The document provides an international and domestic macroeconomic outlook for 2012. On the international front, it notes the recovery of the US economy as positive but also highlights risks from high financial market volatility and recession in Europe. Domestically, it outlines strengthening indicators for the US economy like consumer confidence and job growth. Growth in Asia, especially China, is expected to remain strong. Risks to the outlook include continued volatility in Europe if fiscal and political integration is not achieved.

1. Macroeconomic Outlook
January 2012
1

2. Index
1. International Outlook
2. Domestic Outlook
2

3. International outlook: prospects for 2012
Leverage factors Limiting factors
 Recovery of the American
economy;  High volatility on the
financial market;
 Maintaining positive
growth in the emerging  Recession in Europe;
countries :  Liquidity in the European
 Asia banking system drying up;
 Latin America  Risk of conflicts in the
Middle East worsening
 Central and Eastern (oil);
Europe
3

4. US: recovery of the American economy has strengthened...
ISM: Industry and Services
(purchasing managers index)
60
54
53
50
40 ISM- Non Manufacturing
ISM- Manufacturing
30
Dec-05 Dec-07 Dec-09 Dec-11
Source: Institute od Supply ManagementPrepared by: MB Associados.
Note: Above 50 indicates expansion and below contraction.
4
4

5. US: recovery of the American economy has strengthened...
Consumer confidence Consumer credit
(absolute variation: month over previous
Index month – US$ billion)
(index: base 1985=100)
120
30
20.4
64.5 10
70
-10
-30
20
nov-03 nov-07 nov-11
Dec-03 Dec-07 Dec-11
5

6. US: recovery of the American economy has strengthened...
Investment intentions by
small and medium-sized Corporate credit
(annual variation - %)
companies (index)
Commercial and industrial lending YoY
NFIB capital spending intentions index 30
40
20
35
30 10
25 0
20 -10
15 -20
10 -30
Dec-03 Dec-07 Dec-11 Dec-03 Dec-07 Dec-11
Source: NFIB and FED. Produced by: MB Associados.
6

7. US: recovery of the American economy has strengthened...
Job creation*
(absolute variation month over previous month – 000
450
people)
200
212
-50 -12
Private Sector
Public Sector
-300
Dec-09 Aug-10 Apr-11 Dec-11
Source:BLS. Prepared by: MB Associados. * Seasonally adjusted.
7

8. US: recovery of the American economy starts to gain force
Revisions of GDP growth for Quarterly
2011 and 2012 (%) growth (%)
3.0 2011
2.9 2.9 2012 Mediana 2011 2012
2.5 2.5 IQ 0,4% 1,9%
2.5
2.4 10/01 IIQ 1,3% 2,1%
2.2 2.2
2.1 2.1 IIIQ 1,8% 2,3%
2.0
1.8 1.8 1.8 IVQ 2,75% 2,5%
1.7
1.6 Ano 1,8% 2,2%
1.5
Jun-11 Aug-11 Oct-11 Dec-11
8

9. Prospects for growth in Asia
Estimates for GDP  Asia should continue to help the
(annual growth- %) recovery of world growth;
2010 2011 E 2012 E
China 10,4 9,2 8,0  Growth in the region (without
Hong Kong 7,0 4,6 1,6 Japan) should be close to 7.0%
India 8,5 6,9 7,3
Indonesia 6,1 6,3 5,5  The slowdown in Chinese growth
Japan 4,0 -0,3 2,5
should continue and be close to
Korea 6,2 3,3 1,9
Malaysia 7,2 4,7 3,0
8.0%, for the following reasons:
Philippines 7,6 3,6 3,3 ‒ Cooling of the housing market but no
Singapore 14,5 5,5 2,0 bubble;
Taiwan 10,7 4,1 1,5
‒ Lower inflation leaves room for easing
Thailand 7,8 1,5 4,0
of the monetary policy to continue;
Asia (without
9,1 6,9 5,9
Japan)
Source: UBS (Asia Economics – Outlook 2012).
Produced by: MB Associados
9

10. Prospects for growth in Latin America
Estimates for GDP – selected countries
(annual growth- %)
2010 2011 E 2012 E 2010 2011 E 2012 E
Argentina 9,2 7,6 3,5 Panama 7,5 8,5 6,6
Bolivia 4,1 4,7 3,7 Paraguay 14,5 4,5 4,0
Brazil 7,5 2,9 3,2 Peru 8,8 6,8 5,2
Chile 5,2 6,2 4,0 Uruguay 8,5 5,6 4,4
Colombia 4,3 5,2 4,5 Venezuela -1,5 3,7 3,9
Mexico 5,4 3,9 3,1
Ecuador 3,6 5,1 3,6 Latin America (*) 6,3 4,1 3,5
Source: Consensus Forecast. Produced by: MB Associados
(*) Estimates include Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras and
Nicaragua as well as the countries in the table.
10

11. Risks to the basic scenario: Europe
 We believe the European Central Bank´s initiatives have reduced the risk
of a banking crisis by ensuring liquidity in the system through three-year
auctions (another one is set for February 2012), reducing interest rates
and buying sovereign bonds on the secondary market;
 However, this improvement does not guarantee that the Euro Zone will
survive under current conditions. Measures to recover the
competitiveness of countries in southern Europe to promote the
resumption of growth remain vital, as well as genuine advances being
made towards a greater fiscal union;
 These two conditions require time, great political force and strong fiscal
adjustments. That is why a rupture cannot be ruled out and why the
markets will remain highly volatile in 2012;
11

12. Maturity in Italy, Spain and Greece
Monthly needs for
resources by country
(billion Euros)
Annual needs for
2
resources by country Dec-12 2 33
(billion Euros) Nov-12 00
1 18 32
Oct-12
Italy Spain Greece 1 7 29
Sep-12
361 26 Greece
Aug-12 8 10 28
Jul-12 3 31
1 7 27 Spain
204 Jun-12 11
165 181 10
159 May-12 8
104 116 2 11 27
Italy
93 Apr-12
53 60 55 47
38 41 30 22 Mar-12 9 17 51
Feb-12 1 13
2012 2013 2014 2015 2016 4 15 63
Jan-12 17
Source: Bloomberg. Produced by: MB Associados.
12

13. Markets should remain highly volatile in 2012!
Development of the VIX Development of interest
(volatility index of the markets) rates on 10-year bonds (%)
52 40 Greece
Itália
Italy Portugal
Portugal
Espanha
Spain França
France 34.0
42 30
32 20
13.5
22 21 10
7.0
5.1
12 0 3.0
13/01/11 13/07/11 13/01/12 16/1/08 16/1/10 16/1/12
Source: Bloomberg. Produced by: MB Associados.
13

14. CRB: Development of commodity prices
US$/Euro Agriculture
1,49 520
1,44 500
1,39 480
1,34 460
1,29 440
1,24 420
13/01/11 13/05/11 13/09/11 13/01/12 12/1/11 12/5/11 12/9/11 12/1/12
Metals Oil
1.120 608
1.060 576
1.000
544
940
512
880
820 480
12/1/11 12/5/11 12/9/11 12/1/12 12/1/11 12/5/11 12/9/11 12/1/12
Source: CRB. Produced by: MB Associados.
14

15. CRB: Development of commodity prices
US$/Euro Agriculture
480
1,44
1,39 460
1,34
-10.6% -9.6%
440
1,29
420
1,24
12/10/11 12/11/11 12/12/11 12/1/12
13/10/11 13/11/11 13/12/11 13/01/12
Metals Oil
900 558
-0.5%
880
532
860 -5.3%
506
840
820 480
12/10/11 12/11/11 12/12/11 12/1/12 12/10/11 12/11/11 12/12/11 12/1/12
Source: CRB. Produced by: MB Associados.
15

16. Development of agricultural commodity prices (index – 01/Jul=100)
Coffee - NY Coffee - BR
Sugar- NY Sugar - BR
116
125
110 104
95 92
80 80
27/07/11 27/10/11 27/01/12 27/07/11 27/10/11 27/01/12
Corn - Chicago Corn - BR Soybeans - Chicago Soybeans - BR
131 120
114
100
97
80 80
27/07/11 27/10/11 27/01/12 27/07/11 27/10/11 27/01/12
Source: CBOT, CME-NY and CEPEA. Produced by: MB Agro
16

17. Index
1. International Outlook
1. Domestic Outlook
17

18. Brazilian Economic Outlook in 2012
 International scenario remains a key factor in determining how
the Brazilian economy will perform in 2012;
Basic Scenario Alternative Scenario
(without rupture and/or
(with rupture and/or banking
banking crisis in the Euro
crisis in the Euro Zone)
Zone)
 Moderate growth  Growth close to zero or
(from 3.0% to 3.5%) negative
18

19. Basic Scenario: GDP growth
 Bases for expansion of GDP:
GDP: ‒Easing of the monetary policy;
(annual growth - %)
‒Resumption of public sector
investments (electoral year);
‒Increase in minimum wage and
7,5 higher employment will continue
5,2 to ensure expansion of real
2,7 3,5 income mass;
-0,3 ‒Credit still expands in double
2008 2009 2010 2011 2012
digits (nominal) but credit should
(P) (P)
continue to be more selective;
Fonte: IBGE. Elaboração eand Prepared by: MB Associados
Source: IBGE. Projected projeção: MB Associados.
19

20. Basic scenario: inflation
 Reasons why inflation should
IPCA remain above 5.0%:
(accumulated growth over 12 months - %)
‒Economic activity will start to
accelerate once again from the
7.6
second half;
6.7 ‒Services inflation will remain at a
6.5 high level and is very rigid in
5.8 declining;
4.9
5.5 ‒Agricultural commodities :
Climatic conditions will continue
4.0 to influence prices as estimates
Mar-08 Oct-09 May-11 Dec-12 for stocks are still tight;
Fonte: IBGE. Elaboração and Prepared by: Associados.
Source: IBGE. Projected e projeção: MB MB Associados
Drought in the south of Brazil
and Argentina has already
affected grain production;
20

21. Basic scenario: interest rates
Inflation Report:  The estimates in the December
expectations for the IPCA
(accumulated growth over 12 Inflation Report point to inflation
months - %) picking up again in 2013;
Reference Scenario Market Scenario
6,0
 Could the Central Bank have
indicated that the cycle of
5,5 interest rate cuts will be shorter?
5,0  MB has revised its estimates for
the Selic rate in 2012 to 10.5%
4,5
Selic: MB estimate
4,0 (% year)
I/12 III/12 I/13 III/13 2011 11.00
Source: Central Bank. Prepared by: MB Associados.
2012 (P) 10.50
21

22. Basic scenario: current transactions
 Trade balance will be lower in
Current Transactions 2012, with more a moderate rise in
(US$ Billion) export prices;
Current Transactions Trade Balance  Entry of resources to Brazil will be
limited as long as uncertainty over
the outlook for Europe remains
25 25 20 30 22 high;
 This situation, combined with the
-28 -24 move towards an appreciation of
-47 -53 the dollar in the international
-66 market, should give the Real a floor
2008 2009 2010 2011 2012 of around 1.80;
(F) (P)
Source:Bacen. Elaboração e projeção: MB Associados.
Fonte: Central Bank. Projected and Prepared by: MB
Associados
22

23. Brazilian Economy Outlook
Primary Result  Higher public sector spending,
(% of GDP)
particularly investments,
should resume and accelerate,
due to the electoral calendar
and upcoming sporting events;
3,5 3,3  As a result, the government´s
2,8 2,8 primary result should be lower
2,0
than in 2011 and closer to
2.8% of GDP;
2008 2009 2010 2011 2012
(f) (f)
Fonte: Bacen. Elaboração e projeção: Prepared by: MB
Source: Central Bank. Projected and MB Associados.
Associados
23

24. Conclusion
 The greatest lesson learned in 2011 was the confirmation that
Brazil cannot grow above 4.0% without creating imbalances;
 Supply responds very slowly and growth in consumption ends up
accommodating, bringing higher prices (particularly services)
and/or higher imports. As a result, industry remains stagnant;
 Therefore, the Brazilian economy should grow at a more
moderate rate in 2012 (around 3.5%). However, even against this
backdrop of more moderate growth, MB´s basic scenario is
positive, with opportunities in a number of sectors, particularly
those directed at consumer goods, services, agribusiness and oil;
24

25. APPENDIX
25

26. Summary of Estimates
2009 2010 2011 P 2012 P
National Accounts
GDP (at market prices in %) -0,3 7,5 2,7 3,5
Industry
Industrial Production (%) -7,4 10,5 0,3 2,8
Commerce
Retail Sales (%) 5,9 10,9 6,5 10,2
Employment
Unemployment Rate % - average 8,1 6,7 6,0 5,9
Unemployment Rate % - 4Q 7,2 5,7 5,2 5,5
Real Income Mass (Variation %) 3,9 7,4 4,9 5,2
External Sector
Trade Balance (US$ billion) 25,3 20,1 29,8 22,2
Current Transactions (US$ billion) -24,3 -47,3 -52,6 -65,8
Current Transactions (% GDP) -1,5 -2,2 -2,1 -2,6
Exchange rate and Interest rate
Exchange rate (R$/US$) - Average 2,00 1,76 1,68 1,80
Exchange rate (R$/US$) – End of December 1,74 1,66 1,87 1,80
SELIC rate (Accumulated of the year) 9,78 9,97 11,66 9,79
SELIC rate (end of the year) 8,75 10,75 11,00 10,50
Inflation
IPCA Index 4,3 5,9 6,5 5,5
IGP M Index -1,7 11,3 5,1 4,9
Fiscal Accounts (% of GDP)1
Primary result -2,0 -2,8 -3,3 -2,8
Interest (with exchange rate depreciation) 5,3 5,3 5,8 5,3
Nominal result (with depreciation) 3,3 2,5 2,5 2,5
Net Public Debt 42,2 40,2 38,4 37,7
Source: IBGE, Central Bank. Forecast: MB Associados (10/14/11)
(1) Surplus (-); Deficit (+)
26

27. Oil: price and futures price (US$/barrel)
130
122
114
106
110.9
98
90
13/01/11 13/04/11 13/07/11 13/10/11 13/01/12
27

28. MB Associados
Av. Brigadeiro Faria Lima, 1.739 – 5th floor
São Paulo – SP – 01452-001
Telephone: (011) 3062 - 1085
Fax: (011) 3062 - 8482
www.mbassociados.com.br