008

Sep 2008

Jun 2008

Mar 2008

Real Estate Con�dence Index Business Con�dence Index

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133


China: Investment, Consumption and GDP (% YoY and % of GDP)

Investment / GDP Consumption / GDP

Data: % change from preceding year and % of GDP

Source: DRC and World BankProduced by: Ministry of Finance

Chinese economy may be shifting to a new economic model

As global demand weakens, the focus turns to the country´s domestic market. So, a new economic model is being designed. By 2030, the consumption share of GDP will be much higher than today’s figures and, on the other hand, the investment share of GDP will decline.

Period Investment(average growth)

Final Consumption(average growth)

GDP(average growth)

Investment rate

1991 - 1995 19.30% 10.70% 12.30% 33%1996 - 2000 8.80% 8.90% 8.60% 34%2001 - 2005 14.60% 8.60% 9.80% 40%2006 - 2010 16.40% 11.10% 11.20% 46%2011 – 2015 6.50% 10.40% 7.80% 44%2016 – 2020 3.20% 9.80% 6.70% 39%

010203040506070

2025 - 20302021 - 20252016 - 20202011 - 20151995 - 2010

(end of period)

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135

Glossary - Institutions

BCE European Central Bank

BIS Bank for International Settlements

BLS Bureau of Labor Statistics

BNDES National Bank of Economic and Social Development

BoE Bank of England

BoJ Bank of Japan

CAGED General File of the Employed and Unemployed

CBO Congressional Budget Office

Cetip Custody and Settlement Chamber

CNC National Confederation of Commerce Brazil

CNI National Confederation of Industry

Conab National Company of Food Supply

CVM Securities and Exchange Commission of Brazil

ECB European Central Bank

EU European Union

FAO Food and Agriculture Organization

Fed Federal Service

FGTS Employment Security Fund

FGV Getulio Vargas Foundation

FIESP Federation of Industries from São Paulo State

GfK German Society for Consumer Research

IBGE Brazilian Institute of Geography and Statistics

IFS International Financial Statistics

IMF International Monetary Fund

IPEA Institute for Applied Economic Research

MAPA Ministry of Agriculture, Cattle and Food Supply

MDS Ministry of Social Development and Fight against Hunger

MTE Ministry of Labor and Employment

OCDE Organisation for Economic Co-operation and Development

OECD Organisation for Economic Co-operation and Development

RAIS Annual Social Information Relation

STN Brazilian National Treasury Secretariat

UNCTAD Conference on Trade and Development

UNIDO United Nations Industrial Development Organization

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Glossary - Terms

CDA Multi-market Investment Fund

CEI Coincident Economic Indicator

CRI Certificate of Real Estate Receivables

DI Interbank Deposits

DLSP Public Sector Net Debt

DXY US Dollar Index

ECI Economic Climate Index

FDI Foreign Direct Investment

FDP Federal Public Debt

FIDC Investment Fund in Credit Rights

FII Real Estate Investment Fund

FIP Share Investment Fund

FOMC Federal Open Market Committee

FSB Sovereign Wealth Fund

GFCF Gross Fixed Capital Formation

IGP-DI General Price Index - Domestic Supply / FGV

IGP-M General Price Index - Market / FGV

INCC National Construction Cost Index / FGV

INPC National Consumer Price Index /IBGE

IOF Financial Operation Tax

IPA Wholesale Price Index /IBGE

IPC Consumer Price Index /IBGE

IPCA Broad National Consumer Price Index / IBGE

IPI Industrialized Products Tax

LCI Real Estate Credit Letter/Bill

LEI Leading Economic Indicator

LTRO Long Term Refinancing Operations

MCMV "Minha Casa Minha Vida" Housing Program

PAC Growth Acceleration Program

PEA Economically Active Population

PLOA Annual Budgetary Law

PMC Monthly Retail Sale Survey / IBGE

PMI Purchasing Managers Index

PNAD National Survey by Household Sample / IBGE

SEDA New Sustainable Economic Development Assessment

SELIC Special System for Settlement and Custody

VIX Chicago Board Options Exchange Market Volatility Index

WEO World Economic Outlook

YTD year-to-date

Ministry of Finance


137

Ministry ofFinance


Presidente da República: Dilma Vana RousseffMinistro da Fazenda: Guido MantegaSecretário Executivo: Nelson BarbosaSecretário de Política Econômica: Márcio Holland Chefe de Gabinete do Ministro: Marcelo Fiche

Production and ExecutionEconomic Policy Secretariat

Editorial BoardAndré MinellaCleomar GomesFabio Graner José Gilberto Scandiucci FilhoLígia Ourives

Technical SupportAdvisory on Economic Affairs to the Minister of FinanceSocial Communication Advisory - ACSInternational Affairs Secretariat - SAINSecretariat for Economic Monitoring - SEAENational Treasury Secretariat - STNFederal Service of Data Processing - SERPRO

Finished in December 6th, 2012

ArtVisual Project and Final Art: Viviane BarrosCover: André Nóbrega Layout Development: Alline Luz and Letícia LopesDesign Trainee: Barbara Vonne

www.fazenda.gov.br Available at: http://www.fazenda.gov.br/ebp

Brazilian Economic Outlook | 17 Edition (Dec/2012)

Economy & Finance

Transcript of Brazilian Economic Outlook | 17 Edition (Dec/2012)