Brazilian Economic Outlook | 17 Edition (Dec/2012)

1,175 views

Published on

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 untilDecember 6th, 2012.

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,175
On SlideShare
0
From Embeds
0
Number of Embeds
91
Actions
Shares
0
Downloads
42
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Brazilian Economic Outlook | 17 Edition (Dec/2012)

  1. 1. 17 Edition | December | 2012 th Brazilian Economic OUTLOOK Ministry of Finance B R A Z I L I A N G O V E R N M E N T
  2. 2. Ministry of Finance DecemberEdition|Year2012 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
  3. 3. 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 thereportwereupdateduntilDecember6th ,2012.
  4. 4. Ministry of Finance DecemberEdition|Year2012 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.
  5. 5. Brazilian Economy OUTLOOK Ministry of Finance B R A Z I L I A N G O V E R N M E N T Economic Activity
  6. 6. Ministry of Finance DecemberEdition|Year2012 10 EconomicActivity 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. ThisAdministrationhastakenaseriesofmeasurestoincreasethecountry´scompetitiveness,encouraginginvestment 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. Recoveryineconomicactivity
  7. 7. Ministry of Finance DecemberEdition|Year2012EconomicActivity 11 GDP Growth (% QoQ, sa) Data: % change from preceding quarter, seasonally adjusted Source:IBGE Producedby:MinistryofFinance Growth accelerates Evenlowerthanexpected,theGDPgrowthinthethirdquarterof2012ishigherthanthepreviousquarters, 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 0.5 0.1 0.1 0.1 0.2 0.6
  8. 8. Ministry of Finance DecemberEdition|Year2012EconomicActivity 12 GDP Growth Rate: Demand and Supply (% QoQ, sa) Q2 2012 Q3 2012 Data: % change from preceding quarter, seasonally adjusted Source:IBGE Producedby:MinistryofFinance 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 Government Consumption Household Consumption 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
  9. 9. Ministry of Finance DecemberEdition|Year2012EconomicActivity 13 Contributions to GDP Growth: Supply Side (%YoY) GDP Taxes Services Industry Agricultural Data: % change from preceding year * On a 4-quarter basis Source:IBGE Producedby:MinistryofFinance Brazil: supply-side GDP growth 2007 2008 2009 2010 2011 2012* GDP Services Industry Agriculture Taxes 6.1 5.2 7.5 -0.3 2.7 0.9 1.1 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 0.6 1.6 0.4 0.2 0.2 0.8 0.03 -0.2
  10. 10. Ministry of Finance DecemberEdition|Year2012EconomicActivity 14 Contributions to GDP Growth: Demand Side (%YoY) GDP Inventories Exports GFCF Government Consumption Household Consumption Imports Data: % change from preceding year * On a 4-quarter basis Source:IBGE Producedby:MinistryofFinance Brazil: demand-side GDP growth 2007 2008 2009 2010 2011 2012* 6.1 5.2 -0.3 7.5 2.7 0.9 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 1.0 0.6 2.6 -2.1 -1.2 -1.3 3.9 0.9 4.2 -4.0 1.3 1.3 0.5 0.9 0.4 2.4 -0.4 -1.2 0.6 1.6 0.1 -0.7 -0.5 -0.2
  11. 11. Ministry of Finance DecemberEdition|Year2012EconomicActivity 15 Components of the Service Sector (% QoQ, sa) Data: % change from preceding quarter, seasonally adjusted Source:IBGE Producedby:MinistryofFinance 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
  12. 12. Ministry of Finance DecemberEdition|Year2012EconomicActivity 16 GDP, Household Consumption and Investment (%YoY) GDP Household Consumption Investment Data: % change from preceding year Source:IBGE Producedby:MinistryofFinance 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 5.4 4.0 6.1 5.2 7.5 2.7 4.2 Average 2006-2011 201120102009200820072006 GDPGFCF Household Consumption
  13. 13. Ministry of Finance DecemberEdition|Year2012EconomicActivity 17 Industrial Production Index (index number, sa) Data: index number, seasonally adjusted (average 2002 = 100) Source:IBGE Producedby:MinistryofFinance 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 O ct2012 Sep 2012 Jun 2012 M ar2012 Dec2011 Sep 2011 Jun 2011 M ar2011 Dec2010 Sep 2010 Jun 2010 M ar2010 Dec2009 Sep 2009 Jun 2009 M ar2009 Dec2008 Sep 2008 Jun 2008 M ar2008 Dec2007 Sep 2007 127.0 Index-number (average 2002=100)
  14. 14. Ministry of Finance DecemberEdition|Year2012EconomicActivity 18 Installed Capacity Utilization Level (%) FGV FIESP* Data: % * Sao Paulo State, only Source:CNI,FGVandFIESP Producedby:MinistryofFinance 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 Jul2012 Apr2012 Jan 2012 O ct2011 Jul2011 Apr2011 Jan 2011 O ct2010 Jul2010 Apr2010 Jan 2010 O ct2009 Jul2009 Apr2009 Jan 2009 O ct2008 Jul2008 Apr2008 Jan 2008 O ct2007
  15. 15. Ministry of Finance DecemberEdition|Year2012EconomicActivity 19 RetailTrade Survey (%YoY) PMC Broad PMC* Data: % change from preceding year * Including vehicles, motorcycles, parts and pieces, and building materials Source:IBGE Producedby:MinistryofFinance 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 Jul2012 M ay 2012 M ar2012 Jan 2012 Nov 2011 Sep 2011 Jul2011 M ay 2011 M ar2011 Jan 2011 Nov 2010 Sep 2010 Jul2010 M ay 2010 M ar2010 Jan 2010 Nov 2009 Sep 2009 Broad PMC Restricted PMC
  16. 16. Ministry of Finance DecemberEdition|Year2012EconomicActivity 20 Confidence Indexes: Services and Industry (points, sa) Services Confidence Index Industry Confidence Index Data: points, seasonally adjusted Source:FGV Producedby:MinistryofFinance 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. 90 95 100 105 110 115 120 125 130 135 140 125.4 105.2 Industry Confidence Index Services Confidence Index Nov 2012 O ct2012 Sep 2012 Aug 2012 Jul2012 Jun 2012 M ay 2012 Apr2012 M ar2012 Feb 2012 Jan 2012 Dec2011 Nov 2011 O ct2011 Sep 2011 Aug 2011 Jul2011 Jun 2011 M ay 2011 Apr2011 M ar2011 Feb 2011 Jan 2011 Dec2010 Nov 2010
  17. 17. Ministry of Finance DecemberEdition|Year2012EconomicActivity 21 Vehicle Production (%YoY) Data: % change from same month previous year Source:Anfavea Producedby:MinistryofFinance 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 -5 0 5 10 15 20 25 O ct2012 Sep 2012 Aug 2012 Jul2012 Jun 2012 M ay 2012 Apr2012 M ar2012 Feb 2012 Jan 2012 Dec2011 Nov 2011 O ct2011 Sep 2011 Aug 2011 Jul2011 Jun 2011 M ay 2011 Apr2011 M ar2011 Feb 2011 Jan 2011 Dec2010 Nov 2010 O ct2010 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 -26.1 -3.6 -11.4 -7.5 -7.7 -7.5 -9.7 -9.1 -1.0 5.5 6.9 8.2
  18. 18. Ministry of Finance DecemberEdition|Year2012EconomicActivity 22 Manufacturing PMI (index) Data: index *Values above 50 indicate growth Source:Bloomberg Producedby:MinistryofFinance 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 Jul2012 M ay 2012 M ar2012 Jan 2012 Nov 2011 Sep 2011 Jul2011 M ay 2011 M ar2011 Jan 2011 Nov 2010 Sep 2010 Jul2010 M ay 2010 M ar2010 Jan 2010
  19. 19. Ministry of Finance DecemberEdition|Year2012EconomicActivity 23 Household Consumption in 2020: Selected Countries (R$ trillion) Data: R$ trillion Source:ExameMagazine,Mckinsey ConsultingandFecomercio Producedby:MinistryofFinance Brazilian consumer market will be the world’s 5th largest In2020,Brazilwillbetheworld’s5thlargestconsumermarket(aroundR$3.5trillionforecastforhousehold 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 Italy UK France Brazil Germ any Japan China USA 20.4 10.9 7.0 4.4 3.5 3.2 3.0 2.8 2010 2020 2.2 3.5 trillion trillion trillion
  20. 20. Ministry of Finance DecemberEdition|Year2012EconomicActivity 24 Consumer Market (position) Data: position Source:ExameMagazine,Mckinsey Consulting,Escopo,Euromonitor, AnfaveaandAbraciclo Producedby:MinistryofFinance 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 Consumption Sector 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
  21. 21. Ministry of Finance DecemberEdition|Year2012EconomicActivity 25 Brazilian Grain Harvest (millions of tons) Data: millions of tons * Conab forecasts Source:Conab/MAPA Producedby:MinistryofFinance Record for the Brazilian harvest TheBraziliangrainharvestin2011/2012statesanewrecord-breakingachievement,equalto166.2million 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 96.8 123.2 119.1 114.7 122.5 131.8 144.1 135.1 149.3 162.8 166.2 180.2
  22. 22. Ministry of Finance DecemberEdition|Year2012EconomicActivity 26 Agricultural Production in Selected Countries (index number) Brazil Russia India China USA Canada European Union Data: index number (average 2005 = 100) Source:FAO Producedby:MinistryofFinance 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 2019 2016 2013 2010 2007 2004 2001 1998 1995 1992 Brazil Russia China Canada EU* United States India Estimates 2014
  23. 23. Ministry of Finance DecemberEdition|Year2012EconomicActivity 27 Federal Government Investment (R$ billion and %) 2011 2012 Data: R$ billion and % change in the period *YTD: year-to-date Source:STN/MinistryofFinance Producedby:MinistryofFinance Federal investment has increased FederalGovernmentinvestmentpacehasincreasedinthelast12months.UntilOctober2012,investments are 22.9% above the same period last year. 0 10 20 30 40 50 60 OctSepAugJulJunMayAprMarFebJan 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
  24. 24. Ministry of Finance DecemberEdition|Year2012EconomicActivity 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 Source:STN/MinistryofFinance Producedby:MinistryofFinance 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 1.5 1.5 1.3 0.8 0.8 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 1.8 1.5 2.0 1.3 1.5 1.5 1.8 1.3 1.4 1.3 1.6 1.4 1.8 1.7 2.0 1.7 1.8 2012** 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 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 1.8 1.5 2.0 1.3 1.5 1.5 1.8 1.3 1.4 1.3 1.6 1.4 1.8 1.7 2.0 1.7 1.8 1.6 1.5 1.5 1.3 0.8 0.8 0.9 1.1 1.1 1.0 1.0 1.0 1.1 1.4 1.8 1.9 1.7 1.9 State-owned Companies States and Municipalities Federal Government
  25. 25. Ministry of Finance DecemberEdition|Year2012EconomicActivity 29 “Minha Casa MinhaVida”Housing Program (R$ million) Data: R$ million Source:STN/MinistryofFinance Producedby:MinistryofFinance 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
  26. 26. Ministry of Finance DecemberEdition|Year2012EconomicActivity 30 PAC Spending: 2011-2012 (R$ billion) 2011 2012 Data: R$ billion *YTD: year-to-date Source:STN/MinistryofFinance Producedby:MinistryofFinance 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 20.82012 2011 OctSepAugJulJunMayAprMarFebJan
  27. 27. Ministry of Finance DecemberEdition|Year2012EconomicActivity 31 Petrobras Business Plan (US$ billion) Data: US$ billion * Released on June 14, 2012 Source:Petrobras Producedby:MinistryofFinance Petrobras: top 2 global energy investor AccordingtotheInternationalEnergyAgency(IEA),PetrobraswillinvestUS$47.3billioninnewprojects in 2012, just below Petrochina (US$ 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 141.8 65.5 Gas and Energy 13.8 Petrochemical 5.0 Distribution 3.6 Biofuel 3.8 Corporate 3.0 Total 236.5 Refining, Transportation and trading
  28. 28. Ministry of Finance DecemberEdition|Year2012EconomicActivity 32 Public Service Concession Source:SecretariatofCivilAviation Producedby:MinistryofFinance 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 andViracopos. 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
  29. 29. Ministry of Finance DecemberEdition|Year2012EconomicActivity 33 Energy Cost Reduction * From January 2013 Source:MinistryofMiningandEnergy Producedby:MinistryofFinance Government has adopted incentives to improve competitiveness Amongthemeasuresaimedatincreasingdomesticfirms’competitiveness,the20.2%averagereduction 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 Tariff Voltage level Deduction (%) High Voltage A A1 230 kV or more 28.0 A2 88 to 138 kV 24.7 A3 69 kV 21.5 A3a 30 to 44 kV 20.0 A4 2,3 to 25 kV 19.4 AS Underground 19.7 Low Voltage B B lower than 2,3 kV 16.2 Average 20.2
  30. 30. Ministry of Finance DecemberEdition|Year2012EconomicActivity 34 PayrollTax Exemption: 40 Sectors (R$ billion) Data: R$ billion *Without R$ 970 million in cash flow relief Source:MinistériodaFazenda Producedby:MinistryofFinance 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 Tax Relief* 40 Sectors 21.60 8.70 12.8 Civilconstruction 6.28 3.43 2.85 Total 27.88 12.13 15.65 BEFORE: Social Security PayrollContribution Social Security Contribution on Gross Revenues (1% to 2%)
  31. 31. Brazilian Economy OUTLOOK Ministry of Finance B R A Z I L I A N G O V E R N M E N T Employment and Income
  32. 32. Ministry of Finance DecemberEdition|Year2012 36 EmploymentandIncome 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
  33. 33. Ministry of Finance DecemberEdition|Year2012 37 EmploymentandIncome Unemployment Rate* (%, nsa) Data: % share of economically active population, not seasonally adjuste Source:IBGE/PME Producedby:MinistryofFinance Lower unemployment rate at the lowest level Thejobmarkethasshownstrongdynamismin2012,expressedbythe5.3%unemploymentrateinOctober 2012, the lowest rate ever for the month. 3 6 9 12 15 5.30 O ct2012 Apr2012 O ct2011 Apr2011 O ct2010 Apr2010 O ct2009 Apr2009 O ct2008 Apr2008 O ct2007 Apr2007 O ct2006 Apr2006 O ct2005 Apr2005 O ct2004 Apr2004 O ct2003
  34. 34. Ministry of Finance DecemberEdition|Year2012 38 EmploymentandIncome Formal Employment: New Jobs** (thousands of jobs) Data: thousands of jobs * On a 12-month basis up to October 2012 Source:MTE/CAGEDandRAIS Producedby:MinistryofFinance Solid labor market in Brazil Evenwiththedownturnineconomicactivity,therewasanincreaseof1,689millionjobsyear-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 1,863 1,831 1,917 2,452 1,834 1,766 2,861 2,242 1,689
  35. 35. Ministry of Finance DecemberEdition|Year2012 39 EmploymentandIncome 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/PME Producedby:MinistryofFinance 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
  36. 36. Ministry of Finance DecemberEdition|Year2012 40 EmploymentandIncome Nominal MinimumWage Evolution (R$) Data: R$ * PLOA 2013 forecast Source:CentralBankofBrazil Producedby:MinistryofFinance 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 M ar2011 Jan 2011 Jan 2010 Feb 2009 M ar2008 Apr2007 Apr2006 M ay 2005 M ay 2004 Apr2003 Apr2002 72% 200 240 260 300 350 380 415 465 510 540 545 622 671
  37. 37. Ministry of Finance DecemberEdition|Year2012 41 EmploymentandIncome Minimum wage purchasing power forWashing Machine: 1994-2012 (R$) MinimumWage (R$) Nominal Price ofWashing Machine (R$) Washing Machine/Minimum Wage Ratio Data: R$ Source:IBGE,GfKandLCA Producedby:MinistryofFinance Restoring the purchasing power of the minimum wage 0 200 400 600 800 1,000 1,200 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 0 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$) • 1994:aworkerwouldspend8months’worthofminimumwagetobeabletoaffordaWashingMachine. • 2012: he/she would spend only 1.5 month’s worth of minimum wage.
  38. 38. Ministry of Finance DecemberEdition|Year2012 42 EmploymentandIncome Minimum wage purchasing power for stoves: 1994-2012 (R$) MinimumWage (R$) Nominal Price of Stove (R$) Stove/MinimumWage Ratio Data: R$ Source:IBGE,GfKandLCA Producedby:MinistryofFinance Restoring the purchasing power of the minimum wage 0 100 200 300 400 500 600 700 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 0.0 0.2 0.4 0.6 0.8 1.0 1.2 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$) • 1994: a worker would spend 1.9 months’worth of minimum wage to be able to afford a stove. • 2012: he/she would spend only 0.5 month’s worth of minimum wage.
  39. 39. Ministry of Finance DecemberEdition|Year2012 43 EmploymentandIncome Bolsa Familia: IncomeTransfer Program (R$ billion, millions of households and % of GDP) R$ billions Millions of households % of GDP Data: R$ billion, millions of households and % of GDP * On a 12-month basis up to October 2012 Source:MDS Producedby:MinistryofFinance “Bolsa Família”Program helps to reduce poverty “BolsaFamilia”Programisrecognizedasoneofthemostefficientprogramsinreducinginequalityduetoits focusonthepoorestpopulation.Besidesbeingcostefficient,itreachesmorethan13.7millionhouseholds. 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
  40. 40. Ministry of Finance DecemberEdition|Year2012 44 EmploymentandIncome 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/PNAD Producedby:MinistryofFinance 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
  41. 41. Ministry of Finance DecemberEdition|Year2012 45 EmploymentandIncome 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. Source:IBGE/PNAD Producedby:MinistryofFinance 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 M ore than 90 to 100 M ore than 80 to 90 M ore than 70 to 80 M ore than 60 to 70 M ore than 50 to 60 M ore than 40 to 50 M ore than 30 to 40 M ore than 20 to 30 M ore than 10 to 20 Up to 10 Total 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
  42. 42. Ministry of Finance DecemberEdition|Year2012 46 EmploymentandIncome 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. BaseduponthepercapitaIncome Source:IBGE/PNAD Producedby:MinistryofFinance 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 2011 2009 2008 2007 2006 2005 2004 2001* 1990* 1981* 0.564 0.602 0.552 0.548 0.534 0.530 0.524 0.508 0.572 0.559 0.65
  43. 43. Ministry of Finance DecemberEdition|Year2012 47 EmploymentandIncome 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:BostonConsultingGroup Producedby:MinistryofFinance 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. Whenitcomestotranslatingwealthintocitizenwell-beingthereportrevealsastrongcorrelationbetween the best performing nations and good governance. 0 20 40 60 80 100 Infrastructure Environment Health Education Governance CivilSociety Income Equality Employment Economic Stability Income 29 20 27 21 58 Brazil Average BRIC
  44. 44. Ministry of Finance DecemberEdition|Year2012 48 EmploymentandIncome Social Classes (million of people) Data: million of people * Forecasts. Baseline: 6,5%YoY income growth rate Source:IBGEandIPEA Producedby:MinistryofFinance 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 Class D and E Classes 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
  45. 45. Ministry of Finance DecemberEdition|Year2012 49 EmploymentandIncome 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,FGTSandSTN Producedby:MinistryofFinance 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 Dec2010 M ar2010 Jun 2009 Sep 2008 Dec2007 M ar2007 Jun 2006 Sep 2005 Dec2004 M ar2004 Jun 2003 Sep 2002 Dec2001 M ar2001 Jun 2000 8.3 3.4 Expanded Wage Mass Household Consumption
  46. 46. Ministry of Finance DecemberEdition|Year2012 50 EmploymentandIncome People Employed with more than 11Years of Schooling (% of total) Data: % of total Source:IBGE/PNAD Producedby:MinistryofFinance More qualified workers One of the main elements for reducing income inequality and improving productivity is the educational level.Between2004and2011,occupiedpopulationwithmorethan11yearsofschoolingwentfrom33.6% 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
  47. 47. Ministry of Finance DecemberEdition|Year2012 51 EmploymentandIncome “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/CAGED Producedby:MinistryofFinance 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 "Qualified" Beginning Employees* 2.83.13.02.52.82.52.32.32.11.81.91.91.91.61.81.7 1.7 54.953.953.3 51.3 48.847.246.0 43.3 39.6 36.4 33.6 31.5 28.7 25.7 22.0 19.4 17.2
  48. 48. Brazilian Economy OUTLOOK Ministry of Finance B R A Z I L I A N G O V E R N M E N T Inflation
  49. 49. Ministry of Finance DecemberEdition|Year2012 54 Inflation Consumerpriceinflationratesincreased inthethirdquarterof2012,drivenmainlybytheimpactofextremeweather conditionsonagriculturalproduction.Thecombinationofhigherthanusualpressuresinsomefreshfoodpricesinthe Braziliandomesticmarket,andinimportantagriculturalcommoditiesintheinternationalmarket,duetothedrought 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
  50. 50. Ministry of Finance DecemberEdition|Year2012 55 Inflation CPI Inflation - IPCA Index (%YoY) InflationTarget Upper and Lower Bounds IPCA Data: % change from preceding year * According to the Central Bank of Brazil’s Inflation Report (September 2012) Source:IBGEandCentralBankofBrazil Producedby:MinistryofFinance 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 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 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 , ,
  51. 51. Ministry of Finance DecemberEdition|Year2012 56 Inflation Agricultural Prices and IPCA Index (% 3-mth ma) IPCA IPA-DI Agricultural Index Data: % change on a 3-month moving average Source:IBGE Producedby:MinistryofFinance 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 O ct2012 Aug 2012 M ay 2012 Feb 2012 Nov 2011 Aug 2011 M ay 2011 Feb 2011 Nov 2010 Aug 2010 M ay 2010 -5 0 5 10 15 20 IPCA IPA-DI Agricultural IPCA, IPA-DI Agricultural
  52. 52. Ministry of Finance DecemberEdition|Year2012 57 Inflation CPI Inflation - Chained IPCA and IPCA-15 Indexes (% MoM) Data: % change from preceding month Source:IBGE Producedby:MinistryofFinance After reaching its peak in October, inflation starts to decline ConsumerpricesinBrazilroseattheirfastestpaceinOctober2012,mainlyduetotheeffectsofthedrought 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 IPCA-15 IPCA IPCA-15 IPCA IPCA-15 IPCA IPCA-15 IPCA IPCA-15 IPCA IPCA-15 IPCA IPCA-15 IPCA IPCA-15 IPCA IPCA-15 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 0.08 0.33 0.43 0.39 0.41 0.48 0.57 0.65 0.59 0.54
  53. 53. Ministry of Finance DecemberEdition|Year2012 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 Source:FGV Producedby:MinistryofFinance General Price Index already decelerating Aftertwoconsecutivequartersofacceleration,the12-monthGeneralPriceIndex(IGP-M)inflationstarteda 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 Jul2012 M ay 2012 M ar2012 Jan 2012 Nov 2011 Sep 2011 Jul2011 M ay 2011 M ar2011 Jan 2011 Nov 2010 Sep 2010 Jul2010 M ay 2010 M ar2010 Jan 2010 Nov 2009 7.33 6.96 7.30 5.77 INCC-MIPC-MIPA-MIGP-M
  54. 54. Ministry of Finance DecemberEdition|Year2012 59 Inflation General Price Indexes (chained) (% MoM) Data: % change from preceding month Source:FGV Producedby:MinistryofFinance 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 2012 IGP-10 IGP-M IGP-DI IGP-10 IGP-M IGP 0.42 0.02 -0.31 -0.28 -0.03 IPA 0.40 -0.20 -0.68 -0.57 -0.19 Production stage Final goods 0.60 0.07 -0.44 -0.70 -0.5 Intermediate goods 0.67 0.41 0.07 0.09 0.25 Basic goods -0.16 -1.24 -1.86 -1.24 -0.41 Origin Agriculture 0.53 -0.57 -1.34 -1.10 -0.41 Industrial 0.34 -0.05 -0.42 -0.35 -0.1 IPC 0.57 0.58 0.48 0.36 0.33 INCC 0.24 0.24 0.21 0.22 0.23 Construction services and materials 0.50 0.49 0.42 0.35 0.22 Labor 0.00 0.01 0.01 0.09 0.24
  55. 55. Brazilian Economy OUTLOOK Ministry of Finance B R A Z I L I A N G O V E R N M E N T Interest Rates and Credit
  56. 56. Ministry of Finance DecemberEdition|Year2012 62 InterestRatesandCredit 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 ratesinthefinancialsystemhavealsofallentorecordlows,althoughstillathighlevels. 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 corporatebonds. 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,asinvestorsleavebehindthetimewhentheBrazilianeconomywasusedtohighshort-terminterestrate. Interest rate at its lowest level ever
  57. 57. Ministry of Finance DecemberEdition|Year2012 63 InterestRatesandCredit 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 Source:CentralBankofBrazil Producedby:MinistryofFinance Real interest rate at its lowest level due to sound macroeconomic fundamentals Short-termrealinterestratesinBrazilhavebeenshowingasignificantdecreaseforthepasttenyears,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 Average 2002-2005 = 11.5 Average 2006-2010 = 6.9 Average 2011-2012 = 3.2 14.0 9.4 11.2 11.4 7.9 7.7 6.9 5.8 6.2 4.5 1.8
  58. 58. Ministry of Finance DecemberEdition|Year2012 64 InterestRatesandCredit 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 Source:CentralBankofBrazil Producedby:MinistryofFinance Selic benchmark interest rate at its lowest level ever CentralBankofBrazilhasreduceditsbenchmarkinterestrate(Selic)sinceAugust2011.Thelatestreduction 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 O ct2012 Apr2012 O ct2011 Apr2011 O ct2010 Apr2010 O ct2009 Apr2009 O ct2008 Apr2008 O ct2007 Apr2007 O ct2006 Apr2006 O ct2005 Apr2005 O ct2004 Apr2004 Nov 2003
  59. 59. Ministry of Finance DecemberEdition|Year2012 65 InterestRatesandCredit Interest Rates: DI Contracts* (% pa) Jan 2013 Jan 2014 Jan 2015 Data: % per annum * DI: one-day interbank deposits Source:CentralBankofBrazil Producedby:MinistryofFinance 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 7.17 8 9 10 11 12 13 Nov 2012 O ct2012 Jul2012 Apr2012 Jan 2012 O ct2011 Jul2011 Apr2011 Jan 2011 O ct2010 Jul2010 Apr2010 Jan 2010 Jan 2015Jan 2013 Jan 2014
  60. 60. Ministry of Finance DecemberEdition|Year2012 66 InterestRatesandCredit Interest Rates and Average Maturity (% pa and days) Average maturity (days) Interest rates (%YoY) Data: % per annum and number of days Source:CentralBankofBrazil Producedby:MinistryofFinance 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 O ct2012 Jun 2012 Dec2011 Jun 2011 Dec2010 Jun 2010 Dec2009 Jun 2009 Dec2008 M ay 2008 200 250 300 350 400 450 Average Maturity 20 24 26 28 30 32 34 Interest Rates O ct2012 Jun 2012 Dec2011 Jun 2011 Dec2010 Jun 2010 Dec2009 Jun 2009 Dec2008 M ay 2008 Individuals Corporations 620.5 35.4 431.8 22.1 Average Maturity Interest Rates
  61. 61. Ministry of Finance DecemberEdition|Year2012 67 InterestRatesandCredit Average Interest Rate on Lending for Individuals and Corporations (%YoY) Jan 2012 Oct 2012 Data: % change from the preceding year Source:CentralBankofBrazil Producedby:MinistryofFinance 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 CorporationsIndividuals Oct 2012 Jan 2012 35.4 22.145.1 28.7
  62. 62. Ministry of Finance DecemberEdition|Year2012 68 InterestRatesandCredit Banking Spread to Individuals and Corporations (pp) Jan 2012 Oct 2012 Data: percentage point * Spread = Lending Rate - Funding Rate Source:CentralBankofBrazil Producedby:MinistryofFinance 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 CorporationsIndividuals Oct 2012 Jan 2012 27.8 15.034.9 18.5
  63. 63. Ministry of Finance DecemberEdition|Year2012 69 InterestRatesandCredit Individuals: CreditTransactions (R$ billion) Real Estate Loans Car Loans Payroll Loans Data: R$ billion Source:CentralBankofBrazil Producedby:MinistryofFinance 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, totalhousingcreditgrewby39%,reachingR$263billioninOctober2012,provingfarsuperiorperformance than other segments. 0 50 100 150 200 250 300 350 Payroll Loans Car Loans Real Estate Loans O ct2012 Jan 2012 Jan 2011 Jan 2010 Jan 2009 Jan 2008 263.0 319.0 184.3
  64. 64. Ministry of Finance DecemberEdition|Year2012 70 InterestRatesandCredit Families who cannot Afford to Pay their Debts (% of total) Data: % of total Source:CNC Producedby:MinistryofFinance Families keeping debt under control The percentage of families unable to pay their overdue bills keeps falling, standing at a level below the same period in 2010 and 2011. 5 6 7 8 9 10 11 O ct2012 Sep 2012 Aug 2012 Jul2012 Jun 2012 M ay 2012 Apr2012 M ar2012 Feb 2012 Jan 2012 Dec2011 Nov 2011 O ct2011 Sep 2011 Aug 2011 Jul2011 Jun 2011 M ay 2011 Apr2011 M ar2011 Feb 2011 Jan 2011 Dec2010 Nov 2010 O ct20109.5 9.0 8.3 7.9 7.7 8.4 7.8 8.6 8.4 8.1 8.2 8.0 8.2 7.3 7.2 6.9 7.3 6.7 6.9 7.8 7.5 7.3 7.1 7.1 7.0
  65. 65. Ministry of Finance DecemberEdition|Year2012 71 InterestRatesandCredit Outstanding Credit: Earmarked and Non-Earmarked Resources (R$ Billion and % of GDP) % of GDP Earmarked resources Non-earmarked resources Data: R$ Billion and % of GDP Source:CentralBankofBrazil Producedby:MinistryofFinance Earmarked credit at the forefront of credit expansion InOctober2012,thetotalcreditvolumeinBrazilreachedtheamountofR$2.27trillion,corresponding to 51.9% of GDP. Total non-earmarked resources recorded R$ 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 O ct2012 O ct2011 O ct2010 O ct2009 O ct2008 O ct2007 O ct2006 O ct2005 O ct2004 O ct2003 44.1% 44.5% 47.5% 51.9% 39.6% 33.6% 30.0% 27.3% 25.7% 24.3% 155 177 190 222 262 337 435 565 687 830 248 310 386 476 619 848 932 1,079 1,260 1,439 Earmarked Non-Earmarked % of GDP
  66. 66. Ministry of Finance DecemberEdition|Year2012 72 InterestRatesandCredit CAIXA Housing Credit (R$ billion) Disbursed Contracted Data: R$ billion Source:CaixaEconomicaFederal Producedby:MinistryofFinance 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
  67. 67. Ministry of Finance DecemberEdition|Year2012 73 InterestRatesandCredit Credit Operations in Brazil (% of GDP) Earmarked resources* Non-Earmarked Resources Data: % of GDP *YTD October 2012 Source:CentralBankofBrazil Producedby:MinistryofFinance 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
  68. 68. Ministry of Finance DecemberEdition|Year2012 74 InterestRatesandCredit Capital Market Issuance (R$ billion) Other CRI FIDC Promissory Notes FIP Stocks + CDA Debentures Data: R$ billion *YTD September of each year Source:CVM Producedby:MinistryofFinance 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 1.9 1.1 0.2 0.5 4.8 5.7 0.8 0.9 3.7 2.5 9.2 7.9 5.4 8.6 7.5 11.1 2.3 3.8 7.8 4.7 3.7 8.2 16.0 21.6 29.4 12.7 16.3 5.7 16.8 17.6 7.3 9.6 7.6 22.7 46.4 34.4 21.6 10.4 FIDCOthersCertificate 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
  69. 69. Ministry of Finance DecemberEdition|Year2012 75 InterestRatesandCredit Real Estate Investment - Public Offers - FIDC, CRI and FII (R$ billion*) FIDC CRI FII Data: R$ billion * Current values Source:CVM Producedby:MinistryofFinance 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 5.47.99.2 0.1 0.3 0.7 0.2 0.4 0.6 1.0 4.1 13.1 7.1 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 0.3 1.0 2.6 5.0 8.6 7.5 11.1 2.3 3.8 7.8 4.7
  70. 70. Ministry of Finance DecemberEdition|Year2012 76 InterestRatesandCredit Real Estate Investment - Public Offers - LCI (R$ billion*) Data: R$ billion * Current values Source:CVM Producedby:MinistryofFinance Significant increase in Real Estate Credit -4 -2 0 2 4 6 8 10 12 14 16 12 m onths 2011 2010 2009 2008 2007
  71. 71. Ministry of Finance DecemberEdition|Year2012 77 InterestRatesandCredit Financial Bills (R$ billion) Data: R$ billion * November 30, 2012 Source:Cetip Producedby:MinistryofFinance 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
  72. 72. Ministry of Finance DecemberEdition|Year2012 78 InterestRatesandCredit Basel index (% risk-adjusted assets) Basel index in Brazil Lower bound by BACEN Basel index Data: % risk-adjusted assets Source:CentralBankofBrazil Producedby:MinistryofFinance 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 Dec2011 Dec2010 Dec2009 Dec2008 Dec2007 Dec2006 Dec2005 Dec2004 Dec2003 Dec2002 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
  73. 73. Ministry of Finance DecemberEdition|Year2012 79 InterestRatesandCredit Producedby:MinistryofFinance 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 Reducingthecostandsimplifyingtheprocessofissuing 476/2009) Increase credit to non-financial firms 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
  74. 74. Ministry of Finance DecemberEdition|Year2012 80 InterestRatesandCredit Producedby:MinistryofFinance Measures for the development of the capital market The Development of Capital Markets Financial Products Objective / Expected Result Investment Debentures Decrease 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 broaden the sources of funding for investments Infrastructure Debentures Decrease to 0 percent the rates of Financial Transaction Tax and Income Tax to foreign in- vestors,to0percentofincometaxtoindividual 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
  75. 75. Brazilian Economy OUTLOOK Ministry of Finance B R A Z I L I A N G O V E R N M E N T Fiscal Policy
  76. 76. Ministry of Finance DecemberEdition|Year2012 82 FiscalPolicy In 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,thecontinuousimprovementinFederalPublicDebtprofile,bothintermsofcompositionandmaturity,hasbeen reflectedonthedecliningratesofexternalissuances.TheissuanceofGlobal2023bond,inSeptember,resultedonthe 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. Fiscalconsolidationfavorsinvestment
  77. 77. Ministry of Finance DecemberEdition|Year2012 83 FiscalPolicy 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 * On a 12-month basis up to October 2012 Source:CentralBankofBrazil Producedby:MinistryofFinance 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 3.3 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 Nominal Result Primary Result State-owned Companies State and Municipalities Central Government 0.1 0.0 0.8 0.6 0.0 0.1 0.6 0.5 1.3 2.1 2.2 0.1 0.2 -0.0 0.1 0.9 1.0 0.8 1.1 1.0 0.3 0.2 0.7 0.8 2.2 2.3 2.7 2.6 2.2 2.2 2.4 0.2 1.6
  78. 78. Ministry of Finance DecemberEdition|Year2012 84 FiscalPolicy 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:CentralBankofBrazilandIMF Producedby:MinistryofFinance 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 2 Japan India USA UK France Canada Italy Mexico Brazil China Germany Russia -10 -8 -6 -4 -2 0 2 4 Japan USA UK India Canada France China Mexico Russia Germany Brazil Italy 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
  79. 79. Ministry of Finance DecemberEdition|Year2012 85 FiscalPolicy Net Public Debt (% of GDP) Mexico Italy USA France Germany Brazil Data: % of GDP * IMF forecasts - Fiscal Monitor October 2012 Source:IMF Producedby:MinistryofFinance 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 decliningperspective,whichhelpstodifferentiatethefiscalsituationofBrazilinrelationtomanyadvanced 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 80.23 89.44 98.68 Italy France Germany MexicoBrazil USA
  80. 80. Ministry of Finance DecemberEdition|Year2012 86 FiscalPolicy 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:NationalTreasurySecretariat/ MinistryofFinance/Senate Producedby:MinistryofFinance Brazil is improving its public expenditure profile TheCentralGovernmentfiscalresultshavegonethroughsignificantchangessince2002,duetothepositive impactofjobformalizationontheeconomy,aswellasthefocusonreducinginequalities.Thegrowthinnet 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* Grossrevenue 21.7 21.0 21.6 22.7 22.9 23.3 23.6 22.8 22.4 23.9 23.9 Transfers to states and municipalities 3.8 3.5 3.5 3.9 3.9 4.0 4.4 3.9 3.7 4.2 4.1 Netrevenue 17.9 17.4 18.1 18.8 19.0 19.3 19.2 18.9 18.7 19.7 19.8 Primaryexpenditure 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 2.1 1.6 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 Finalprimaryresults(abovetheline) 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 10.7Netrevenueminustransfers -Healthandeducation -Other expenses Primaryresultwithoutsovereing wealthfundandonerousassignment Impactofsocereingwealthfundand onerousassignment****
  81. 81. Ministry of Finance DecemberEdition|Year2012 87 FiscalPolicy Selected Public Expenditures (% of GDP) Transfers to families Payroll Expenses and Changes Data: % of GDP * On a 12-month basis up to October 2012 Source:NationalTreasurySecretariat/ MinistryofFinanceandFederalSenate Producedby:MinistryofFinance 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 8.4 8.5 8.1 8.7 8.5 8.6 9.1 4.8 4.5 4.3 4.3 4.4 4.4 4.3 4.7 4.4 4.3 4.2 2012* 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 Transfers to families Payroll Expenses and Charges 4.8 4.5 4.3 4.3 4.4 4.4 4.3 4.7 4.4 4.3 4.2 6.8 7.2 7.6 8.1 8.4 8.5 8.1 8.7 8.5 9.1 8.6
  82. 82. Ministry of Finance DecemberEdition|Year2012 88 FiscalPolicy 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 NationalTreasury Source:NationalTreasurySecretariat/ MinistryofFinance Producedby:MinistryofFinance 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 O ct2012 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Exchange Rate Floating Rate* Inflation Linked Fixed Rate 4.4 23.0 33.8 38.7 40.2 48.3 5.0 6.5
  83. 83. Ministry of Finance DecemberEdition|Year2012 89 FiscalPolicy 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 Source:CentralBankofBrazil Producedby:MinistryofFinance 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, whereasNetPublicSectorDebtwentfrom42.9to35.2percentinthesameperiod,thesecondlowestvalue 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** O ct2012 Jul2012 Apr2012 Jan 2012 O ct2011 Jul2011 Apr2011 Jan 2011 O ct2010 Jul2010 Apr2010 Jan 2010 O ct2009 Jul2009 Apr2009 Jan 2009 O ct2008 Jul2008 Apr2008 Jan 2008 O ct2007 Jul2007 Apr2007 Jan 2007
  84. 84. Ministry of Finance DecemberEdition|Year2012 90 FiscalPolicy Average Maturity of Domestic Federal Public Debt (years) Data: years Source:NationalTreasurySecretariat/ MinistryofFinance Producedby:MinistryofFinance 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 O ct2012 O ct2011 O ct2010 O ct2009 O ct2008 O ct2007 O ct2006 O ct2005 O ct2004 O ct2003 O ct2002 O ct2001 O ct2000 Stock 3.93.53.43.43.33.12.52.32.42.62.72.92.4
  85. 85. Ministry of Finance DecemberEdition|Year2012 91 FiscalPolicy Non-Resident Share in Federal Public Debt (% of total DFPD*) Data: % of total DFPD* * Domestic Federal Public Debt Source:NationalTreasurySecretariat/ MinistryofFinance Producedby:MinistryofFinance Increasing number of non-resident investors in Brazilian public debt TheBraziliandomesticpublicbondshaveremainedattractiveforforeigners,reachingthehighestlevelofthe 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 O ct2012 Sep 2012 Jul2012 M ay 2012 M ar2012 Jan 2012 Nov 2011 Sep 2011 Jul2011 M ay 2011 M ar2011 Jan 2011 Nov 2010 Sep 2010 Jul2010 M ay 2010 M ar2010 Jan 2010 Nov 2009 Sep 2009 Jul2009 M ay 2009 M ar2009 Jan 2009 Nov 2008 Sep 2008 Jul2008 M ay 2008 M ar2008 Jan 2008 Nov 2007 Sep 2007 Jul2007 M ay 2007 M ar2007 13.8IOF: 1.5% on Foreign Investment Inflow Tax IOF: 0% on Foreign Investment Inflow Tax IOF: 2.0% on Foreign Investment Inflow Tax IOF: 6.0% on Foreign Investment Inflow Tax Non-Resident Share
  86. 86. Ministry of Finance DecemberEdition|Year2012 92 FiscalPolicy Yields of 10-year Brazilian and USA bonds (% per annum) Brazilian Sovereign Bonds USTreasury Bonds Data: % per annum * Measured by the differential of yields from 10-year Brazilian bonds denominated in USD and yields from USTreasury bonds (same maturity), traded on the secondary market on the same date Source:NationalTreasurySecretariat/ MinistryofFinance Producedby:MinistryofFinance 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 8,2 7,9 7,7 7,8 6,2 5,9 5,3 6,1 5,8 2,7 4,8 5,0 4,5 4,2 3,4 4,2 6,2 4,9 3,3 4,5 4,4 4,0 4,6 4,7 4,7 3,8 2,5 3,3 3,6 3,8 3,0 3,1 2,0 1,6 Sep 2012 Jan 2012 Jul2011 Jul2010 Apr2010 Dec2009 M ay 2009 Jan 2009 M ay 2008 Apr2007 Nov 2006 Nov 2005 Jun 2005 Feb 2005 Dec2004 Jul2004 Jun 2003 Jan 2002 O ct1999
  87. 87. Brazilian Economy OUTLOOK Ministry of Finance B R A Z I L I A N G O V E R N M E N T External Sector
  88. 88. Ministry of Finance DecemberEdition|Year2012 94 ExternalSector In 2012, the Brazilian trade balance has been influenced by external factors, resulting in decreases in exports and imports,inthe12monthsaccumulateduptoOctober2012.Itisduetoaweakerglobaldemandandnewbureaucratic procedures faced by Brazilian exporters. In fact, trade barriers imposed by Argentina, one of our main trade partners, haveresultedindelaysintheimportapprovalprocess.However,Brazilshowsarelevantexportmarketdiversification 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. ExternalfactorsinfluencingtheBraziliantradebalance
  89. 89. Ministry of Finance DecemberEdition|Year2012 95 ExternalSector Trade Balance* (US$ billion) Exports Imports Balance Data: US$ billion *1994-2011:yearlyaccumulated, 2012: on a 12-month basis up to October 2012 Source:MDIC Producedby:MinistryofFinance Weak global demand affects Brazilian foreign trade The Brazilian trade balance has been negatively affected by weak global demand and red tape problems abroad.InOctober2012,Brazil´stradesurplusamountedUS$21.8billion,duetolowerexports(US$246.3 billion) and imports (US$ 224.5 billion). 0 50 100 150 200 250 300 2012* 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 0 5 10 15 20 25 30 35 40 45 50 Exports 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
  90. 90. Ministry of Finance DecemberEdition|Year2012 96 ExternalSector 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) IncludingVenezuela from August 2012 Source:MDIC Producedby:MinistryofFinance 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 M iddle East Africa USA(1) EU Argentina** M ercosur* Latin Am erica and the Caribbean China Asia -5.2% -10.4% -12.8% -20% -7.5% 10.6% 0% -7% -20.2%
  91. 91. Ministry of Finance DecemberEdition|Year2012 97 ExternalSector Brazilian Exports to Argentina (%YoY) Data: % change from preceding year Source:MDIC Producedby:MinistryofFinance Decline in exports to Argentina In February 2012, Argentina imposed that companies had to fill out a Sworn Affidavit of Intention to Import(DJAI)withtheArgentineRevenueandCustomsAuthority,priortocompletingapurchaseorderfor importedgoods.Thismeantmoredelayintheimportapprovalprocessand,asaresult,Brazilianexportsto Argentina have fallen into negative territory since March 2012. -40 -30 -20 -10 0 10 20 30 40 50 O ct2012 Sep 2012 Aug 2012 Jul2012 Jun 2012 M ay 2012 Apr2012 M ar2012 Feb 2012 Jan 2012 Dec2011 Nov 2011 O ct2011 Sep 2011 Aug 2011 Jul2011 Jun 2011 M ay 2011 Apr2011 M ar2011 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
  92. 92. Ministry of Finance DecemberEdition|Year2012 98 ExternalSector Brazil: LargestTrading Partners (% of total exports) 1990 1998 2004 2012* Data: % share of total exports *YTD October 2012 **Venezuela not included Source:MDIC Producedby:MinistryofFinance 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
  93. 93. Ministry of Finance DecemberEdition|Year2012 99 ExternalSector Brazilian Exports: Manufactured Goods* (% of total manufactured exports) Argentina United States China European Union Data: % share of total manufactured exports *YTD October 2012 Source:MDIC Producedby:MinistryofFinance 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 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 19.6 18.3 14.8 2.7 European Union Argentina China USA
  94. 94. Ministry of Finance DecemberEdition|Year2012 100 ExternalSector Reduction in Exports* to the Eurozone: GDP Impact (pp) Data: percentage points * Between the first half of 2011 and first half of 2012 Source:OECD Producedby:MinistryofFinance Brazil: the lowest impact on its exports due to the crisis OECDanalysisshowsthat,amongemergingcountries,Brazilhasexperiencedthelowestimpactofreduction (-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. AfricaRussiaIndiaChinaIndonesiaBrazil -0.8 -0.7 -0.5-0.5 -0.3 -0.2
  95. 95. Ministry of Finance DecemberEdition|Year2012 101 ExternalSector 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 Source:CentralBankofBrazil Producedby:MinistryofFinance 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 monthsthroughOctober2012.Thelowervolumeofprofitsanddividendsremittances,aresultofthecurrency devaluation,hasbeenthemajorfactorresponsibleforthestabilityofthedeficittoGDPratioat2.3%. -60 -50 -40 -30 -20 -10 0 10 20 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 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
  96. 96. Ministry of Finance DecemberEdition|Year2012 102 ExternalSector Foreign Direct Investment (US$ billion) Data: US$ billion * Focus Market Report - Central Bank of Brazil (November 30, 2012) Source:CentralBankofBrazil Producedby:MinistryofFinance FDI might reach more than US$ 60 bi in 2012 ThevolumeofFDIflowsinBrazilremainshigh,reachingUS$55.3billionfromJanuarytoOctober2012.This pattern led the Central Bank to raise its projection of foreign investments in the country from US$55 billion toUS$60billionin2012.Thisisthesameprojectionofmarketanalystsfor2012and2013*,butfigurescan be even higher than expected. 0 10 20 30 40 50 60 70 80 2013* 2012* 2011 2010 2009 2008 2007 2006 2005 2004 18.1 15.1 18.8 34.6 45.1 25.9 48.5 66.7 60.0 60.0 FDI total
  97. 97. Ministry of Finance DecemberEdition|Year2012 103 ExternalSector Foreign Direct Investment, Portfolio Foreign Investment and Current Account Balance (% of GDP) Foreign Direct Investment Foreign Portfolio Investment Current Account Balance Data: % of GDP * On a 12-month basis up to October 2012 Source:CentralBankofBrazil Producedby:MinistryofFinance 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 Balance Foreign Portfolio Investment Foreign Direct Investment -3 -2 -1 0 1 2 3 4 O ct2012 Sep 2012 Jun 2012 M ar2012 Dec2011 Sep 2011 Jun 2011 M ar2011 Dec2010 Sep 2010 Jun 2010 M ar2010 Dec2009 Sep 2009 Jun 2009 M ar2009 Dec2008 Sep 2008
  98. 98. Ministry of Finance DecemberEdition|Year2012 104 ExternalSector Foreign Liability Composition* (% of total participation) Other Liabilities Fixed Income Stocks FDI Data: % of total participation * Preliminary dataYTD October 2012 Source:CentralBankofBrazil Producedby:MinistryofFinance 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.Investmentsinthelocalfixedincomemarkethavealsorisenandoffsetthedeclineinforeigninflows to the Brazilian stock market. Other Liabilities Fixed Income Stocks FDI 0 10 20 30 40 50 60 70 80 90 100 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 24.1 21.5 18.0 15.8 19.9 17.2 15.0 16.4 17.8 9.9 7.9 13.1 17.3 25.1 30.7 39.6 21.6 35.0 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 32.1 27.8 24.1 21.5 18.0 15.8 19.9 17.2 15.0 16.4 17.8 9.9 7.9 13.1 17.3 25.1 30.7 39.6 21.6 35.0 29.4 24.7 22.6 32.8 32.7 36.1 39.2 37.9 33.6 41.6 37.3 45.0 45.8 46.4 2012* 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
  99. 99. Ministry of Finance DecemberEdition|Year2012 105 ExternalSector Global FDI inflows: top 10 host economies (US$ billion) 2011 (1st half) 2012 (1st half) Data: US$ billion * Global InvestmentTrends Monitor n. 10 Source:UNCTAD Producedby:MinistryofFinance 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
  100. 100. Ministry of Finance DecemberEdition|Year2012 106 ExternalSector 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:BDOAccountancyNetwork Producedby:MinistryofFinance 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 Australia UK Russia Germ any India Brazil USA China 251.0 212.0 198.0 158.0 147.0 108.0 104.0 77.0
  101. 101. Ministry of Finance DecemberEdition|Year2012 107 ExternalSector International Reserves (US$ billion) IMF loans - annual Total International reserves liquidity concept - annual Data: US$ billion * Up to November 30, 2012 Source:CentralBankofBrazil Producedby:MinistryofFinance 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 accumulationisoneofthepillarsofBrazilianeconomicpolicyforexternalvulnerabilityreduction,especially in a crisis environment. 0 50 100 150 200 250 300 350 400 0.0 0.0 0.0 0.0 0.0 0.0 2012* 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 IMF loans - annual Total 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
  102. 102. Ministry of Finance DecemberEdition|Year2012 108 ExternalSector ExternalVulnerability Indicators (% of GDP) Total External Debt International Reserves Current Account Data: % of GDP * October 2012 Source:CentralBankofBrazil Producedby:MinistryofFinance Indicators point to low external vulnerability Brazil has maintained its low external vulnerability conditions throughout 2012. Unlike previous crises episodes,thevolumeofforeignreserveshasexceededexternaldebtconsiderably.Furthermore,ourcurrent 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 oil shock impact External Debt Crisis External Debt Moratorium Before flexible exchange rate regime Present situation (october/12) World Financial 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
  103. 103. Ministry of Finance DecemberEdition|Year2012 109 ExternalSector 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:BIS Producedby:MinistryofFinance 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 O ct2012 Sep 2012 Aug 2012 Jul2012 Jun 2012 M ay 2012 Apr2012 M ar2012 Feb 2012 Jan 2012 Dec2011 Nov 2011 O ct2011 Sep 2011 Aug 2011 Jul2011 Jun 2011 M ay 2011 Apr2011 M ar2011 Feb 2011 Jan 2011 Dec2010 Nov 2010 O ct2010 Sep 2010 Aug 2010 Jul2010 Jun 2010 M ay 2010 Apr2010 M ar2010 Feb 2010 Jan 2010 97.8 90.2 89.6 107.6 Dollar: USA Euro: Eurozone Yuan: China Real: Brasil
  104. 104. Ministry of Finance DecemberEdition|Year2012 110 ExternalSector Nominal Exchange Rate (RS/US$) Data: R$/US$ Source:CentralBankofBrazil Producedby:MinistryofFinance 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 policiestomanageshort-termforeigncapitalinflows.Thefinancialoperationstax(IOF),chargedonshort- termforeignloans,contributedtotheincreaseintheaverageexchangerate(R$/US$)fromR$1.72in2011 to current values around R$ 2.10 at the beginning of December 2012. 2.11 1.5 1.6 1.7 1.8 1.9 2.0 2.1 Dec2012 Nov 2012 O ct2012 Sep 2012 Aug 2012 Jul2012 Jun 2012 M ay 2012 Apr2012 M ar2012 Feb 2012 Jan 2012 Dec2011 Nov 2011 O ct2011 Sep 2011 Aug 2011 Jul2011 Jun 2011 M ay 2011 Apr2011 M ar2011 Feb 2011 Jan 2011 2011 2nd half Average: R$ 1.72 2012 1st half Average: R$ 1.87 2012 2nd half Average: R$ 2.04 2011 1st half Average: R$ 1.63 Average Exchange Rate - Free- US Dollar (purchase) - u.m.c./US$
  105. 105. Brazilian Economy OUTLOOK Ministry of Finance B R A Z I L I A N G O V E R N M E N T International Overview
  106. 106. Ministry of Finance DecemberEdition|Year2012 112 InternationalOverview The2008financialturmoilhasnotyetcometoanend,astheworldisstillwaitingtoseeadvancedeconomiesaddress 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 onsince2011,resultingintheso-called“FiscalCliff”,whichisaseriesofbudgetcutsandtaxincreasestogointoeffect atthebeginningof2013. Ifthisfiscaltighteningfullytakesplacethentheeconomywouldsufferaseriousrecession, 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
  107. 107. Ministry of Finance DecemberEdition|Year2012 113 InternationalOverview 2013 2014 Data: % change from preceding year *WEO October 2012 Source:IMF Producedby:MinistryofFinance 2013-2014 GDP Growth: more dynamism of emerging economies Canada Brazil Argentina South Africa Egypt Saudi Arabia India Russia Japan Australia South Korea Indonesia China Turkey United Kingdom Mexico United States 2.42.0 2.92.1 3.53.5 4.24.0 3.83.1 3.93.0 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 1,20,2 Euro Zone Spain Italy France 0.4 1.1 -1.3 1.0 -0.7 0.5 Germany 1.40.9
  108. 108. Ministry of Finance DecemberEdition|Year2012 114 InternationalOverview 2013 2014 Data: % change from preceding year *WEO October 2012 Source:IMFandBrazilianGovernment Producedby:MinistryofFinance 2013-2014: inflation forecasts 2014 2013 Saudi Arabia Brazil* Russia Argentina India China Indonesia South Korea Australia JapanUSA South Africa Mexico Canada Eurozone 4.9 9.7 3.5 5.2 4.6 9.6 6.6 2.7 5.1 3.0 2.6 -0.2 1.8 2.0 1.6 4.8 5.0 4.9 8.3 6.5 2.1 3.0 3.0 4.9 2.3 9.8 3.0 2.0 2.0 1.4
  109. 109. Ministry of Finance DecemberEdition|Year2012 115 InternationalOverview 2013 2014 Data: % of GDP *WEO October 2012 Source:IMFandCentralBankofBrazil Producedby:MinistryofFinance 2013-2014: current account balance forecasts 2013 2014 Saudi Arabia Brazil Russia Argentina India China Indonesia South Korea 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 -3.7 1.3 -2.8 z -6.1 19.1 2.8 2.3 2.5 1.4 2.8 -2.3 6.1 -0.7 -1.0 -3.1 -3.7 1.1 -3.3
  110. 110. Ministry of Finance DecemberEdition|Year2012 116 InternationalOverview 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) Data: percentage point * IMF calculations Source:IMF Producedby:MinistryofFinance 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. Very strong (<-2,5) Moderated (between -2,0 and -1,5)
  111. 111. Ministry of Finance DecemberEdition|Year2012 117 InternationalOverview GDP Growth: Advanced and Emerging Economies (%YoY) Data: % change from preceding year *WEO October 2012 Source:IMF Producedby:MinistryofFinance 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 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 -10 -5 0 5 10 15 2014* 2013* 2012* 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 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
  112. 112. Ministry of Finance DecemberEdition|Year2012 118 InternationalOverview Eurozone GDP Growth (% QoQ) Data: % change from preceding quarter Source:BCE Producedby:MinistryofFinance 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 0.6 0.8 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 0.4 0.3 0.6 0.2 0.1 -0.3 0.0 -0.2 -0.1
  113. 113. Ministry of Finance DecemberEdition|Year2012 119 InternationalOverview G20 and Europe: Gross Public Debt (% of GDP) G20 countries G20 European countries Eurozone members Data: % of GDP *WEO October 2012 forecasts Source:IMF Producedby:MinistryofFinance 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
  114. 114. Ministry of Finance DecemberEdition|Year2012 120 InternationalOverview ManufacturingValue Added Growth (%YoY) Data: % change from preceding year (US$ at 2000 prices) Source:UNIDO-UnitedNations IndustrialDevelopmentOrganization Producedby:MinistryofFinance 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 Expectationsfor 2012 World 2.9 3.0 IndustrializedCountries 0.4 1.4 North America 0.4 1.7 East Asia -1.6 4.1 Europe 1.8 -1.7 DevelopingCountries 5.4 4.5 China 10.6 9.0 RecentlyIndustrializedcountries 5.7 4.4 Other developing countries 3.7 4.4
  115. 115. Ministry of Finance DecemberEdition|Year2012 121 InternationalOverview 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/FGV Producedby:MinistryofFinance 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 Germ any United States China Russia European Union Japan France South Africa Oct 2012 Jul 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
  116. 116. Ministry of Finance DecemberEdition|Year2012 122 InternationalOverview OECD Leading Indicator (points) China Brazil USA Euro Data: points *The horizontal line at 100 represents the long-term trend of economic activity Source:OCDE Producedby:MinistryofFinance 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 USThe prospects for Brazil point to a recovery in economic growth. BrazilChina EuroUSA 92 94 96 98 100 102 104 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 92 94 96 98 100 102 104 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002
  117. 117. Ministry of Finance DecemberEdition|Year2012 123 InternationalOverview 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) Source:Bloomberg Producedby:MinistryofFinance 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 O ct2012 Jul2012 Apr2012 Jan 2007 O ct2006 Jul2006 Apr2006 Jan 2006 O ct2005 Jul2005 Apr2005 Jan 2005 O ct2009 Jul2009 Apr2009 Jan 2009 O ct2008 Jul2008 Apr2008 Jan 2008 O ct2007 Jul2007 Apr2007 Jan 2007 O ct2006 Jul2006 Apr2006 Jan 2006 O ct2005 Jul2005 Apr2005 Jan 2005 Brazil Eurozone United States
  118. 118. Ministry of Finance DecemberEdition|Year2012 124 InternationalOverview CRB Commodity Prices* (index-number) CRB Spot CRB Food CRB Metals Data: index-number (Dec 2005 = 100) * On November 15, 2012 Source:Bloomberg Producedby:MinistryofFinance 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 CRBFoodIndexfell0.2%andMetalsdecreasedby0.1%,comparedtotheaveragepriceofNovember2011. However,thepricesofagriculturalcommoditiesroseconsiderablybetweenJuneandSeptember2012,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 M ar2012 Dec2011 Sep 2011 Jun 2011 M ar2011 Dec2010 Sep 2010 Jun 2010 M ar2010 Dec2009 Sep 2009 Jun 2009 M ar2009 Dec2008 Sep 2008 Jun 2008 M ar2008 Dec2007 Sep 2007 Jun 2007 M ar2007 Dec2006 Sep 2006 Jun 2006 M ar2006 Dec2005 196.23 181.62 158.10 CRB Metals CRB Food CRB Spot
  119. 119. Ministry of Finance DecemberEdition|Year2012 125 InternationalOverview Brent Oil Price (Barrel in US$) Data: barrel in US$ Source:Bloomberg Producedby:MinistryofFinance 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 Jul2012 M ay 2012 M ar2012 Jan 2012 Nov 2011 Sep 2011 Jul2011 M ay 2011 M ar2011 Jan 2011 Nov 2010 Sep 2010 Jul2010 M ay 2010 M ar2010 Jan 2010 Nov 2009 Sep 2009 Jul2009 M ay 2009 M ar2009 Jan 2009 108.2
  120. 120. Ministry of Finance DecemberEdition|Year2012 126 InternationalOverview United States: Leading and Coincident Economic Indicators (index-number) Leading Economic Indicator (LEI) Coincident Economic Indicator (CEI) Data: index-number (2004 = 100) Source:TheConferenceBoard Producedby:MinistryofFinance 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 O ct2012 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)
  121. 121. Ministry of Finance DecemberEdition|Year2012 127 InternationalOverview United States: Sales of Existing Homes and Housing Starts (millions, sa) Sales of Existing Homes Housing Starts Data: millions, seasonally adjusted Source:Bloomberg Producedby:MinistryofFinance 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 O ct2012 Jul2012 Apr2012 Jan 2012 O ct2011 Jul2011 Apr2011 Jan 2011 O ct2010 Jul2010 Apr2010 Jan 2010 O ct2009 Jul2009 Apr2009 Jan 2009 O ct2008 Jul2008 Apr2008 Jan 2008 O ct2007 Jul2007 Apr2007 Jan 2007 O ct2006 Jul2006 Apr2006 Jan 2006 Housing Starts Sales of Existing Homes 4.79 894 3 4 5 6 7 8

×