Economia Brasileira Perspectiva - ENG - 17ed PDF

Brazilian Economic
OUTLOOK
th
B R A Z I L I A N
G O V E R N M E N T
Ministry of Finance
17
Edition | December | 2012
Ministry of Finance
Summary
Foreword Economic Activity Employment and Income Inflation Interest Rates and Credit Fiscal Policy External Sector International Overview Glossary 7 9 35 53 61 81 93
December Edition | Year 2012
111 135
NOTE
The Brazilian Economic Outlook Report is published by the Ministry of Finance. It consolidates and updates the main macroeconomic variables related to the Brazilian economy. The report is coordinated by the Economic Policy Secretariat (SPE) with the contribution of the following Ministry of Finances bureaus: National Treasury Secretariat (STN), International Affairs Secretariat (SAIN), Secretariat for Economic Monitoring (SEAE) and Federal Revenue Secretariat (RFB). Data used in the report were updated until December 6th, 2012.
Ministry of Finance
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 countrys 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.
Foreword
December Edition | Year 2012 7
OUTLOOK
Brazilian Economy
Economic Activity
Ministry of Finance
B R A Z I L I A N G O V E R N M E N T
Ministry of Finance
Recovery in economic activity

Under the world economic slowdown, the Brazilian economy grew 2.4% in annual terms during the third quarter of 2012, showing that the countrys economic activity is resilient. In addition to that, data already released show positive results for fourth quarter. The economic outlook for 2013 is promising. This Administration has taken a series of measures to increase the countrys competitiveness, encouraging investment and production. For instance, infrastructure investments, through the PAC 2 and concession programs, are already in place. Moreover, the payroll tax relief for 40 sectors, the program for reducing energy costs, and the new automotive regime for 2013-2017 are other measures which ensures growing productive capacity.
Economic Activity
Ministry of Finance
Growth accelerates
Even lower than expected, the GDP growth in the third quarter of 2012 is higher than the previous quarters, indicating a recovery path. The Government stimulus measures have shown initial results, which tend to strengthen in the coming months.
Economic Activity
GDP Growth (% QoQ, sa)

0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0
0.7
Q1 2011
0.5
Q2 2011
0.1
Q3 2011
0.1
Q4 2011
0.1
Q1 2012
0.2
Q2 2012
0.6
Q3 2012
Data: % change from preceding quarter, seasonally adjusted

Source: IBGE Produced by: Ministry of Finance
11
Ministry of Finance
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%).
Economic Activity
2012Q3 2012Q2 GDP Growth Rate: Demand and Supply (% QoQ, sa)
8 7 6 5 4 3
0.7
0.9
1.0
6.8
2.5
0.5
0.0
0.2
0.6
2 1 0 -1 -2
1.1
Q2 2012 Q3 2012
-1.6 -2.0
Gross Fixed Capital Formation
-1.8
0.1
Agricultural
Industry
Services
GDP
Household Consumption
Government Consumption

Supply
Demand
12
Ministry of Finance
Brazil: supply-side GDP growth

Contributions to GDP Growth: Supply Side (% YoY)
7.5 6.1 5.2
1.6 1.1 1.1 3.5 1.3 0.2 2.8 1.0 0.3 0.0 1.2 -0.2 -1.3 0.3 2.4
Economic Activity
2.7 -0.3
3.2 0.6 1.6 0.4 0.2
0.9
GDP Taxes
0.2 0.8 0.03 -0.2
Services Industry
GDP Taxes Services Industry Agricultural Data: % change from

Agriculturepreceding year
* On a 4-quarter basis
2007
2008
2009
2010
2011
2012*
13
Ministry of Finance
Brazil: demand-side GDP growth

Contributions to GDP Growth: Demand Side (% YoY)
Economic Activity
7.5 6.1 5.2

0.5 0.9 2.3 1.0 3.7 -2.3 0.5 0.1 2.4 0.6 3.4 -1.8 1.0 0.6 2.6 -1.3 -1.2 -2.1 1.3 1.3 3.9 0.9 4.2 -4.0 0.5 0.9 0.4 2.4 -1.2 -0.4
-0.3
2.7 0.9
-0.7 0.6 1.6 -0.5 0.1 -0.2
GDP Inventories Exports GDP GFCF Inventories Government Consumption Government consumption Household Consumption Household consumption Imports GFCF
Exports Imports
Data: % change from preceding year * On a 4-quarter basis

2007
2008
2009
2010
2011
2012*
14
Ministry of Finance
GDP growth in 3rd quarter: the behavior of the service sector

Brazils service sector did not grow in the 3rd quarter of 2012, as the finance sector shrank by 1.3%.
Economic Activity
Components of the Service Sector (% QoQ, sa)

0.6 0.3 0.0 -0.3 -0.6 -0.9 -1.2 -1.5
Trade Transport, storage and mail Information services Financial intermediation and related services Other services Real estate and rentals Administration, health and education
0.4 -0.1
0.5 -1.3
0.3
0.4
0.1

15
Ministry of Finance
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).
Economic Activity
GDP, Household Consumption and Investment (% YoY)

25 20 15 10
4.4
GDP Household Consumption Investment
4.2 5.4 9.1
4.0 5.2 9.8
2.7 4.1 4.7
6.1 6.1 13.9
5.2 5.7 13.6
0 -5 -10
7.5 6.9 21.3
Data: % change from preceding year

2006 GFCF GDP
2007
2008
-0.3
2009
-6.7
2010
2011
Average 2006-2011
16
Household Consumption
Ministry of Finance
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.
Economic Activity
Industrial Production Index (index number, sa) Index-number (average 2002=100)

135 130 125 120
127.0
115 110 105 100 95 90
Data: index number, seasonally adjusted (average 2002 = 100)

p 2 De 007 c2 M 007 ar 20 Ju 08 n 2 Se 008 p 2 De 008 c2 M 008 ar 20 Ju 09 n 2 Se 009 p 2 De 009 c2 M 009 ar 20 Ju 10 n 2 Se 010 p 2 De 010 c2 M 010 ar 20 Ju 11 n 2 Se 011 p 2 De 011 c2 M 011 ar 20 Ju 12 n 2 Se 01 Op2 2 ct 01 20 2 12
Se
17
Ministry of Finance
Capacity utilization
FGVs 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.
Installed Capacity Utilization Level (%) NUCI - FIESP** NUCI - FGV
89 87 85 83 81 79 77 75
Economic Activity
84.0
81.1
FGV FIESP* Data: % * Sao Paulo State, only

Source: CNI, FGV and FIESP Produced by: Ministry of Finance
ct 2 Ja 00 n 7 2 Ap 00 r2 8 Ju 008 l2 O 00 ct 8 2 Ja 00 n 8 2 Ap 00 r2 9 Ju 009 l2 O 00 ct 9 2 Ja 00 n 9 2 Ap 01 r2 0 Ju 010 l2 O 01 ct 0 2 Ja 01 n 0 2 Ap 01 r2 1 Ju 011 l2 O 01 ct 1 2 Ja 01 n 1 2 Ap 01 r2 2 Ju 01 Se l 2 2 0 Nop 2 12 v 012 20 12
18
Ministry of Finance
Robust retail sales

Both retail sales indicators follow an acceleration trend, registering 8.1% and 6.6% on a 12-month basis, respectively.
Economic Activity
Retail Trade Survey (% YoY)

14 12 10 8 6 4 2 0
8.1
PMC Broad PMC* Data: % change from preceding year * Including vehicles, motorcycles, parts and pieces, and building materials
6.6
p 20 No 09 v 20 Ja 09 n 20 1 M ar 0 20 1 M ay 0 20 10 Ju l2 0 Se 10 p 20 No 10 v 20 Ja 10 n 20 1 M ar 1 20 1 M ay 1 20 11 Ju l2 0 Se 11 p 20 No 11 v 20 Ja 11 n 20 1 M ar 2 20 1 M ay 2 20 12 Ju l2 0 Se 12 p 20 12
Broad PMC Restricted PMC
Se
19
Ministry of Finance
Stronger confidence
Services and Industry Confidence Indexes are showing grounds for optimism. Services confidence showed a third consecutive monthly rise, and industry confidence has also improved. Both indicators signal the continuation of the economic recovery during the fourth quarter of 2012.
Economic Activity
Industry Con dence Index Confidence Indexes: Services and Industry (points, sa) Services Con dence Index
No v De 20 c 10 Ja 20 n 10 Fe 20 b 1 M 20 1 ar 11 Ap 20 1 M r 20 1 ay 1 1 Ju 20 n 11 Ju 201 Au l 20 1 g 1 Se 20 1 p 11 O 20 ct 11 No 20 v 1 De 20 1 c 11 Ja 20 n 11 Fe 20 b 1 M 20 2 ar 12 Ap 20 1 M r 20 2 ay 1 2 Ju 20 n 12 Ju 201 Au l 20 2 g 1 Se 20 2 p 12 O 20 c 1 No t 20 2 v 12 20 12
140 135 130 125 120 115 110 105 100 95 90
125.4
105.2
Services Confidence Index Industry Confidence Index Data: points, seasonally adjusted
Source: FGV Produced by: Ministry of Finance
20
Ministry of Finance
Vehicle production boosted by Government stimulus measures

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

25 20 15 10 5 0 -5 -10 -15 -20 -25 -30
6.2
4.1
5.5
10.1
24.5
4.5
20.2
2.6
2.4
2.3
6.9
1.2
8.2
-11.4
-26.1
-7.5
-7.7
-9.7
-9.1
-1.0
-7.5
-4.2
-7.2
-6.2
-3.6
Data: % change from same month previous year

Source: Anfavea Produced by: Ministry of Finance
O c No t 20 v 1 De 20 0 c 10 Ja 20 n 10 Fe 20 b 1 M 20 1 ar 11 Ap 20 1 M r 20 1 ay 1 1 Ju 20 n 11 Ju 201 Au l 20 1 g 1 Se 20 1 p 11 O 20 c 1 No t 20 1 v 1 De 20 1 c 11 Ja 20 n 11 Fe 20 b 1 M 20 2 ar 12 Ap 20 1 M r 20 2 ay 1 2 Ju 20 n 12 Ju 201 Au l 20 2 g 1 Se 20 2 p 12 O 20 ct 12 20 12
21
Ministry of Finance
Promissing economic activity outlook according to PMI indicators

Manufacturing PMI points to economic activity expansion. It shows clear recovery trend, increasing five months in a row since July. In November, it was the highest level since April 2011.
Economic Activity
PMI Brazil Manufacture Manufacturing PMI (index) 60 58 56 54
52 50 48 46 44
52.20
Data: index * Values above 50 indicate growth

Source: Bloomberg Produced by: Ministry of Finance
Ja n 20 1 M ar 0 20 1 M ay 0 20 Ju 10 l2 0 Se 10 p 20 No 10 v 20 Ja 10 n 20 1 M ar 1 20 1 M ay 1 20 Ju 11 l2 0 Se 11 p 20 No 11 v 20 Ja 11 n 20 1 M ar 2 20 1 M ay 2 20 Ju 12 l2 0 Se 12 p 20 No 12 v 20 12
22
Ministry of Finance
Brazilian consumer market will be the worlds 5th largest

In 2020, Brazil will be the worlds 5th largest consumer market (around R$ 3.5 trillion forecast for household consumption). It is the result of the outstanding income improvement for Brazilians over the last years, besides being a great encouragement for new investments.
Economic Activity
Household Consumption in 2020: Selected Countries (R$ trillion)

trillion 25 20 15 10
20.4
10.9
7.0
3.2
3.0
5 0
trillion
trillion
2.8
2.2
2010
3.5
2020
4.4
3.5
Data: R$ trillion
Source: Exame Magazine, Mckinsey Consulting and Fecomercio Produced by: Ministry of Finance
na
an
rm an y
il
ce
UK
Br az
US
Ge
Fr an
Ch i
Ja p
I ta
ly
23
Ministry of Finance
Brazilian consumer market will attract more and more investments

Investors recognize the growing trend of the Brazilian consumer market and, despite the international crisis, Brazil continues as one of the leading investment destinations.
Consumer Market (position)
Sector
Perfumery Articles Automobiles Food and beverages Clothing Domestic Aviation Motorcycles Computers Refrigerators Products for Pet Animals
Economic Activity
Brazilian Consumption 2012

1st 4th 4th 5th 4th 4th 3rd 3rd 3rd
2020
1st 3rd 3rd 3rd 3rd 2nd
Data: position
Source: Exame Magazine, Mckinsey Consulting, Escopo, Euromonitor, Anfavea and Abraciclo Produced by: Ministry of Finance
24
Ministry of Finance
Record for the Brazilian harvest

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

180 170 160 150 140 130 120 110 100 90 80 70 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
Data: millions of tons * Conab forecasts

2/ 20
Source: Conab/MAPA Produced by: Ministry of Finance
20 00
20 01
20 02
20 03
00 9
01 0
01 1
01 2 /2
/2 00
/2 00
/2 00
/2 00
/2 00
/2
/2
99 /
00 /
01 /
02 /
20 03
20 04
20 05
20 06
20 07
20 08
20 09
20 10
20 11
/2
20 1
19
20
20
20
13
25
Ministry of Finance
Brazilian agriculture pushed to the forefront

Brazil is one of the worlds 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.
Economic Activity
Agricultural Production in Selected Countries (index number)

180 160 140 120 100 80 60 40
Brazil Russia India China United States Canada EU*
Estimates
Brazil Russia India China USA Canada European Union Data: index number (average 2005 = 100)
Source: FAO Produced by: Ministry of Finance
10 20 20 13 14
92
95
98
01
04
07
16 20
19
19
19
20
20
20
20
20
19
26
Ministry of Finance
Federal investment has increased

Federal Government investment pace has increased in the last 12 months. Until October 2012, investments are 22.9% above the same period last year.
Economic Activity
Federal Government Investment (R$ billion and %)

60 50
22.9% 29.4% 27.9% 23.3%
40 30 20 10 0
30.7% 30.2% 23.5% -1.0%

7.8 7.7
28.9%
2011 2012 Data: R$ billion and % change in the period
3.3%
12.7 15.7 16.4 21.1 20.2 26.2 25.1 32.8 30.0 38.8 33.2 42.5 36.7 45.2 41.4 50.9 9.3 9.6
* YTD: year-to-date
Source: STN/Ministry of Finance Produced by: Ministry of Finance
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
27
Ministry of Finance
Public investment is also increasing fast

The consolidated public investment is on an expansion track in 2012, contributing to better long-term economic prospects.
Economic Activity
Public Sector Investment* (% of GDP)

5
1.9
4 3 2 1 0
1.6
1.6
1.5
1.5
1.3 1.5
1.3 1.5
1.8 1.1 1.4 1.0 1.8

1.8 1.5 1.1 1.9 1.8 1.4
1.9 1.7
1.9 1.7
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
28 December Edition | Year 2012
1.7
1.7
1.8
1.8
2.0
2.0
0.8
0.8 1.3 1.3
0.8
0.8 1.5 1.5
0.9
0.9 1.5
1.1
1.1
1.0
1.0
1.0
1.0
1.1
1.1
2.0 1.7
1.7 2.0
1.5
1.5
1.6
1.6
1.0
1.8
1.8
1.7
1.7
1.8
1.8
1.3 0.2
1.3
1.4
1.4
1.3
1.3
1.4
1.4
0.5
0.4
0.4
0.5
0.3
0.3
0.4
0.5
0.2
0.3
0.4
0.4
0.5
0.6
0.8
0.6
0.7
95
97
State-owned Companies
States and Municipalities
Federal Government
20 1 20 1 12 **
96
98
99
00
01
02
03
04
05
06
07
08
09
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
10
Ministry of Finance
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.
Economic Activity
Minha Casa Minha Vida Housing Program (R$ million)

400 350 300 250
Minha Casa Minha Vida1 Housing Program
Minha Casa Minha Vida 2 Housing Program
200 150 100 50 0 2009 2010 2011 2012*
76.960
275.138
289.642
359.399
Data: R$ million
29
Ministry of Finance
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 countrys productive capacity.
Economic Activity
PAC Spending: 2011-2012 (R$ billion)

30 25 20 15 10 5 2.9 0 46.9% 5.6% 3.1 19.1% 11.3 14.2 12.2 18.6 14.9 20.3 16.7 22.3 18.0 24.3 20.8 26.6 3.5 4.1 5.5 8.0 7.6 9.8 50.0% 52.6% 44.8% 36.3% 33.5% 35.1% 27.7%
2011 2012 Data: R$ billion * YTD: year-to-date

Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
2012
2011
30
Ministry of Finance
Petrobras: top 2 global energy investor

According to the International Energy Agency (IEA), Petrobras will invest US$ 47.3 billion in new projects in 2012, just below Petrochina (US$ 48 billion). Also, Petrobras will remain as a major worldwide investor over the next four years, based on the companys business plan, which states a US$ 236.5 billion investment for 2012-2016.
Petrobras Business Plan (US$ billion)
Economic Activity
Business Plan - Petrobras*, 2012 to 2016 (US$ billion) Exploration and Production Re ning, Transportation and trading Gas and Energy Petrochemical Distribution Biofuel Corporate Total
141.8 65.5 13.8 5.0 3.6 3.8 3.0 236.5
Data: US$ billion * Released on June 14, 2012

Source: Petrobras Produced by: Ministry of Finance
31
Ministry of Finance
Concession Program will leverage investments in infrastructure

Infrastructure investments in Brazil will count on the private sectors active involvement. The airport sector total investment will be approximately R$ 16 billion in the coming years, considering only airport concessions in Brasilia, Guarulhos and Viracopos. Also, the Logistics Investment Program considers R$ 133 billion for renovation and construction of federal highways and railways. Around 60% (R$ 79.5 billion) will be invested within 5 years.
Public Service Concession
Total Investment: R$ 133 billion (R$ 79.5 billionin 5 years and R$ 53.5 billion from 20 to 25 years
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)
Economic Activity
Airport Concession: Planned Investment R$ 16.2 billion
Braslia
Total in 25 years
Guarulhos
Total in 20 years
Viracopos
Total in 30 years
R$ 2.85 bi
R$ 4.70 bi
R$ 8.70 bi
Planned Investment = 16.2 bi
Source: Secretariat of Civil Aviation Produced by: Ministry of Finance
32
Ministry of Finance
Government has adopted incentives to improve competitiveness

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

Average reduction in eletricity prices* Group Tari A1 A2 A3 A3a A4 AS B
Average
Voltage level 230 kV or more 88 to 138 kV 69 kV 30 to 44 kV 2,3 to 25 kV

Underground
Deduction (%) 28.0 24.7 21.5 20.0 19.4

19.7
High Voltage A
Low Voltage B
lower than 2,3 kV
16.2 20.2
* From January 2013

Source: Ministry of Mining and Energy Produced by: Ministry of Finance
33
Ministry of Finance
Tax benefits also stimulate competitiveness

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

Estimates for 2013 (R$ billion) AFTER: Social Security Contribution on Gross Revenues (1% to 2%) 8.70 3.43 12.13
Sectors
BEFORE: Social Security Payroll Contribution
Payroll Tax Relief*
40 Sectors Civil construction Total
21.60 6.28 27.88
12.8 2.85 15.65
Data: R$ billion * Without R$ 970 million in cash flow relief

Source: Ministrio da Fazenda Produced by: Ministry of Finance
34
OUTLOOK
Brazilian Economy
Employment and Income

Ministry of Finance
Ministry of Finance
Inclusive growth driven by increased schooling

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.

Ministry of Finance
Lower unemployment rate at the lowest level

The job market has shown strong dynamism in 2012, expressed by the 5.3% unemployment rate in October 2012, the lowest rate ever for the month.
Unemployment Rate* (%, nsa)

15
12
5.30
Data: % share of economically active population, not seasonally adjuste

Source: IBGE/PME Produced by: Ministry of Finance
ct 20 Ap 03 r2 00 O ct 4 20 Ap 04 r2 00 O ct 5 20 Ap 05 r2 00 O ct 6 20 Ap 06 r2 00 O ct 7 20 Ap 07 r2 00 O ct 8 20 Ap 08 r2 00 O ct 9 20 Ap 09 r2 01 O ct 0 20 Ap 10 r2 01 O ct 1 20 Ap 11 r2 01 O ct 2 20 12
37
Ministry of Finance
Solid labor market in Brazil

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

3,500 3,000 2,500
2,000 1,500 1,000
Data: thousands of jobs

1,863 1,831 1,917 2,452 1,834 1,766 2,861 2,242 1,689 861
500 0
* On a 12-month basis up to October 2012

Source: MTE/CAGED and RAIS Produced by: Ministry of Finance
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012*
38
Ministry of Finance
Greater social protection for workers

The quality of jobs in Brazil can be noticed by the level of formalization. According to the Monthly Employment Survey, the proportion of formally employed workers reached 53.7% on a 12-month basis up to October. Likewise, the share of contributors to social security reached 72.6% of the total employed population in the same period.
Rate of Formalization and Contributors to Social Security (% of employed population)
80

Employed population with a formal contract Contributors to Social Security
65
50
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 Produced by: Ministry of Finance
35 45.5 63.0 43.5 60.1 43.8 60.1 45.5 62.8 46.1 63.2 47.6 64.8 49.2 66.4 49.3 66.1 51.6 69.2 53.6 71.9 53.7 72.6
20
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012*
Employed population with a formal contract Contributors to Social Security
39
Ministry of Finance
Minimum wage policy insures real gain

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

700 600 500 400 300 200
72%
200
240
260
300
350
380
415
465
510
540
545
622
671
100 0
Data: R$ * PLOA 2013 forecast

Source: Central Bank of Brazil Produced by: Ministry of Finance
08
09
11
02
03
04
05
06
07
10
11
12 20 Ja n
20
20
20
20
20
20
20
20
20
20
20
Ap r
Ap r
ar
Fe b
Ja n
Ja n
Ap r
Ap r
ay
ay
ar
Ja n
20
13
40
Ministry of Finance
Restoring the purchasing power of the minimum wage

1994: a worker would spend 8 months worth of minimum wage to be able to afford a Washing Machine. 2012: he/she would spend only 1.5 months worth of minimum wage.
Minimum wage purchasing power for Washing Machine: 1994-2012 (R$)

(R$)
1,200 1,000 800 600 400 200 0
930 622
8 7 6 5 4 3 2 1 0
Minimum Wage (R$) Nominal Price of Washing Machine (R$) Washing Machine/Minimum Wage Ratio Data: R$
Source: IBGE, GfK and LCA Produced by: Ministry of Finance
1.5
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
20
Minimum Wage (R$)
Nominal Price of Washing Machine (R$)
Washing Machine/Minimum Wage Ratio
20
12
41
Ministry of Finance
Restoring the purchasing power of the minimum wage

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 months worth of minimum wage.
Minimum wage purchasing power for stoves: 1994-2012 (R$)

(R$)
700 600 500 400 300 200 100 0
622
2.0 1.8 1.6 1.4

330 0.5
1.2 1.0 0.8 0.6 0.4 0.2 0.0
Minimum Wage (R$) Nominal Price of Stove (R$) Stove/Minimum Wage Ratio Data: R$
Source: IBGE, GfK and LCA Produced by: Ministry of Finance
19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12
Minimum Wage (R$) Nominal Price of Stove (R$) Stove/Minimum Wage Ratio
42
Ministry of Finance
Bolsa Famlia Program helps to reduce poverty

Bolsa Familia Program is recognized as one of the most efficient programs in reducing inequality due to its focus on the poorest population. Besides being cost efficient, it reaches more than 13.7 million households.
Bolsa Familia: Income Transfer Program (R$ billion, millions of households and % of GDP)
(% of GDP) R$ billion Number of households (million) 0.5
25 20 15 10 5 0
20.41
0.4
13.76 0.3
0.2 0.1
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 Produced by: Ministry of Finance
0.2
2004
0.3
2005
0.3
2006
0.3
2007
0.3
2008
0.4
2009
0.4
2010
0.4
2011
0.5
2012*
0.0
43
Ministry of Finance
Reduction of social needs

The social safety net has impacted the promotion of rights significantly. It has enabled people to have access to education, social security, housing and basic services. Under the human rights perspective, it has been possible to ensure the wellbeing of the most vulnerable.
2001* People with No Specific Social Need (% of population) 2011 100 90 80 70 60 60.7 50
No Educational Delay Access to Social Security Quality Homes Access to Basic Services
2001* 2011 Data: % share of population * Except the rural population of Rondonia, Acre, Amazonas, Roraima, Para and Amapa States
Source: IBGE/PNAD Produced by: Ministry of Finance
68.8
63.6
78.7
95.1
96.0
59.1
67.8
44
Ministry of Finance
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%.
Real Income Growth in Income Groups: 2004-2011* (%)

2004-2011 Change
80 70 60 50 40 30 20 10 0 29.8
al To t
73.8
75.3
48.5
49.9
43.8
38.4
36.5
30.3
24.8
20.8
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.
10 or 10 e t to han 20
o 20re t to han 30 M or 30 e t to ha 40 n M o 40 re t to ha 50 n M o 50 re t to ha 60 n M o 60re t to han 70 M or 70 e t to ha 80 n
20% poorest Income deciles
M o 80 re t to ha 90 n M o 90 re to th 10 an 0
Up
to
20% richest
45
Ministry of Finance
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.
Gini Index: Average Real Earnings** (index)

0.65
0.60
0.602
0.6
Data: Measurement ranges from zero (perfect equality) to 1 (maximum inequality)

0.572
0.6
0.564
0.6
0.55
0.559
0.6
0.552
0.6
0.548
0.5
0.534 0.50
0.530
0.524 0.508
* Excludes the rural population of the following states: Rondnia, Acre, Amazonas, Roraima, Par and Amap ** People over 10 years of age. Based upon the per capita Income
20 08
20 09
19 81 *
20 04
20 05
20 06
19 90
20 01
20 07
20 11
46
Ministry of Finance
Brazil stands out in the SEDA score

For most of the 10 categories of New Sustainable Economic Development Assessment (SEDA) launched by the Boston Consulting GroupBoston Consulting Group index, Brazil has scored better than the BRICS average. Brazil, Poland, Indonesia and New Zealand are improving faster than GDP growth would suggest. When it comes to translating wealth into citizen well-being the report reveals a strong correlation between the best performing nations and good governance.
Recent-Progress SEDA Score (index)
100 80 60 40 20 0
Brazil Average BRIC

21 27 29
Brazil
20 58
Data: index * SEDA assesses the performance of 150 nations around the world across a series of dimensions including governance, education, infrastructure and economic stability with the aim of seeing which countries are performing best in improving well-being and economic opportunities for their citizens.
Source: Boston Consulting Group Produced by: Ministry of Finance
Average BRIC
Employment
Civil Society
Governance
Environment
Infrastructure
Income
Economic Stability
Income Equality
Education
Health
47
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.
Ministry of Finance
Social Classes (million of people)
A Class B Class C Class D and E Classes
6.3 7.0 65.9 96.2
9.6 10.4 94.9 73.3
10.5 11.2 100.3 69.6
12.6 14.5 115.2 53.8
Data: million of people * Forecasts. Baseline: 6,5% YoY income growth rate
Source: IBGE and IPEA Produced by: Ministry of Finance
2003
Total: 175 million
2009
Total: 188 million
2011
Total: 192 million
2014*
Total: 196 million
48
Ministry of Finance
Impact of social inclusion on demand

The 8.3% interannual increase of broadly defined payroll in the third quarter of 2012 boosted household consumption, sustaining the domestic market strength.
Household Consumption and Broadly Defined Payroll* (% Q/Q) Household Consumption

14 12 10 8 6 4 2 0 -2 -4 -6
Ju 05 n 20 0 M ar 6 20 De 07 c2 0 S e 07 p 20 Ju 08 n 20 0 M ar 9 20 De 10 c2 0 Se 10 p 20 Ju 11 Se n 2 p 01 20 2 12 01 03 04 00 1 02 00 00 4 20 20 20 20 20 c2 c2 20
Expanded Wage Mass
8.3 3.4
Household consumption Broadly defined payroll Data: % change same quarter previous year, annualized * Including lwages, dividends, saaries, social security benefits, Bolsa Familiaand others. YTD October.
Source: IBGE, MDS, FGTS and STN Produced by: Ministry of Finance
ar
ar
De
De
Ju
Ju
Se
Se
49
Ministry of Finance
More qualified workers

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

50 44 38 32 26 20 28.8 2001 30.7 2002 32.5 2003 33.6 2004 35.2 2005 37.4 2006 39.0 2007 41.2 2008 43.2 2009 46.4 2011
Data: % of total
50
Ministry of Finance
Growing opportunities in the youth labor market

The growth of the Brazilian economy increased the number of job opportunities for young people, which has been accompanied by an improvement in their level of education. According to CAGED, in 1996, 1.7 million new workers were hired, while 17.2% had at least completed high school. On a 12-month basis up to October 2012, the figures were 2.8 million and 54.9%, respectively.
Qualified Beginning Employees** and First Job Admissions (% and millions)
First Job Admissions Share of "Quali ed" Beginning Employees*
3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

17.2 1.7 19.4 1.8 25.7 22.0
1.7
60
48.8 46.0 47.2 51.3 54.9 53.3 53.9
50 40 30 20
43.3 33.6 36.4 39.6
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 Produced by: Ministry of Finance
28.7
31.5
1.6
1.9
1.9
1.9
1.8
2.1
2.3
2.3
2.5
2.8
2.5
3.0
3.1
2.8
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
20
20
12
10
51
OUTLOOK
Brazilian Economy
Inflation
Ministry of Finance
Ministry of Finance
Inflation rate under control

Consumer price inflation rates increased in the third quarter of 2012, driven mainly by the impact of extreme weather conditions on agricultural production. The combination of higher than usual pressures in some fresh food prices in the Brazilian domestic market, and in important agricultural commodities in the international market, due to the drought in the US, caused an acceleration of inflation in mid-2012, which peaked in October. Since then, inflation pressures have begun to ease, as producer prices related to important items such as soybeans, corn and wheat are clearly pointing to a retreat to lower levels. As well as that, several fresh food items are showing monthly deflation rates. This scenario shows that more relief should arrive in coming months, helping bring down consumer price inflation and also helping to drive the yearly IPCA to the center of the target set by the National Monetary Council.
Inflation
Ministry of Finance
Inflation within the target range

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

14 12 10 8 6 4 2 0
8.9 6.0 7.7 12.5 9.3
Target Center
Upper and Lower Bounds
Inflation Target Upper and Lower Bounds IPCA Data: % change from preceding year * According to the Central Bank of Brazils Inflation Report (September 2012)
Source: IBGE and Central Bank of Brazil Produced by: Ministry of Finance
7.6
5.7
3.1
4.5
5.9
4.3
5.9
6.5
5.2
20 11
06
20 07
08
09
01
02
03
04
99
00
05
10
20
20
20
20
20
20
20
19
20
20
20
20
12
55
Ministry of Finance
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 IPAAgricultural index will ease IPCA inflation in the coming months.
IPCA, IPA-DI Agricultural
Inflation
Agricultural Prices and IPCA Index (% 3-mth ma) IPCA

IPA-DI Agricultural
4.5 3.5 2.5 1.5 0.5
20 15 10
5 0
IPCA IPA-DI Agricultural Index Data: % change on a 3-month moving average

-0.5 -1.5 -5
20 10
20 10
20 11
20 11
11
20 11
20 12
20 12
20 12 Au g O
ay
Au g
Fe b
ay
Au g
Fe b
ay
No v
No v
ct
20 12
20 1
20
56
Ministry of Finance
After reaching its peak in October, inflation starts to decline

Consumer prices in Brazil rose at their fastest pace in October 2012, mainly due to the effects of the drought in the US. Since then, IPCA inflation has started to decline, which is a trend that is expected to continue in the coming months.
Inflation
CPI Inflation - Chained IPCA and IPCA-15 Indexes (% MoM)

0.8 0.7 0.6 0.5
0.4 0.3
0.1 0.0
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
0.2
Data: % change from preceding month

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
Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov 2011 2011 2011 2011 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012
IPCA-15 IPCA IPCA-15 IPCA IPCA-15 IPCA IPCA-15 IPCA IPCA-15
57
Ministry of Finance
General Price Index already decelerating

After two consecutive quarters of acceleration, the 12-month General Price Index (IGP-M) inflation started a decreasing trend, reaching a percentage below 7.0% in November 2012. Lower producer prices (measured by the IPA index) in the past two months have played an important role in easing the pressure on the Brazilian IGP inflation.
IGP-M IPA-M IPC-M INCC-M Inflation: IGP-M and Main Components (% YoY) 15 12 9 6 3 0 -3 -6
Inflation
7.33 7.30 6.96 5.77
IGP-M IPA-M INCC-M IPC-M Data: % change from preceding year on a 12-month basis
No v 20 Ja 09 n 2 M 010 ar 2 M 010 ay 20 Ju 10 l2 Se 010 p 2 No 010 v 20 Ja 10 n 2 M 011 ar 2 M 011 ay 20 Ju 11 l2 Se 011 p 2 No 011 v 20 Ja 11 n 2 M 012 ar 2 M 012 ay 20 Ju 12 l2 Se 012 p 2 No 012 v 20 12
58
Ministry of Finance
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.
General Price Indexes (chained) (% MoM)
October 2012 November 2012 IGP-10 IGP-M IGP-DI IGP-10 IGP-M
IGP IPA Production stage Final goods Intermediate goods Basic goods Origin Agriculture Industrial 0.42 0.40 0.60 0.67 -0.16 0.53 0.34 0.57 0.24 0.50 0.00 0.02 -0.20 0.07 0.41 -1.24 -0.57 -0.05 0.58 0.24 0.49 0.01 -0.31 -0.68 -0.44 0.07 -1.86 -1.34 -0.42 0.48 0.21 0.42 0.01 -0.28 -0.57 -0.70 0.09 -1.24 -1.10 -0.35 0.36 0.22 0.35 0.09 -0.03 -0.19
Inflation
-0.5 0.25 -0.41 -0.41 -0.1 0.33 0.23 0.22 0.24
IPC INCC Construction services and materials Labor
Data: % change from preceding month

59
OUTLOOK
Brazilian Economy
Interest Rates and Credit

Ministry of Finance
Ministry of Finance
Interest rate at its lowest level ever

From August 2011 up to October 2012, the Central Bank of Brazil lowered the policy rate by 525 basis-points, bringing both nominal and real rates to their lowest levels in the recent Brazilian monetary history. In fact, spreads and lending rates in the financial system have also fallen to record lows, although still at high levels. Brazil is now even more focused on encouraging the development of the capital and long-term private credit markets. The countrys financial system is sound, operating in accordance with Basel principles, and it is actively participating in the development of important financial instruments, such as financial bills, FDICs, debentures, and other long-term corporate bonds. As a matter of fact, this new environment of lower interest rates and investment opportunities has already begun to influence the decision-making process of economic agents. It will positively impact investment and production even further, as investors leave behind the time when the Brazilian economy was used to high short-term interest rate.

Real interest rate at its lowest level due to sound macroeconomic fundamentals
Short-term real interest rates in Brazil have been showing a significant decrease for the past ten years, from 14.0% in December 2002 to 1.8% in November 2012. For the last 10 years, it has been a result of credible and sound monetary and fiscal policy coordination.
Ministry of Finance
Brazil: Real Ex-Ante Interest Rates* (% pa)

16
12
Average 2002-2005 = 11.5

Average 2006-2010 = 6.9 Average 2011-2012 = 3.2
Data: % per annum * 360-day swap deflated by inflation expectations for the 12 months ahead; 2012: November 30; 2001-2011: December 31
4 14.0 0 9.4 11.2 11.4 7.9 7.7 6.9 5.8 6.2 4.5 1.8
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012**
63
Ministry of Finance
Selic benchmark interest rate at its lowest level ever

Central Bank of Brazil has reduced its benchmark interest rate (Selic) since August 2011. The latest reduction in October 2012, from 7.50% to 7.25%, implied the lowest rate ever. The real interest rate reached 1.80% on November 30, 2012.
Real Ex-Ante Interest Rates Real and Nominal Interest Rates* (% pa) 30 25 20 15 10 5 0
Selic benchmark
SELIC interest rate target Real ex-ante interest rate* Data: % per annum
7.25 1.80
* 360-day swap deflated by inflation expectations for the 12 months ahead

No v 2 Ap 00 r2 3 00 O ct 4 20 Ap 04 r2 00 O ct 5 20 Ap 05 r2 00 O ct 6 2 Ap 006 r2 00 O ct 7 20 Ap 07 r2 00 O ct 8 20 Ap 08 r2 00 O ct 9 20 Ap 09 r2 01 O ct 0 20 Ap 10 r2 01 O ct 1 20 Ap 11 r2 01 O ct 2 No v 201 20 2 12
64
Ministry of Finance
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.
Interest Rates: DI Contracts* (% pa)

13 12 11
10 9 8 7
Jan 2013 Jan 2014 Jan 2015

7.8 7.2 7.1
11 12 2 2 ct 2 No 012 v 20 12 10 10 11 1 0 1 01 01 01 01 20 20 20 20 20 Ap r2 Ap r2 l2 l2 ct Ap r O ct Ja n Ja n Ju Ju O Ju l2 01 O
Data: % per annum * DI: one-day interbank deposits

Ja n
20
10
65
Jan 2013 Jan 2014 Jan 2015
Ministry of Finance
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.
Interest Rates and Average Maturity (% pa and days)
650 600 550 500 450 400 350 300 40 250 200 50 45 350 300
Individuals
60
450 400
Corporations
34 32 30 28 26
620.5
55
431.8
24
Average maturity (days) Interest rates (% YoY) Data: % per annum and number of days
22.1
20
35.4
0 Ju 08 n 20 De 09 c2 0 Ju 09 n 20 De 10 c2 0 Ju 10 n 20 De 11 c2 0 Ju 11 n 2 O 01 ct 2 20 12
08 20 ay M
De
Average Maturity Interest Rates
De
0 Ju 08 n 20 De 09 c2 0 Ju 09 n 20 De 10 c2 0 Ju 10 n 20 De 11 c2 0 Ju 11 n O 201 ct 2 20 12
Average Maturity Interest Rates
20
c2
08
ay
c2
66
Ministry of Finance
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%.
Average Interest Rate on Lending for Individuals and Corporations (% YoY)
50 40 30 20 10 0

Jan 2012 Oct 2012
45.1
Individuals
35.4
Oct 2012
28.7
Corporations
Jan 2012
22.1
Data: % change from the preceding year

67
Ministry of Finance
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.
Banking Spread to Individuals and Corporations (pp)

50 45 40 35 30 25 20 15 10 5 0
Jan 2012 Oct 2012 Data: percentage point * Spread = Lending Rate Funding Rate
34.9
Individuals
27.8
Oct 2012
18.5
Jan 2012
15.0
Corporations
68
Ministry of Finance
Housing credit stands out

Housing credit has showed an outstanding performance in recent years, encouraging investment, growth and employment in the construction sector and other segments of the economy. Over the past 12 months, total housing credit grew by 39%, reaching R$ 263 billion in October 2012, proving far superior performance than other segments.
Payroll Loans Individuals: Credit Transactions (R$ billion)
350 300 250 200 150 100 50 0
Car Loans Real Estate Loans

319.0 263.0 184.3
Real Estate Loans Car Loans Payroll Loans Data: R$ billion

20 20 20 20 20
Ja n
20
08
09
10
11
12
Ja n
Ja n
Ja n
Ja n
ct
12
69
Ministry of Finance
Families keeping debt under control

The percentage of families unable to pay their overdue bills keeps falling, standing at a level below the same period in 2010 and 2011.
Families who cannot Afford to Pay their Debts (% of total)

11 10 9
8 7 6
9.5 9.0 8.3 7.9 7.7 8.4 7.8 8.6 8.4 8.1 8.2 8.0 8.2 7.3 7.2 6.9 7.3 6.7 6.9 7.8 7.5 7.3 7.1 7.1
7.0
Data: % of total
Source: CNC Produced by: Ministry of Finance
O ct No 20 v 10 De 201 c 0 Ja 201 n 0 Fe 201 b 1 M 20 ar 11 Ap 201 r 1 M 20 ay 11 Ju 201 n 1 2 Ju 01 l2 1 Au 0 g 11 Se 201 p 1 O 201 ct 1 No 20 v 11 De 201 c 1 Ja 201 n 1 Fe 201 b 2 M 20 ar 12 Ap 201 r 2 M 20 ay 12 Ju 201 n 2 2 Ju 01 l2 2 Au 0 g 12 Se 201 p 2 O 201 ct 2 20 12
70
Ministry of Finance
Earmarked credit at the forefront of credit expansion

In October 2012, the total credit volume in Brazil reached the amount of R$ 2.27 trillion, corresponding to 51.9% of GDP. Total non-earmarked resources recorded R$ 1.44 trillion, with annual increase of 14.2%, whereas total earmarked credit summed R$ 830 billion, a rise of 20.9% as compared to the same period last year.
Outstanding Credit: Earmarked and Non-Earmarked Resources (R$ Billion and % of GDP)
2,500 2,000 1,500 1,000 500 0
ct
24.3% 155 248 25.7% 177 310 27.3% 190 386 30.0% 222 476 33.6% 262 619 44.1% 39.6% 337 848 932 435 1,079 47.5% 44.5% 565 1,260 1,439 687 51.9% 830

% of GDP Earmarked resources Non-earmarked resources Data: R$ Billion and % of GDP
20
20
20
20
20
20
20
20
20
ct
ct
ct
ct
ct
ct
ct
ct
ct
20

71
10
11
03
04
05
06
07
08
Earmarked
Non-Earmarked
% of GDP
09
12
Ministry of Finance
CAIXA contributes heavily to the expansion of housing credit

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

100 80 60 40 20 5.9 4.2 4.1 4.4 0 7.1
Disbursed Contracted
13.9 100.0 8.8 10.6 11.7 20.7 18.1 22.7 31.4 47.1 55.6 75.9 69.6 80.1 92.1
Data: R$ billion
Source: Caixa Economica Federal Produced by: Ministry of Finance
2003
2004
2005
Disbursed
2006
2007
2008
2009
2010
2011
2012*
Contracted
72
Ministry of Finance
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.
Credit Operations inNon-Earmarked Brazil (% of GDP)Resource/GDP

60 50 40
Earmarked Resource/GDP
30 20 10 0
32.9 17.0 7.2 16.3 8.2 15.0 8.2 16.4 8.0 18.8 8.2 21.0 8.4 24.8 28.7 9.8 29.5 11.5 29.6 12.2 31.5 13.0 19.0
Earmarked resources* Non-Earmarked Resources Data: % of GDP * YTD October 2012

8.7
07 20
08
09
06
10
04
02
01
03
05
11 20
20
20
20
20
20
20
20
20
20
20
12
73
Ministry of Finance
Growing capital market issuances

The volume of financial instruments issued by corporations in the Brazilian capital market has been growing gradually, amounting to R$ 130 billion in September 2012. Excluding Petrobras issuance in 2010 (R$ 120.25 billion), there has been a gradual growth in the last four years, and it is already 86% higher than September 2009 level.
Capital Market Issuance (R$ billion)
250 200 150 100 50 0
0.4 0.8 8.6 3.7 5.7 22.7 1.9 0.9 7.5 8.2 16.8 46.4 1.1 3.7 11.1 16.0 17.6 34.4 4.8 7.9 7.8 12.7 9.6 21.6 5.7 5.4 4.7 16.3 7.6 10.4 0.5 9.2 3.8 29.4 7.3
Other CRI FIDC Promissory Notes FIP Stocks + CDA Debentures Data: R$ billion * YTD September of each year
Source: CVM Produced by: Ministry of Finance
0.2 2.5 2.3 21.6
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11 Se p
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
20 p
Se
Se
Se
Se
Se
Se
Se
Se
Se
Se
Se
Se
Se
Se
Se
Se
Se
20
12
74
Certi cate of Real Estate Receivables Others FIDC Promissory Notes FIP Common Stock Debentures
Ministry of Finance
Significant increase in Real Estate Credit

Real Estate Investment - Public Offers - FIDC, CRI and FII (R$ billion*)
30 25 20 15 10 5 0
7.8 7.8 3.8 11.1 0.3 0.1 0.2

00 20
4.7 13.1 13.1 7.1 4.7 7.9

11 20
4.1 2.3 1.0 2.5

09 20
0.3 0.3 0.2

01 20
0.7
02 20
1.0 0.2
03 20
2.6 0.2 0.2

04 20
5.0 0.6
05 20
8.6 0.8
06 20
7.5 0.4 0.9

07 20
0.6 3.7
08 20
3.8 4.1 9.2

10 20
FIDC CRI FII Data: R$ billion * Current values

7.1 5.4
20 12
p Se
Se
Se
Se
Se
Se
Se
Se
Se
Se
Se
Se
FII
CRI
FIDC
Se
75
Ministry of Finance
Significant increase in Real Estate Credit

Real Estate Investment - Public Offers - LCI (R$ billion*)
16 14 12 10 8 6 4 2 0 -2 -4
Data: R$ billion * Current values

20 20 20 20 20 on th s 07 08 09 10 11
12
76
Ministry of Finance
Long term bank funding

Created in 2010, Financial Bills (FB) are securities issued by financial institutions (IFs), representing important long-term bank funding. As minimum maturity is 24 months, FB have been allowing the lengthening of credit operations (for both individuals and corporations). Also, FB are the most appropriate instrument for matching maturities of assets and liabilities of IFs.
Financial Bills (R$ billion)
250 200 150 100 50 0

31.0
148.5
235.0
Data: R$ billion * November 30, 2012
2010
2011
2012*
Source: Cetip Produced by: Ministry of Finance

77
Ministry of Finance
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.
Basel index (% risk-adjusted assets)

20 16 12
Basel index in Brazil
Lower bound by BACEN
Basel Index
8 4 16.7 0 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 Data: % risk-adjusted assets
00 2
00 3
00 4
00 5
00 6
00 7
00 8
00 9
01 0
01 1 De c2
c2
c2
c2
c2
De c2
De c2
c2
De c2
c2
De
De
De
De
De
De
Ju n
20 12
78
Ministry of Finance
Measures for the development of the capital market

The Development of Capital Markets Financial Products
Financial Bills tutions (Law 12,249/2010)
Objective / Expected Result

- Expand credit by increasing long-term
Reducing the cost and simplifying the process of issuing 476/2009) Extension of investment and infrastructure debentures Receivables - CRI Reduction to 0% the income tax (Law 11,033/2004) Real Estate Credit Line Reduction to 0% the income tax (Law 11,033/2004)
Increase credit to non- nancial rms Increase the range of instruments avai-term investment in infrastructure Reduce the cost and increase the amount of resources available for real estate companies Reduce the cost and increase the funding to mortgages
Produced by: Ministry of Finance
Ministry of Finance
Measures for the development of the capital market

The Development of Capital Markets Financial Products Objective / Expected Result
Encourage long-term Capital Decrease to 0 percent the rates of Financial Markets as a way to broaden Transaction Tax and Income Tax to foreign inthe sources of funding for vestors (Law 12.431/11) investments Decrease to 0 percent the rates of Financial Transaction Tax and Income Tax to foreign investors, to 0 percent of income tax to individual domestic investors and decrease of 10 p.p. of panies (Law 12.431/11) Develop long-term Capital Markets as a way to broaden the sources of funding for investments
Produced by: Ministry of Finance
Investment Debentures
Infrastructure Debentures
OUTLOOK
Brazilian Economy
Fiscal Policy
Ministry of Finance
Ministry of Finance
Fiscal consolidation favors investment

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, the continuous improvement in Federal Public Debt profile, both in terms of composition and maturity, has been reflected on the declining rates of external issuances. The issuance of Global 2023 bond, in September, resulted on the lowest rate of all times for a Brazilian external public debt bond. Moreover, consistent fiscal situation has still placed Brazil in a privileged position when compared to other G20 countries. It is expected the country should perform one of the greatest primary surpluses in the group, and one of the lowest nominal deficits.
Fiscal Policy
Ministry of Finance
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.
Nominal Primary Public SectorResult Fiscal Result (% ofResult GDP)
Fiscal Policy
State-owned Companies State and Municipalities Central Government 3.1

3.1
4 3 2
0.8 0.2 2.2 0.7 0.3
3.2
3.2
3.3
3.3
3.7
3.7
3.8
3.8
3.2
3.2
3.3
3.3
3.4
3.4
2.7
2.7
0.8 0.2
0.8 0.1
0 -1 -2 -3 -4 -5 -6
1.6 0.6 0.0
1.3 0.6 0.0
2.1 0.5 0.1
2.7 0.9 0.1
2.6 1.0 0.2
2.4 1.0 0.1
2.2 1.1
2.3
2.2
2.2
2.0
2.0
2.6
2.2
2.2
-2.0
-2.0
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
2.2
-0.0 0.0
-2.9
-2.9
-2.8
-2.8
-2.5
-2.5
-3.6
-3.6
-3.6
-3.6
-3.3
-3.3
-2.6
-2.6
-2.7
-2.7
-4.4
-4.4
-5.2
-5.2
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012*

83
Ministry of Finance
Brazil stands out in the international fiscal scenario

Brazilian sound fiscal results stand out in comparison advanced and other emerging countries. For 2012, Brazil has one of the strongest levels of nominal and primary results, both as a share of GDP.
Fiscal Policy
Primary and Nominal Results (% of GDP)
Brazil Italy Germany Russia Mexico China France Canada India UK USA Japan -10 -8 -6 -4 -2
-0.6 -2.2 -3.2 -5.2 -5.6 -6.5 -9.0
2.6 2.6 1.4 1.1 0.2
Russia Germany China Brazil Mexico Italy Canada France UK USA India Japan
0.5 -0.4 -1.3 -2.3 -2.4 -2.7 -3.8 -4.7 -8.2 -8.7 -9.5 -10.0
Primary Result Nominal Result Data: % of GDP * IMF forecasts - Fiscal Monitor October 2012. For Brazil, Focus Market Report - Central Bank of Brazil (November 30, 2012)
Source: Central Bank of Brazil and IMF Produced by: Ministry of Finance
-10
-8
Primary Fiscal Result (% of GDP) - 2012
-6 -4 -2 0 2 Nominal Result (% of GDP) - 2012
84
Ministry of Finance
Brazilian public debt falls in adverse international scenario

Even with the adverse international scenario, the countrys net debt as a percentage of GDP keeps on a declining perspective, which helps to differentiate the fiscal situation of Brazil in relation to many advanced and emerging economies.
Fiscal Policy
Net Public Debt (% of GDP)

110 100 90 80 70 60 50 40 30 20 Brazil Germany Mexico France Italy USA
98.68 89.44 80.23
56.23 39.58 26.56
Mexico Italy USA France Germany Brazil Data: % of GDP * IMF forecasts - Fiscal Monitor October 2012
Source: IMF Produced by: Ministry of Finance
20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 * 20 13 * 20 14 * 20 15 * 20 16 * 20 17 *
20 02
20 03
85
Ministry of Finance
Brazil is improving its public expenditure profile

The Central Government fiscal results have gone through significant changes since 2002, due to the positive impact of job formalization on the economy, as well as the focus on reducing inequalities. The growth in net revenues has been directed to income transfers to households and to public investments.
Data: % of GDP
Fiscal Policy
Central Government Primary Fiscal Result - Above the Line (% of GDP)

% GDP
Gross revenue Transfers to states and municipalities Net revenue Primary expenditure - Payroll - Income transfers to households** - Investments*** - Health and education - Other expenses Primary result without sovereing wealth fund and onerous assignment Impact of socereing wealth fund and onerous assignment**** Final primary results (above the line) Net revenue minus transfers
21.7 3.8 17.9 15.7 4.8 6.8 0.8 1.7 1.6 2.1 0.0 2.1 11.1
21.0 3.5 17.4 15.1 4.5 7.2 0.3 1.6 1.6 2.3 0.0 2.3 10.3
21.6 3.5 18.1 15.6 4.3 7.6 0.5 1.7 1.5 2.5 0.0 2.5 10.5
22.7 3.9 18.8 16.4 4.3 8.1 0.5 1.8 1.8 2.5 0.0 2.5 10.8
22.9 3.9 19.0 17.0 4.5 8.4 0.6 1.7 1.8 2.1 0.0 2.1 10.6
23.3 4.0 19.3 17.1 4.4 8.5 0.7 1.8 1.8 2.2 0.0 2.2 10.8
23.6 4.4 19.2 16.4 4.3 8.1 0.9 1.7 1.4 2.8 -0.5 2.4 11.1
22.8 3.9 18.9 17.7 4.7 8.7 1.0 1.9 1.4 1.2 0.0 1.2 10.2
22.4 3.7 18.7 17.4 4.4 8.5 1.2 2.0 1.4 1.2 0.8 2.1 10.2
23.9 4.2 19.7 17.5 4.3 8.6 1.0 2.0 1.5 2.3 0.0 2.3 11.1
23.9 4.1 19.8 18.2 4.2 9.1 1.1 2.1 1.7 1.6 0.0 1.6 10.7
* On a 12-month basis up to October 2012 ** Including social security benefits, allowance and unemployment insurance, assistential benefits (LOAS and RMV) and Bolsa Famlia Program *** Including only investments classified as GND 4 **** Including the Sovereign Wealth Fund constitution (2008) and the capitalization operation of Petrobras (2010)
Source: National Treasury Secretariat/ Ministry of Finance/Senate Produced by: Ministry of Finance
2012*
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Ministry of Finance
Stability of the payroll expenditure and increase in transfers

Despite salary adjustments and the efforts to enhance civil servant workforce, payroll costs have reached 4.2% of GDP in October 2012 on a 12-month basis, below the average for the past 10 years. Meanwhile, income transfers to households have increased.
Fiscal Policy
Transfers (% to families Selected Public Expenditures of GDP)
Payroll Expenses and Charges
10.0
9.1
9.1
8.5
7.6
7.6
8.1
8.1
8.4
8.4
8.5
8.5
8.7
8.7
8.5
8.5
8.6
8.6
8.1
8.1
7.0
7.2
7.2
6.8
6.8
Transfers to families Payroll Expenses and Changes Data: % of GDP * On a 12-month basis up to October 2012
Source: National Treasury Secretariat/ Ministry of Finance and Federal Senate Produced by: Ministry of Finance
5.5
4.8
4.8
4.5
4.5
4.3
4.3
4.3
4.3
4.4
4.4
4.4
4.4
4.3
4.3
4.7
4.7
4.4
4.4
4.3
4.3
4.2
4.2
4.0
02
03
04
05
06
07
08
09
10
11
20
20
20
20
20
20
20
20
20
20
20
12
87
Ministry of Finance
Brazil makes good progress in Public Debt composition

The share of floating rate bonds in Federal Public Debt decreased to 23.0%, the second lowest value since November 1997. On the other hand, the share of fixed rate plus inflation linked bonds, which ensures greater predictability for the public debt, reached 72.6%, the second highest historical level.
Fiscal Policy
Exchange Rate Rate* Federal Public Debt Profile** (% of Floating total debt)
In ation Linked
Fixed Rate
4.4
100 90 80 70 60 50 40 30 20 10 0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
6.5 5.0 48.3 40.2
23.0
33.8
Exchange Rate Linked Floating Rate* Inflation Linked Fixed Rate Data: % of total debt * Including SELIC, TR and other ** Including domestic and external debts managed by the National Treasury
Source: National Treasury Secretariat/ Ministry of Finance Produced by: Ministry of Finance
38.7
11 O 20 ct 12 20 12
19
19
19
20
20
20
20
20
20
20
20
20
19
19
19
19
19
19
19
20
20
20
88
Nome do Arquivo: DLSP_Divida Bruta_do_Governo Fiscal policy in Brazil has been able to keep the Public Debt-GDP ratio in a downward trend. For instance, Central--PT--23-11Gross General Government Debt went from 63.1 percent in October 2009 to 59.2 percent in October 2012, 12_PF.xls whereas Net Public Sector Debt went from 42.9 to 35.2 percent in the same period, the second lowest value copiar clula acima inethe series since its first release in 2001. colar valores na clula abaixo
Public debt drops consistently
Data de elaborao: 23-11-12
Ministry of Finance
Fiscal Policy
Gross General Government Debt and Net Public Sector Debt (% of GDP) Net Public Sector Debt **
65 60 55 50 46.7 45 40 35 30 42.9 35.2 57.1 63.1 59.2
Gross General Government Debt**
Gross General Government Debt* Net Public Sector Debt** Data: % of GDP * Methodology since 2008 ** Excluding assets and liabilities of Petrobras and Eletrobras
Ja n Ap 200 r2 7 Ju 007 l O 200 ct 7 2 Ja 00 n 7 Ap 200 r2 8 Ju 008 l O 200 ct 8 2 Ja 00 n 8 Ap 200 r2 9 Ju 009 l O 200 ct 9 2 Ja 00 n 9 Ap 201 r2 0 Ju 010 l O 201 ct 0 2 Ja 01 n 0 Ap 201 r2 1 Ju 011 l O 201 ct 1 2 Ja 01 n 1 Ap 201 r2 2 Ju 012 l O 201 ct 2 20 12
89
Ministry of Finance
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.
Fiscal Policy
Average Maturity of Domestic Federal Public Debt (years)

Stock
4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0
2.4
00 20
2.9
01 20
2.7
02 20
2.6
03 20
2.4
04 20
2.3
05 20
2.5
06 20
3.1
07 20
3.3
08 20
3.4
09 20
3.4
10 20
3.5
11 20
3.9
20 12
Data: years
ct
ct
ct
ct
ct
ct
ct
ct
ct
ct
ct
ct O
ct
90
Ministry of Finance
Increasing number of non-resident investors in Brazilian public debt

The Brazilian domestic public bonds have remained attractive for foreigners, reaching the highest level of the series. Typical non-resident investors differ from domestic ones as they demand more fixed rate bonds and have more appetite for longer maturities, which contributes to the improvement of domestic debt profile.
Fiscal Policy
Non-Resident Share in Federal Public Debt (% of total DFPD*)

Non-Resident Share
14 12 10 8 6 4 2 0
M a M r2 ay 00 Ju 20 7 0 S e l 20 7 p No 2007 v 0 Ja 20 7 n M 2007 a M r 2 08 ay 00 Ju 20 8 0 Se l 20 8 Nop 2008 v 0 Ja 20 8 M n 2008 a M r 2 09 ay 00 Ju 20 9 0 Se l 20 9 p No 2009 v 0 Ja 20 9 n M 2009 a M r 2 10 ay 01 Ju 20 0 1 Se l 20 0 Nop 2010 v 1 Ja 20 0 M n 2010 a M r 2 11 ay 01 Ju 20 1 1 Se l 20 1 p No 2011 v 1 Ja 20 1 M n 2011 a M r 2 12 ay 01 Ju 20 2 1 Se l 20 2 O p 2 12 ct 0 2012 12
IOF: 0% on Foreign Investment In ow Tax IOF: 1.5% on Foreign Investment In ow Tax
13.8
IOF: 6.0% on Foreign Investment In ow Tax
IOF: 2.0% on Foreign Investment In ow Tax
Data: % of total DFPD* * Domestic Federal Public Debt

91
Ministry of Finance
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.
Yields of 10-year Brazilian and USA bonds (% per annum)
15 14,6
12,6
Fiscal Policy
12 9 6
6,2 10,6
10,8
Brazilian Sovereign Bonds US Treasury Bonds

8,2 7,9
Data: % per annum

7,7 7,8 6,2 5,9 4,7 5,3 6,1 5,8 4,8 3,6 5,0 3,8
4,5 3,0
3 0
4,9 3,3
4,5
4,2
4,4
4,0
4,6
4,2 3,1
4,7
3,4
3,8 2,5
2,7
3,3
2,0
1,6
* Measured by the differential of yields from 10-year Brazilian bonds denominated in USD and yields from US Treasury bonds (same maturity), traded on the secondary market on the same date
19 Ja 99 n 2 Ju 002 n 20 Ju 03 l2 De 004 c2 Fe 004 b 2 Ju 005 n 2 No 005 v 2 No 005 v 2 Ap 006 r2 M 00 ay 7 20 Ja 08 n 2 M 00 ay 9 2 De 009 c2 Ap 009 r2 0 Ju 10 l2 0 Ju 10 l2 0 Ja 11 n 2 Se 012 p 20 12
ct
92
OUTLOOK
Brazilian Economy
External Sector
Ministry of Finance
Ministry of Finance
External factors influencing the Brazilian trade balance

In 2012, the Brazilian trade balance has been influenced by external factors, resulting in decreases in exports and imports, in the 12 months accumulated up to October 2012. It is due to a weaker global demand and new bureaucratic procedures faced by Brazilian exporters. In fact, trade barriers imposed by Argentina, one of our main trade partners, have resulted in delays in the import approval process. However, Brazil shows a relevant export market diversification quality, which has mitigated such difficulties. Even under this adverse scenario in 2012, Brazils low external vulnerability lies in its excellent macro fundamentals. As opposed to previous crisis episodes, the volume of foreign reserves has considerably exceeded external debt and the current account deficit remains around 2.3% of GDP, being entirely financed by foreign direct investment. As a matter of fact, Brazil has been one of the main receptors of FDI in the world.
External Sector
Ministry of Finance
Weak global demand affects Brazilian foreign trade

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

300 250 200 150 100 50
43.5 33.1 46.5 50.0 47.7 53.3 53.0 59.7 51.1 57.7 48.0 49.2 55.1 55.8 58.2 55.6 60.4 47.2 73.1 48.3 96.5 62.8
Balance
Exports
50 45 40 35 30 25 20 15 10 5 0
Exports Imports Balance Data: US$ billion * 1994-2011: yearly accumulated, 2012: on a 12-month basis up to October 2012
Source: MDIC Produced by: Ministry of Finance
Imports
118.3 73.6 137.8 91.4 160.6 120.6 197.9 173.1 153.0 127.7 201.9 181.8
21.8
256.0 226.2
94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 *
19
246.3 224.5
95
Ministry of Finance
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.
Brazilian Exports: Major Partners* (US$ million)
2011 80 70 60 50 40 30 20 -5.2% -12.8% -20% 10.6% 0% -7% -20.2% -2.5% 2012
External Sector
-10.4%
-7.5%
2011 2012 Data: US$ million FOB * Comparisons from January to October 2012 and 2011 (1) Including Puerto Rico (2) Including Venezuela from August 2012
18.9 15.1
37.1 35.2
64 62.4
46.9 42
44.3 41
26.7 23.3
20.6 22.8
9.9 9.9
10.3 9.5
st Ea Ea st er n
10 0
La Ch t th in A in a e m Ca e rib ric be a a an nd M er co su r* Ar ge nt in a* *
EU
1)
US
id
dl
Eu ro p
As i
A(
Af r
ic
4.7 3.7
96
Ministry of Finance
Decline in exports to Argentina

In February 2012, Argentina imposed that companies had to fill out a Sworn Affidavit of Intention to Import (DJAI) with the Argentine Revenue and Customs Authority, prior to completing a purchase order for imported goods. This meant more delay in the import approval process and, as a result, Brazilian exports to Argentina have fallen into negative territory since March 2012.
Brazilian Exports to Argentina (% YoY)
50 40 30 20 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 10 0 -10 -20 -30 -40 February 1: Beginning of DJAI
External Sector
-14.3
-18.8
-23.2
-15.9
-34.0
-27.0
-24.3
-32.9
-18.5

2 Fe 011 b 2 M 01 ar 1 2 Ap 011 r2 M 01 ay 1 2 Ju 011 n 20 Ju 11 l2 Au 01 g 1 2 Se 011 p 2 O 011 ct 2 No 01 v 1 2 De 011 c2 Ja 011 n 2 Fe 012 b 2 M 01 ar 2 2 Ap 012 r2 M 01 ay 2 2 Ju 012 n 20 Ju 12 l2 Au 01 g 2 2 Se 012 p 2 O 012 ct 20 12
Ja n
97
Ministry of Finance
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.
External Sector
Brazil: Largest Trading Partners (% of total exports)

1990 1998 2008 2012
35 30 25 20 15 10 5 0
1.2
1990 1998 2004 2012* Data: % share of total exports * YTD October 2012 ** Venezuela not included
1.8 5.6 17.4
1.8 19.1 20.8 11.2 29.2
33.3 29.8 25.5 20.3
4.2 17.4 9.2
9.4
China
USA
European Union
Mercosur

98
Ministry of Finance
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.
Brazilian Exports: Manufactured China Goods* (% of total manufactured exports) European Union
Argentina USA
External Sector
35 30 25 20 15 10 5 0
19.6 18.3 14.8
Argentina United States China European Union Data: % share of total manufactured exports
2.7
20 01 20 02 20 03 04 20 05 06 20 07 08 09 10 11 20 12 * 20 20 20 20 20 20
* YTD October 2012

20 00
99
Ministry of Finance
Brazil: the lowest impact on its exports due to the crisis

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

0.0 -0.1 -0.2 -0.3 -0.4 -0.5 -0.6 -0.7 -0.8 Brazil Indonesia China India Russia -0.2 -0.3
-0.5
-0.5
Data: percentage points

-0.7 -0.8 S. Africa
* Between the first half of 2011 and first half of 2012

Source: OECD Produced by: Ministry of Finance
100
Ministry of Finance
Current account deficit relatively stable

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

Current Account Balance (US$ billion) 20 4.2 10 0 -23.5 -30.5 -33.4 -25.3 -24.2 -10 -20 -30 -40 -50 -60 -23.2
-1.5
Current Account (% GDP) 11.7 14.0 13.6 4 1.6 2 0

-1.7 -1.5
1.8
1.6
0.8
1.3
0.1 -2.2 -2.1 -2.3
-24.3
-4.3
-4.2
-52.5
-52.2
-4.0
-3.8
-47.3
-3.5
-28.2
-2.8
-7.6
-2 -4 -6 -8 -10
Balance (US$ billion) Current Account (% of GDP) Data: US$ billion and % of GDP * 2012: on a 12-month basis up to October 2012
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
20
20
12
101
Ministry of Finance
FDI might reach more than US$ 60 bi in 2012

The volume of FDI flows in Brazil remains high, reaching US$ 55.3 billion from January to October 2012. This pattern led the Central Bank to raise its projection of foreign investments in the country from US$55 billion to US$60 billion in 2012. This is the same projection of market analysts for 2012 and 2013*, but figures can be even higher than expected.
Foreign Direct Investment (US$ billion)
FDI total
80 70 60 50
External Sector
40 30 20 10 0 18.1 15.1 18.8 34.6 45.1 25.9 48.5 66.7 60.0 60.0
Data: US$ billion * Focus Market Report Central Bank of Brazil (November 30, 2012)
07
08
20 04
20 05
12 * 20
20 0
20 0
20 1
20 1
20
20
20
13 *
102
Ministry of Finance
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.
External Sector
Foreign Portfolio Investment Portfolio Foreign Investment and Current Account Balance (% of GDP) Foreign Direct Investment, Foreign Direct Investment
Current Account Balance
4 3 2 1 0 -1 -2 -3
2.9
0.6
Foreign Direct Investment Foreign Portfolio Investment Current Account Balance Data: % of GDP * On a 12-month basis up to October 2012
-2.3
00 9 ar 20 10 Ju n 20 10 Se p 20 10 De c2 01 0 M ar 20 11 Ju n 20 11 Se p 20 11 De c2 01 1 M ar 20 12 Ju n 20 12 Se O p2 ct 0 20 12 12 M 8 9 9 20 0 Se p 00 20 0 09 20
20 0
c2
ar
De
De
Se
Ju
c2
103
Ministry of Finance
FDI accounts for just about half of foreign liabilities

Despite the crisis, the percentage share of FDI in total external liabilities increased to 46.4% in October 2012. Investments in the local fixed income market have also risen and offset the decline in foreign inflows to the Brazilian stock market.
External Sector
Foreign Liability Composition* (% of total participation)

100 90 80 70 60 50 40 30 20 10 0
Other Liabilities
Fixed Income
Stocks
FDI
26.4 30.9 26.4 30.9 9.9 32.8 9.9

01 20
30.6
26.5 27.8 26.5 27.8 13.1 32.7 13.1

03 20
22.4 24.1 22.4 17.3 24.1 36.1 17.3
14.2 21.5
13.4 18.0 13.4 30.7 18.0 30.7 37.9
11.0 15.8 39.6 11.0 15.8 39.6 33.6
16.8 19.9 16.8 21.6 19.9 41.6 21.6
10.4 17.2 35.0 10.4 17.2 35.0 37.3
10.5 15.0 29.4 10.5 15.0 45.0 29.4
13.1 16.4 13.1 24.7 16.4 45.8 24.7
13.2 17.8 13.2 22.6 17.8 46.4 22.6
30.6 32.1
14.2 25.1 21.5 39.2 25.1
32.1 7.9 29,4 7.9

20 02
Other Liabilities Fixed Income Stocks FDI Data: % of total participation * Preliminary data YTD October 2012
20

104
20 04
20 05
06
07
08
09
10
11 20
20
20
20
20
20
12
Ministry of Finance
Brazil among top FDI destinations

Emerging economies continue to absorb more than half of global FDI flows. Comparing the first half of 2012, with the same period in 2011, FDI received by Latin America and the Caribbean countries rose by 8.0%. Brazil appears as the worlds 5th largest FDI host during the same period.
External Sector
Global FDI inflows: top 10 host economies (US$ billion)

Belgium Australia Canada Singapore Brazil UK France Hong Kong, China USA China
2012 2011
9.8 21.4 23.5 20.2 24.5 30.8 34.4
27.4 27.9 29.7 32.5 30.8 31.2 34.7 40.8
2011 (1st half) 2012 (1st half) Data: US$ billion

55.2 57.4 59.1 60.9 94.4
* Global Investment Trends Monitor n. 10

Source: UNCTAD Produced by: Ministry of Finance
105
Ministry of Finance
Brazil is one of the best places to invest in

Over the last years, Brazil has seen a boom in productive capital flows, with companies from across the world investing in or planning to enter the Brazilian market. The countrys position has changed from sixth place, in 2011, to third, in 2012. China remains the number one investment destination, for the third year running.
BDO Index of Global Investment Opportunity (index)
300 240 180 120 60 251.0 0 212.0 198.0 158.0 147.0 108.0 104.0 77.0
External Sector
Data: index * BDO Global Market Opportunity Index: the arithmetic average of 100 is the average intention of global expansion from data collected in interviews across countries and regions
Source: BDO Accountancy Network Produced by: Ministry of Finance
na
ia
UK
Br az i
US
an y
di
Ch i
In
Ge rm
Ru
Au s
tr al
ss
ia
106
Ministry of Finance
Foreign reserves reduce external vulnerability

International reserves, which amounted to US$ 378.6 billion in November 2012, continue to be higher than total foreign debt. As so, the country remains a strong net external creditor. International reserve accumulation is one of the pillars of Brazilian economic policy for external vulnerability reduction, especially in a crisis environment.
International Reserves (US$ billion)
400 350 300 250 200 150 100 50 0 20.8 17.0 28.3 21.0 24.9 28.0 53.8 85.8 180.3
External Sector
0.0 0.0 0.0 0.0

193.8
0.0
IMF loans - annual Total International reserves liquidity concept - annual Data: US$ billion * Up to November 30, 2012
0.0
238.5
288.6
352.0
378.6
02
03
04
05
06
07
08
09
10
11
20
20
20
20
20
20
20
20
20
20
IMF loans - annual Total international reserves liquidity Concept - Annual
20
12
107
Ministry of Finance
Indicators point to low external vulnerability

Brazil has maintained its low external vulnerability conditions throughout 2012. Unlike previous crises episodes, the volume of foreign reserves has exceeded external debt considerably. Furthermore, our current account deficit remains at a level easily financed by long-term investments.
External Sector
Current AccountIndicators (%GDP) (% of GDP) International Reserves (%GDP) External Vulnerability 50 40 30
Total External Debt (%GDP)
20
5.3
18.1
4.8
31.5
42.9
26.5
12.0
11.7
13.4
0 -10
1.5
-0.5
-1.7
16.4
2.6
10
-6.0
-4.0
-2.3
Total External Debt International Reserves Current Account Data: % of GDP * October 2012
1974
-6.8
1982
1987
External Debt Moratorium
1998
Before exible exchange rate regime
2008
World Financial Crisis (subprime)
2012
Present situation (october/12)
First oil shock impact
External Debt Crisis
108
Ministry of Finance
More competitive Brazilian real exchange rate

Despite the sizeable liquidity recently injected by developed economies, the Brazilian Real has not appreciated. Measures adopted by the Government have contributed to preventing the loss of countrys competitiveness in a scenario of currency war provoked by advanced economies.
External Sector
Real Effective Exchange Rate* (index)

115 110 105 100 95 90
Ja Fen 20 M b 2 10 a 0 Apr 2010 M r 2 10 a 0 Ju y 2010 n 1 Ju 20 0 Au l 2 10 0 Seg 2 10 p 01 O 20 0 c No t 2 10 0 Dev 2 10 0 Ja c 2010 n Fe 2010 M b 2 11 a 0 Apr 2011 M r 2 11 a 0 Ju y 2011 n 1 Ju 20 1 Au l 2 11 0 S e g 2 11 p 01 O 20 1 c No t 2 11 0 Dev 2 11 0 c Ja 2011 n Fe 2011 M b 2 12 a 0 Apr 2012 M r 2 12 a 0 Ju y 2012 n 1 Ju 20 2 Au l 2 12 0 Seg 2 12 p 01 O 20 2 ct 1 20 2 12
107.6
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 Produced by: Ministry of Finance
97.8 90.2 89.6
85
Dollar: USA
Euro: Eurozone
Yuan: China
Real: Brasil
109
Ministry of Finance
Winning the currency war: Brazilian Real in a more competitive level

The Brazilian Government has dealt with the so-called currency war by implementing macroprudential policies to manage short-term foreign capital inflows. The financial operations tax (IOF), charged on shortterm foreign loans, contributed to the increase in the average exchange rate (R$/US$) from R$ 1.72 in 2011 to current values around R$ 2.10 at the beginning of December 2012.
Nominal Exchange Rate (RS/US$)
2.11
2.1 2.0 1.9 1.8 1.7 1.6 1.5 2011 1st half Average: R$ 1.63 2011 2nd half Average: R$ 1.72 2012 1st half Average: R$ 1.87 2012 2nd half Average: R$ 2.04
External Sector
Data: R$/US$
Ja n Fe 20 b 11 M 20 ar 1 Ap 20 1 M r 2 11 ay 01 Ju 20 1 n 11 Ju 201 Au l 20 1 g 1 Se 20 1 p 11 O 20 c 1 No t 20 1 v 1 De 20 1 c 1 Ja 20 1 n 1 Fe 20 1 1 M b2 2 ar 01 Ap 20 2 1 M r2 2 ay 01 Ju 20 2 n 12 Ju 201 Au l 20 2 g 1 Se 20 2 p 1 O 20 2 ct 1 No 20 2 1 Dev 2 2 0 c 2 12 01 2
Exchange Rate - Free- US Dollar (purchase) - u.m.c./US$ Average
110
OUTLOOK
Brazilian Economy
International Overview
Ministry of Finance
Ministry of Finance
Advanced economies still face major challenges

The 2008 financial turmoil has not yet come to an end, as the world is still waiting to see advanced economies address important financial and political problems. In the United States, the Federal Reserve has become the main source of economic stimulus, having implemented the third round of quantitative easing, without satisfactory results for the US, but with negative consequences for emerging economies. From the fiscal point of view, the debate has dragged on since 2011, resulting in the so-called Fiscal Cliff, which is a series of budget cuts and tax increases to go into effect at the beginning of 2013. If this fiscal tightening fully takes place then the economy would suffer a serious recession, negatively impacting the global economy. Thus, the US politicians must make a deal on the budget deficit, in order to avoid a recession. In Europe, the crisis still persists in countries like Greece, Portugal and Spain, with severe economic and social consequences. The crisis is also starting to affect more solid economies, such as Germany. Therefore, it is important that Euro zone countries come up with rapid and durable solutions, specially in terms of banking supervision and fiscal consolidation, so that economic growth picks up in the region.
Ministry of Finance
2013-2014 GDP Growth: more dynamism of emerging economies

1.1 2.2 2.0 2.4
Canada
2.1 2.9 0.4 1.1
United Kingdom
0.9 1.4
0,2 1,2
Euro Zone
3.8 3.9
Russia
3.5 4.0
United States
France
Germany
Turkey
8.2 8.5
1.2 1.1 3.6 4.0
China
-1.3 1.0 -0.7 0.5 3.0 4.5
Japan
3.5 3.5
Mexico
Spain
4.0 4.2
Italy
Egypt
4.2 3.8
Saudi Arabia
6.0 6.4
South Korea
6.3 6.5
India
Indonesia
Brazil
3.0 3.9 3.1 3.8 3.0 3.2
Argentina
South Africa
Australia
2013 2014 Data: % change from preceding year * WEO October 2012
113
Ministry of Finance
2013-2014: inflation forecasts

2.0 2.0 1.6 1.8 2.0 1.4 6.6 -0.2
Canada USA
3.5 3.0
Russia
3.0 4.6 4.9 9.6 8.3
6.5
Eurozone
3.0
2.1
Japan
3.0
China India
Mexico
4.9 4.8
Saudi Arabia
South 2.7 Korea

4.9 5.1
Brazil*
9.7 9.8
5.2 5.0
Indonesia
2.3 2.6
Argentina
South Africa
Australia
2013 2014
2013 2014
Data: % change from preceding year * WEO October 2012

Source: IMF and Brazilian Government Produced by: Ministry of Finance
114
Ministry of Finance
2013-2014: current account balance forecasts

-3.7 -3.7 3.8 2.3
1.3 -3.1 -3.1 1.1
Canada
Russia
2.5 22.7 19.1 -3.3 2.8
2.3
Eurozone
2.5 2.8
United States
-1.1 -1.0
z
Japan
1.4
China
Mexico
-2.8 -3.3
Saudi Arabia
India
South Korea
-2.3 -2.4
1.7
Brazil
-0.1 -0.7
-5.8 -6.1
Indonesia
6.1 -5.5
Argentina
South Africa
Australia
2013 2014 Data: % of GDP

2013 2014
* WEO October 2012

Source: IMF and Central Bank of Brazil Produced by: Ministry of Finance
115
Ministry of Finance
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.
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
Very strong (<-2,5)
Moderated (between -2,0 and -1,5)
Ministry of Finance
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.
GDP Growth: Advanced and Emerging Economies (% YoY)

15 10 5 0 -5 -10
United States Euro Area Japan 2012 2.2 -0.4 2.2 2013 2.1 0.2 1.2 2014 2.9 1.2 1.1
15 10 5 0 -5 -10
Emerging Asia Latin America Sub Saharan Africa
Data: % change from preceding year * WEO October 2012

2012 6.7 3.2 5.0 2013 7.2 3.9 5.7 2014 7.5 4.1 5.5
20 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20 11 2012* 2013* 14 *
20 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20 11 2012* 2013* 14 *
117
Ministry of Finance
Recession in the Eurozone

Since the fourth quarter of 2011, quarter-over-quarter economic growth in the Eurozone has been zero or below. In third quarter of 2012, the Eurozone economy shrank for a second consecutive quarter, falling by 0.1% over the previous one. European leaders are still struggling to find a consistent solution in order to put the region back on track.
Eurozone GDP Growth (% QoQ)
1.2 1.0 0.8 0.6 0.4 0.2 0.0 -0.2 -0.4 -0.6
0.5 0.4 0.3 0.6 1.0
0.2
0.1
Data: % change from preceding quarter

0.0 -0.3 -0.2 -0.1
Source: BCE Produced by: Ministry of Finance
10
10
10
10
11
11
11
11
12
12 20 Q Q
20
20
20
20
20
20
20
20
20
20
12
118
Ministry of Finance
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.
G20 and Europe: Gross Public Debt (% of GDP)
2007
Argentina Australia Brazil Canada China India Indonsia Japan Mexico Russia South Africa South Korea Turkey UK USA 67,09 9,71 65,19 66,52 19,59 75,46 35,05 183,01 37,56 8,51 28,29 30,66 39,92 67,16 66,43
2012*
45,22 27,07 64,08 87,52 22,16 67,59 23,90 236,56 43,08 11,03 41,25 33,46 37,70 107,18 93,62 France Germany Italy UK Belgium Greece Ireland Netherlands Poland Portugal Spain Sweden
2007
64,22 65,36 103,08 43,71 84,01 107,45 24,99 45,30 44,99 68,27 36,30 39,73
2012*
89,97 83,04 126,33 88,68 99,03 170,73 117,74 68,20 55,10 119,07 90,69 37,15
G20 countries G20 European countries Eurozone members Data: % of GDP * WEO October 2012 forecasts
119
Ministry of Finance
Industrial production still weak in 2012 worldwide

Global industrial production growth has remained weak in 2012, due to the uncertainties related to the international financial crisis. Estimates show that the value added of the world manufacturing should grow by 3.0% in 2012. But industrial production in emerging economies will expand much more than in advanced countries: 4.5% and 1.4%, respectively.
Manufacturing Value Added Growth (% YoY)
Sector
World Industrialized Countries North America East Asia Europe Developing Countries China Recently Industrialized countries Other developing countries
2011
2.9 0.4 0.4 -1.6 1.8 5.4 10.6 5.7 3.7
Expectations for 2012

3.0 1.4 1.7 4.1 -1.7 4.5 9.0 4.4 4.4
Data: % change from preceding year (US$ at 2000 prices)

Source: UNIDO - United Nations Industrial Development Organization Produced by: Ministry of Finance
120
Ministry of Finance
Brazil overcomes other BRICS countries in economic climate

The Economic Climate Index (ECI) seeks to capture the sense of experts regarding the current economic situation and expectations for the next six months. According to the latest ratings released by Getulio Vargas Foundation (FGV), as of October 2012, the Brazilian ICE grew to 6.1 points, against 5.2 registered in the previous quarter. This score is higher than in other BRICS, as well as in advanced economies.
Oct 2012 Jul Economic Climate 2012 Index* (points)
7 6 5 4 3 2
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 Produced by: Ministry of Finance
4.1 2.9
3.8 3.3
4.2 3.6
4.4 4.1
4.5 4.3
5.0 4.7
4.6 4.7
5.4 4.8
4.7 4.8
5.0 5.4
di a In
0
n ce an ss ia na St at es Af ric an y m Fr an Ja p Un Ch i rm Ru Ki ng Br az io do il a
ut h
ea
ite
Ge
So
Eu ro p
Un
ite
5.2 6.1
121
Un
Ministry of Finance
OECD leading indicator shows Brazilian recovery

The OECD leading indicator, which anticipates in six months the inflection of long-term trend of economic activity, continues to point to weak growth prospects in many major economies of the world, especially in the Eurozone. But there are already signs of improvement in countries like China and the US The prospects for Brazil point to a recovery in economic growth.
OECD Leading Indicator (points)
China
104 102 100 98 96 94 92
Brazil
104 102 100 98 96 94 92
USA
Euro
China Brazil USA Euro Data: points * The horizontal line at 100 represents the long-term trend of economic activity
Source: OCDE Produced by: Ministry of Finance
02 03 04 05 06 07 08 09 10 11 20 20 20 20 20 20 20 20 20 20 12
02
03
04
05
06
07
08
09
10
11
20
20
20
20
20
20
20
20
20
20
20
12
20
122
Ministry of Finance
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.
Brazil Eurozone United States Unemployment Rate*: Brazil, Eurozone and the US (%, sa and nsa) 12 11 10 9 8 7 6 5 4
11.6
US (sa) Eurozone (sa) Brazil (nsa)

7.9
Data: %, Brazil data: not seasonally adjusted, United States and Eurozone data: seasonally adjusted * Data up to October 2012, aside from Eurozone (September 2012)
5.3
Ja n Ap 20 r 05 Ju 200 l O 20 5 ct 0 Ja 20 5 n 0 Ap 20 5 r 06 Ju 200 l O 20 6 ct 0 Ja 20 6 n 0 Ap 20 6 r 07 Ju 200 l O 20 7 ct 07 Ja 20 n 0 Ap 20 7 r 08 Ju 200 l O 20 8 ct 08 Ja 20 n 0 Ap 20 8 r 09 Ju 200 l O 20 9 ct 09 Ja 20 n 0 Ap 20 9 r 05 Ju 200 l O 20 5 ct 05 Ja 20 n 0 Ap 20 5 r 06 Ju 200 l O 20 6 ct 0 Ja 20 6 n 0 Ap 20 6 r 07 Ju 201 l O 20 2 ct 12 20 12
123
Ministry of Finance
Food commodities influenced by weather-related issues in 2012

In the 12 months ended in November 2012, commodity prices showed some stability. For instance, the CRB Food Index fell 0.2% and Metals decreased by 0.1%, compared to the average price of November 2011. However, the prices of agricultural commodities rose considerably between June and September 2012, due to adverse weather conditions in the US. Since then, prices have started to decrease.
CRB Metals CRB Food CRB Commodity Prices* (index-number) 250 210 170 130 90 50
CRB Spot
196.23 181.62 158.10
CRB Spot CRB Food CRB Metals Data: index-number (Dec 2005 = 100) * On November 15, 2012
De c M 20 ar 0 Ju 20 5 n 0 S e 20 6 p 06 De 20 c 0 M 20 6 ar 0 Ju 20 6 n 0 S e 20 7 p 07 De 20 c 0 M 20 7 ar 0 Ju 20 7 n 0 Se 20 8 p 08 De 20 c 0 M 20 8 ar 0 Ju 20 8 n 0 Se 20 9 p 09 De 20 c 0 M 20 9 ar 0 Ju 20 9 n 1 Se 20 0 p 1 De 20 0 c 1 M 20 0 ar 1 Ju 20 0 n 1 Se 20 1 p 11 De 20 c 1 M 20 1 ar 1 Ju 20 1 n 1 S 20 2 p 12 Ne ov 20 2012 12
124
Ministry of Finance
Oil prices at 2011 level

Oil prices 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.
Brent Oil Price (Barrel in US$)

140 120 100 80 60 40 20 0
Ja n M 20 ar 09 M 20 ay 09 2 Ju 00 l2 9 Se 00 p 9 No 20 v 09 Ja 200 n 9 M 20 ar 10 M 20 ay 10 2 Ju 01 l2 0 Se 01 p 0 No 20 v 10 Ja 201 n 0 M 20 ar 11 M 20 ay 11 2 Ju 01 l2 1 Se 01 p 1 No 20 v 11 Ja 201 n 1 M 20 ar 12 M 20 ay 12 2 Ju 01 l2 2 Se 01 p 2 No 20 v 12 20 12
108.2
Data: barrel in US$

125
Ministry of Finance
Leading indicators show slow rebound pace in US economy

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

110 105 100 95 90 85 80
104.8
96
Leading Economic Indicator (LEI) Coincident Economic Indicator (CEI) Data: index-number (2004 = 100)
Source: The Conference Board Produced by: Ministry of Finance
Ja n Ju 19 n Ja 1999 n Ju 2099 n 00 Ja 20 n Ju 2000 n 01 Ja 20 n Ju 2001 n 02 Ja 20 n Ju 2002 n Ja 2003 n Ju 2003 n Ja 2004 n Ju 2004 n Ja 2005 n Ju 2005 n Ja 2006 n Ju 2006 n Ja 2007 n Ju 2007 n Ja 2008 n Ju 2008 n Ja 2009 n Ju 2009 n Ja 2010 n Ju 2010 n Ja 2011 n Ju 2011 Sen 2012 p O 2012 ct 1 20 2 12
126
Ministry of Finance
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.
United States: Sales of Existing Homes and Housing Starts (millions, sa)
2,500 2,000 1,500 1,000 500 0 8 7 6 5 894
Sales of Existing Homes Housing Starts
4.79
4 3
Sales of Existing Homes Housing Starts Data: millions, seasonally adjusted

Ja n Ap 20 r 06 Ju 200 l 6 O 20 ct 06 Ja 20 n 0 Ap 20 6 r 07 Ju 200 l 7 O 20 ct 07 Ja 20 n 0 Ap 20 7 r 08 Ju 200 l 8 O 20 ct 08 Ja 20 n 0 Ap 20 8 r 09 Ju 200 l 9 O 20 c t 09 Ja 20 n 0 Ap 20 9 r 10 Ju 201 l 0 O 20 ct 10 Ja 20 n 1 Ap 20 0 r 11 Ju 201 l 1 O 20 ct 11 Ja 20 n 1 Ap 20 1 r 12 Ju 201 l 2 O 20 ct 12 20 12
127
Ministry of Finance
US public debt is now higher than annual GDP

The fiscal results in the show that, over the last years, revenues have decreased and expenses increased, either due to the economic crisis or to political decisions. The US public debt has reached US$ 16 trillion (higher than GDP), meaning that the countrys fiscal trajectory must be reversed. But a tighter fiscal squeeze could lead the country to recession, with repercussions on the rest of the world.
United States: Government Revenue and Expenditure, Debt and GDP (US$ trillion) USA GDP Expenditure
Revenue
USA Debt Level
4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

Japo
3.5
18 16 14 12 10 8 6 4 2
5.9 10.3 6.4 10.6 7.0 11.1 7.6 11.8 8.2 12.6 8.7 13.4 9.2 14.0 10.7 14.3 12.3 14.0 14.0 14.5 15.2 15.1
2.4
Expenditure Revenue Debt GDP Data: US$ trillion * Fiscal data are Government expectations. Public debt: October 2012
Source: US Official Press and Bloomberg Produced by: Ministry of Finance
20 0 20 0 0 20 1 0 20 2 0 20 3 0 20 4 0 20 5 0 20 6 0 20 7 0 20 8 0 20 9 1 20 0 20 11 12 *
20 0 20 0 0 20 1 0 20 2 0 20 3 0 20 4 0 20 5 0 20 6 0 20 7 0 20 8 0 20 9 1 20 0 20 11 12 *
16.3 15.6
5.7 9.9
128
Ministry of Finance
The Fiscal Cliff debate

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

De cit in 2012 (US$ bi) Budget De cit in 2013 (US$ bi) De cit Reduction compared to 2012 (US$ bi) Economic Growth in 2013 (4Q2013/4Q2012) Unemployment Rate (4Q2012) Gross Public Debt (% GDP) 1,128.0 641.0 487.0 -0.5% 9.1% 2012 = 73% 2022 = 58%
Alternative Scenario**
1,128.0 1,037.0 91.0 1.7% 8.0% 2012 = 73% 2022 = 90%
Data: billions and % of GDP * Congress implements all spending cuts and tax increases ** Spending cuts and tax increases are partially implemented
Source: Congressional Budget Office (CBO) Produced by: Ministry of Finance
Ministry of Finance
Global effects of the crisis in the US and Europe

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

Eurozone depression scenario (Fall in GDP, 2013 base scenario percentage deviation) USA scal crisis (Fall in GDP, 2013 base scenario percentage deviation)
0 -1 -2 -3 -4 -5 -6 -7
0.0 -0.2 -0.4
-0.6 -0.8 -1.0 -1.2 -1.4 -1.6 -1.8 -2.0

US A La W tin or l Am d O th er er co ica un Em tr ie er s gi ng As Ce i Ja a Pe ntr pa rip al n he Eur ra oz l E on ur e oz on e
Data: percentage point

Pe rip
he ra Ce l Eu r nt ra ozo lE ne ur oz on e W or l d O th U er co SA un tr ie s Em J er apa gi n La ng tin As Am ia er ic a
130
Ministry of Finance
More moderate Chinese economic growth

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

15 12 9 6 3

8.3 9.1
02
10.0
03
10.1
04
11.3
05
12.7
06
14.2
07
9.6
9.2
09
10.4
10
9.3
11
7.7
* 12
8.1
13 *
* WEO October 2012 forecasts

Source: Bloomberg and IMF Produced by: Ministry of Finance
01
20 08
20
20
20
20
20
20
20
20
20
20
20
20
131
Ministry of Finance
Confidence indexes shows China cooling off

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

105 100 95 90
90.2
85 80 75 70 65 60
20 08 p 20 Se 08 p 20 De 08 c2 00 M ar 8 20 Ju 09 n 20 Se 09 p 20 De 09 c2 00 M ar 9 20 Se 10 p 20 De 10 c2 01 M ar 0 20 Ju 11 n 20 Se 11 p 20 De 11 c2 M 011 ar 20 Ju 12 n 20 Se 12 p 20 12 ar Ju n 20 08 Se
82.9
Business Confidence Index Real Estate Confidence Index Data: index

Real Estate Con dence Index
Business Con dence Index
132
Ministry of Finance
Chinese economy may be shifting to a new economic model

As global demand weakens, the focus turns to the countrys domestic market. So, a new economic model is being designed. By 2030, the consumption share of GDP will be much higher than todays figures and, on the other hand, the investment share of GDP will decline.
China: Investment, Consumption and GDP (% YoY and % of GDP)

Period 1991 - 1995 1996 - 2000 2001 - 2005 2006 - 2010 2011 2015 2016 2020
70 60 50 40 30 20 10 0
Investment (average growth) 19.30% 8.80% 14.60% 16.40% 6.50% 3.20%
Final Consumption (average growth) 10.70% 8.90% 8.60% 11.10% 10.40% 9.80%
GDP (average growth) 12.30% 8.60% 9.80% 11.20% 7.80% 6.70%
Investment rate (end of period) 33% 34% 40% 46% 44% 39%
Investment / GDP Consumption / GDP Data: % change from preceding year and % of GDP
1995 - 2010 2011 - 2015 2016 - 2020 2021 - 2025 2025 - 2030
Source: DRC and World Bank Produced by: Ministry of Finance
133
Ministry of Finance
Glossary - Institutions
BCE BIS BLS BNDES BoE BoJ CAGED CBO Cetip CNC CNI Conab CVM European Central Bank Bank for International Settlements Bureau of Labor Statistics National Bank of Economic and Social Development Bank of England Bank of Japan General File of the Employed and Unemployed Congressional Budget Office Custody and Settlement Chamber National Confederation of Commerce Brazil National Confederation of Industry National Company of Food Supply Securities and Exchange Commission of Brazil ECB EU FAO Fed FGTS FGV FIESP GfK IBGE IFS IMF IPEA MAPA European Central Bank European Union Food and Agriculture Organization Federal Service Employment Security Fund Getulio Vargas Foundation Federation of Industries from So Paulo State German Society for Consumer Research Brazilian Institute of Geography and Statistics International Financial Statistics International Monetary Fund Institute for Applied Economic Research Ministry of Agriculture, Cattle and Food Supply MDS MTE OCDE OECD RAIS STN UNCTAD UNIDO Ministry of Social Development and Fight against Hunger Ministry of Labor and Employment Organisation for Economic Co-operation and Development Organisation for Economic Co-operation and Development Annual Social Information Relation Brazilian National Treasury Secretariat Conference on Trade and Development United Nations Industrial Development Organization December Edition | Year 2012 135
Ministry of Finance
Glossary - Terms
CDA CEI CRI DI DLSP DXY ECI FDI FDP FIDC FII FIP FOMC Multi-market Investment Fund Coincident Economic Indicator Certificate of Real Estate Receivables Interbank Deposits Public Sector Net Debt US Dollar Index Economic Climate Index Foreign Direct Investment Federal Public Debt Investment Fund in Credit Rights Real Estate Investment Fund Share Investment Fund Federal Open Market Committee IPA IPC IPCA IPI LCI LEI Wholesale Price Index /IBGE Consumer Price Index /IBGE Broad National Consumer Price Index / IBGE Industrialized Products Tax Real Estate Credit Letter/Bill Leading Economic Indicator 136 SEDA SELIC VIX WEO YTD FSB GFCF IGP-DI IGP-M INCC INPC IOF Sovereign Wealth Fund Gross Fixed Capital Formation General Price Index - Domestic Supply / FGV General Price Index - Market / FGV National Construction Cost Index / FGV National Consumer Price Index /IBGE Financial Operation Tax LTRO MCMV PAC PEA PLOA PMC PMI PNAD Long Term Refinancing Operations "Minha Casa Minha Vida" Housing Program Growth Acceleration Program Economically Active Population Annual Budgetary Law Monthly Retail Sale Survey / IBGE Purchasing Managers Index National Survey by Household Sample / IBGE New Sustainable Economic Development Assessment Special System for Settlement and Custody Chicago Board Options Exchange Market Volatility Index World Economic Outlook year-to-date
Ministry of Finance
Presidente da Repblica: Dilma Vana Rousseff Ministro da Fazenda: Guido Mantega Secretrio Executivo: Nelson Barbosa Secretrio de Poltica Econmica: Mrcio Holland Chefe de Gabinete do Ministro: Marcelo Fiche Production and Execution Economic Policy Secretariat Editorial Board Andr Minella Cleomar Gomes Fabio Graner Jos Gilberto Scandiucci Filho Lgia Ourives
Technical Support Advisory on Economic Affairs to the Minister of Finance Social Communication Advisory - ACS International Affairs Secretariat - SAIN Secretariat for Economic Monitoring - SEAE National Treasury Secretariat - STN Federal Service of Data Processing - SERPRO
Art Visual Project and Final Art: Viviane Barros Cover: Andr Nbrega Layout Development: Alline Luz and Letcia Lopes Design Trainee: Barbara Vonne www.fazenda.gov.br Available at: http://www.fazenda.gov.br/ebp
Ministry of Finance
Finished in December 6th, 2012 137

Economia Brasileira Perspectiva - ENG - 17ed PDF

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Brazilian Economic

Edition | December | 2012

Brazilian economy prepared for a sustained economic growth

Recovery in economic activity

GDP Growth (% QoQ, sa)

December Edition | Year 2012

Data: % change from preceding quarter, seasonally adjusted

Economic growth: supply and demand

December Edition | Year 2012

Data: % change from preceding quarter, seasonally adjusted

Brazil: supply-side GDP growth

0.2 0.8 0.03 -0.2

GDP Taxes Services Industry Agricultural Data: % change from

Brazil: demand-side GDP growth

7.5 6.1 5.2

Data: % change from preceding year * On a 4-quarter basis

December Edition | Year 2012

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

Components of the Service Sector (% QoQ, sa)

December Edition | Year 2012

Data: % change from preceding quarter, seasonally adjusted

Investment growing more than GDP since 2006

GDP, Household Consumption and Investment (% YoY)

GDP Household Consumption Investment

December Edition | Year 2012

4.2 5.4 9.1

4.0 5.2 9.8

2.7 4.1 4.7

6.1 6.1 13.9

5.2 5.7 13.6

7.5 6.9 21.3

Data: % change from preceding year

2006 GFCF GDP

Industrial production points to growth recovery

Industrial Production Index (index number, sa) Index-number (average 2002=100)

December Edition | Year 2012

115 110 105 100 95 90

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

FGV FIESP* Data: % * Sao Paulo State, only

ct 2 Ja 00 n 7 2 Ap 00 r2 8 Ju 008 l2 O 00 ct 8 2 Ja 00 n 8 2 Ap 00 r2 9 Ju 009 l2 O 00 ct 9 2 Ja 00 n 9 2 Ap 01 r2 0 Ju 010 l2 O 01 ct 0 2 Ja 01 n 0 2 Ap 01 r2 1 Ju 011 l2 O 01 ct 1 2 Ja 01 n 1 2 Ap 01 r2 2 Ju 01 Se l 2 2 0 Nop 2 12 v 012 20 12

Robust retail sales

Retail Trade Survey (% YoY)

December Edition | Year 2012

140 135 130 125 120 115 110 105 100 95 90

Vehicle production boosted by Government stimulus measures

Vehicle Production (% YoY)

December Edition | Year 2012

Data: % change from same month previous year

Promissing economic activity outlook according to PMI indicators

PMI Brazil Manufacture Manufacturing PMI (index) 60 58 56 54

December Edition | Year 2012

Data: index * Values above 50 indicate growth

Brazilian consumer market will be the worlds 5th largest

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

December Edition | Year 2012

Brazilian consumer market will attract more and more investments

Brazilian Consumption 2012

Record for the Brazilian harvest

Brazilian Grain Harvest (millions of tons)

December Edition | Year 2012

Data: millions of tons * Conab forecasts

Brazilian agriculture pushed to the forefront

Agricultural Production in Selected Countries (index number)

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