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Ministry of Finance Brazilian Economy OUTLOOK 6 th Edition | April / May | 2010
Ministry of Finance Brazilian Economy OUTLOOK 6 th Edition | April / May | 2010

Ministry of

Finance

Brazilian Economy

OUTLOOK

6 th

Edition | April/May | 2010

April / May 2010

Summary

Ministry

of Finance

Economic Activity

5

Mass Consumer Market

25

Inflation

33

Interest Rates and Credit

43

International Overview

59

Reduction of External Vulnerability

69

Highlight: Foreign Direct Investment

Fiscal Policy Highlight: Public Debt

93

Glossary

121

NOTE

Existing data as a proportion of GDP relates to the GDP figures from the fourth quarter of 2009 released on March 11th, 2010. Information relative to the economic growth in 2010 on pages 6 to 9 incorporates Brazilian GDP measures from the first quarter of 2010 released on June 8th, 2010.

Brazilian Economy OUTLOOK Economic Activity Ministry of Finance

Brazilian Economy

OUTLOOK

Economic

Activity

Ministry

of Finance

Economic Activity

April / May 2010

A new economic and social policy

Ministry

of Finance

The Brazilian economy recorded a contraction of -0.2% of GDP in 2009, but growth resumed strongly in early 2010. In the first quarter of 2010, economic growth accumulated in the last four quarters was equivalent to 2.4% over the same previous period. In the coming years, we expect the Brazilian economy to perform a new cycle of development under an average annual growth rate estimated at 5.5%, well above previous average growth rates.

Average GDP Growth (% yoy)

PAC 1 PAC 2 6.5 6.1 5.7 Average 5.5% 5.1 Average 4.2% 4.3 4.0 2.7
PAC 1
PAC 2
6.5
6.1
5.7
Average 5.5%
5.1
Average
4.2%
4.3
4.0
2.7
3.2
1.3
1.1
Average
1.7%
0.0
0.3
-0.2

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010* 2011* 2012* 2013* 2014*

Average rate (1998-2002) Average rate (2003-2008) Average rate (2009-2014)

Data: % change from preceding year

* Government Forecasts

PAC is a strategic investment program with management and infrastructure actions.

Source: IBGE Produced by: Ministry of Finance

6

6

6

Economic Activity

April / May 2010

Ministry

of Finance

GDP growth in Q1 2010 reinforces vigor and dynamism of Brazilian economy

Compared to the fourth quarter of 2009, the GDP increased 2.7% registered the largest increase under such comparison since the expansion recorded in the first quarter of 2004 (2.8%). Highlights are Gross Fixed Capital Formation (a 7.4% growth rate) and the industry (4.2%). In the first quarter of 2010 over the same period of 2009, a 26% GFCF growth was observed, the largest expansion in the historical series initiated in 1995.

Composition of GDP Expansion Q1 2010 / Q4 2009 (% qoq, seasonally adjusted)

GDP Expansion Q1 2010 / Q4 2009 (% qoq, seasonally adjusted) 11.4* 7.4 1.5 0.9 1.7

11.4*

Q1 2010 / Q4 2009 (% qoq, seasonally adjusted) 11.4* 7.4 1.5 0.9 1.7 13.1 2.7
Q1 2010 / Q4 2009 (% qoq, seasonally adjusted) 11.4* 7.4 1.5 0.9 1.7 13.1 2.7
Q1 2010 / Q4 2009 (% qoq, seasonally adjusted) 11.4* 7.4 1.5 0.9 1.7 13.1 2.7
Q1 2010 / Q4 2009 (% qoq, seasonally adjusted) 11.4* 7.4 1.5 0.9 1.7 13.1 2.7

7.4

7.4 1.5 0.9 1.7 13.1

1.5 0.9

7.4 1.5 0.9 1.7 13.1

1.7

7.4 1.5 0.9 1.7 13.1

13.1

7.4 1.5 0.9 1.7 13.1

2.7

adjusted) 11.4* 7.4 1.5 0.9 1.7 13.1 2.7 GDP Gross Fixed Capital Formation Household Consumption

GDP

Gross Fixed

Capital Formation

Household

Consumption

Government

Spending

Exports

Imports

Data: % change from preceding quarter, seasonally adjusted

*Annualized change from preceding quarter

Source: IBGE Produced by: Ministry of Finance

7

7

7

Economic Activity

April / May 2010

Brazil confirms position as one of the first countries out of the crisis

Ministry

of Finance

The growth of the economy reached 11.4%, in annualized terms.The 14.6% rise in manufacturing sector in the first quarter of 2010 compared to the first quarter of 2010 was driven by a high record for the manufacturing industry, whose increase in the same period was 17.2%, the largest in the IBGE series.The construction industry also contributed to support the industrial expansion in the quarter, registering a 14.9% growth historical record.

Evolution of GDP (% qoq) 15 11.7 11.4 9.8 10 9.0 8.3 8.4 6.8 6.0
Evolution of GDP (% qoq)
15
11.7
11.4
9.8
10
9.0
8.3
8.4
6.8
6.0
5
0
-2.0
-5
-10
-12.6
-15
1Q 2004
3Q 2004
1Q 2005
3Q 2005
1Q 2006
3Q 2006
1Q 2007
3Q 2007
1Q 2008
3Q 2008
1Q 2009
3Q 2009
1Q 2010

Data: % change from the preceding quarter in an annualized basis

Source: IBGE Produced by: Ministry of Finance

8

8

8

Economic Activity

April / May 2010

Investment rate can reach 19% in 2010

Ministry

of Finance

Criticisms and comparisons with low-transfers economies notwithstanding, savings rate has increased again with the raise of investments. The investment rate grew 18% over 2009, of which 1.5 percentage points were due to the increase in domestic savings. For the next few years, we expect a substantial increase in private and public savings rate.

Savings and Investment rate (% of GDP) 20 19.0 18.2 18.2 18.1 18.0 17.6 18
Savings and Investment rate (% of GDP)
20
19.0
18.2
18.2
18.1
18.0
17.6
18
16.9
16.7
16.7
17.5
16.2
16.8
15.9
16.1
16.3
16
16.0
15.2
15.8
14.3
14
14.3
14.0
13.8
12
10
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

Investment Rate

Savings Rate

Data: % of GDP

Source: IBGE Produced by: Ministry of Finance

9

9

9

Economic Activity

April / May 2010

Brazilian domestic savings is similar to Western economies

The Brazilian domestic savings rate is similar to most of Western’s economies, especially those Government provides higher income transfers to the low-income classes. Indeed, it has not een a change in the increase of public and private investment rate in recent years. Instead, the bulk of income transfers has helped domestic demand generating higher economic growth and public and private investments.

The savings rate will continue its growth in the near future. Brazilian savings rate is not compared adequately to Asian economies. In China, for example, savings rate reaches 43% of GDP. However, there is a totally diffe- rent cost-benefit structure far away from Western design. Businesses are subjected to lower labor costs and competitive exchange rate which revert into higher profitability and hence savings. Chinese families, in turn, need to save a larger proportion of their income to future consumption with college education, social security and real estate acquisition.

In Brazil, there are universal health and social security systems, as well as a broad social protection network, which consume about 14% of GDP in the three levels of Government. In April 2010, Brazilian Federal Gover- nment, unlike Eastern countries, spent about 9% of GDP in household transfers (Social Security, Bolsa Familia,

LOAS/RMV,

owned enterprises) reaches at least 3.3% of GDP, the same level of public savings.

).

For the current year, it is expected that public investment (Federal Government and state-

Ministry

of Finance

Economic Activity

April / May 2010

Peak of growth resumption under impulses in action

Ministry

of Finance

From the second quarter of 2010 on, a slowing down in the economy is expected without the presence of incentives, such as IPI reduction, decrease in banks’ reserve requirements and interest rates, which was at its lowest level. The European crisis is still another factor to slow the economy, reducing the availability of credit from abroad and impacting Brazilian exports and the rolling over of corporate debt.

Composition of GDP Growth (% yoy)

11.9 7.5 7.4 5.0 6.5 5.7 6.1 5.3 5.1 2.7 Domestic Demand Net External Demand
11.9
7.5
7.4
5.0
6.5
5.7
6.1
5.3
5.1
2.7
Domestic Demand
Net External Demand
GDP
0.2
4.0
3.2
2.7
1.1
2.5
0.1
Data: % change from
preceding year
* Ministry of Finance forecasts
1.7
0.7
0.5
-0.2
-0.5
-0.3
Source: Brazilian Central Bank
Produced by: Ministry of Finance
-1.4
-1.4
-2.2
-2.9
2002
2003
2004
2005
2006
2007
2008
2009
2010*
11

11 11

Economic Activity

Industry confidence hits highest third level of time series

Ministry

of Finance

The ICI (Industrial Confidence Index) registered an increase in May, reaching 116.1 points, a recovery of 0.8% over the previous month and only 0.4% below March, the best month since November 2007. The heated domestic demand and the optimistic outlook for GDP growth in 2010 are reflected in companies.

outlook for GDP growth in 2010 are reflected in companies. Industry Confidence Index (points, seasonally adjusted)

Industry Confidence Index (points, seasonally adjusted)

April / May 2010 Optimistic Pessimistic Data: points, seasonally adjusted 75.7 75.1 76.2 78.0 82.6
April / May 2010
Optimistic
Pessimistic
Data: points, seasonally
adjusted
75.7
75.1
76.2
78.0
82.6
87.0
90.6
95.7
100.2
103.6
107.0
109.6
113.4
113.6
115.8
116.5
115.3
116.1
Source: FGV
Produced by: Ministry of Finance
12
12 12
Dec 08 Jan 09
Feb 09
Mar 09 Apr 09
May 09 Jun 09 Jul 09
Aug 09
Sep 09 Oct 09
Nov 09
Dec 09 Jan 10
Feb 10
Mar 10 Apr 10
May 10

Economic Activity

April / May 2010

Industrial production grows 22% since the impact of the crisis in December 2008

Ministry

of Finance

Industrial production fell -0.7% from March to April this year,

expected result after the withdrawal of counter-cyclical Government measures. The reduction has stopped the sequence of a four-month expansion, after accumulating a 6.4% gain. The accumulated rate in the last 12 months increased by 2.3%, while the industrial sector has a 18.0% growth in the first quarter of 2010.

after seasonal adjustment, which is an

Industrial Output Index (Jan07 = 100) 115 111.6 111.8 110 105 100 95 90 88.8
Industrial Output Index (Jan07 = 100)
115
111.6
111.8
110
105
100
95
90
88.8
85
80
Jul 07
Sep 07
Nov 07
Jan Mar 08
08
May 08 Jul 08
Sep 08
Nov 08
Jan Mar 09
09
May 09 Jul 09
Sep 09
Nov 09
Jan 10
Apr 10

Data: index-number, seasonally adjusted (Jan07 = 100)

Source: IBGE Produced by: Ministry of Finance

13

13

13

Economic Activity

April / May 2010

Categories of use indicate continued expansion

Ministry

of Finance

The industrial production growth compared to April 2009 was supported by the general expansion of all categories of use. Capital Goods had the highest increase, well above the General Industry as a whole. Consumer and Durable Consumer Goods continue to expand, driven by“white”and“brown”line appliances, cars and cell phones. Intermediate, Semi and Non-Durable Goods keep track of consecutive increases.

Industrial Production by Categories of Use (% yoy)

7.9 10.9 17.4 17.8 20.9 36.3
7.9
10.9
17.4
17.8
20.9
36.3
Categories of Use (% yoy) 7.9 10.9 17.4 17.8 20.9 36.3 Data: % change from preceding
Categories of Use (% yoy) 7.9 10.9 17.4 17.8 20.9 36.3 Data: % change from preceding
Categories of Use (% yoy) 7.9 10.9 17.4 17.8 20.9 36.3 Data: % change from preceding
Categories of Use (% yoy) 7.9 10.9 17.4 17.8 20.9 36.3 Data: % change from preceding
Categories of Use (% yoy) 7.9 10.9 17.4 17.8 20.9 36.3 Data: % change from preceding
Categories of Use (% yoy) 7.9 10.9 17.4 17.8 20.9 36.3 Data: % change from preceding

Data: % change from preceding year

Semi and

Consumption

Industry

Intermediate

Capital

Durable

Source: IBGE

Non-durable

Overview

Goods

Goods

Produced by: Ministry of Finance

14

14

14

Economic Activity

April / May 2010

Capital Goods enhance GDP growth

Ministry

of Finance

Capital Goods contribute to the acceleration in industrial activity and foster GDP expansion in 2010. Since December 2009, the growth path has shown a clear recovery in the sector, caused by tax exemptions and credit increase. Regarding the cumulative change in year over the same period of 2009, before seasonal adjustments, capital goods showed a rise of 9.4% in April, reinforcing the positive trend of variations since January 2010.

Capital Goods (% yoy) 28.7 26.3 18.6 14.3 12.6 23.1 12.5 25.2 40.3 13.2 29.7
Capital Goods (% yoy)
28.7
26.3
18.6
14.3
12.6
23.1 12.5
25.2
40.3
13.2 29.7
7.1
22.4 23.8
11.0 25.1
16.3
36.3
3.7
-14.4
-14.4
-24.4
-21.4
-29.3
-22.6
-24.4
-23.6
-22.0
-20.6
-16.9
-2.5
-17.4
Mar 08
Jun 08
Sep 08
Dec 08
Mar 09
Jun 09
Sep 09
Dec 09
Apr 10
08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Apr 10 %

% of preceding month % accumulated from same period in the preceding year, seasonally adjusted

Data: % change from preceding month and pre- ceding year, accordingly

Source: IBGE Produced by: Ministry of Finance

15

15

15

Economic Activity

April / May 2010

Consumer confidence keeps increasing trend

Ministry

of Finance

Consumer confidence remains high, registering an increase of 0.6% in May compared to April.The ICC (Index of Consumer Confidence) increased from 115.4 to 116.1 points, regardless seasonal influences.

from 115.4 to 116.1 points, regardless seasonal influences. Consumer Confidence Index (points, seasonally adjusted) Nov

Consumer Confidence Index (points, seasonally adjusted)

Nov Dec 08 08 Jan Feb 09 09 97.1 Mar 09 May Apr 09 95.5
Nov Dec 08
08
Jan Feb 09
09
97.1
Mar
09 May
Apr
09
95.5
09
96.8
Jun 09
Jul Aug 09
95.3
09
97.5
Sep
09
100.0
Oct Nov 09
09
102.9
Dec
09
108.2
Jan Feb 10
10
111.3
Mar
10 May
111.0
Apr
10
10
111.0
113.4
115.1
112.3
113.0
110.6
111.4
115.4
116.1

Data: points, seasonally adjusted

Source: FGV Produced by: Ministry of Finance

16

16

16

Economic Activity

April / May 2010

Car sales remain high

Ministry

of Finance

The withdrawal of tax incentives should lead to slowdowns in car sales in the coming months. Still, developments in labor market, individual credit increases and maintainance of consumer confidence at high levels are factors contributing to the sector expansion. In the first four months of 2010, the licensing of new vehicles rose by 18.1% over accumulated between January and April 2009.

Licensing of new vehicles (thousand units, daily average) 15 IPI reduction, with effect from Jan
Licensing of new vehicles (thousand units, daily average)
15
IPI reduction,
with effect
from Jan
to Mar 09
Government
extends low IPI
untill Mar 10
12
Low IPI
extended
until Jun 09
Low IPI
extended
until Sept 09
9
End of IPI relief period
Impact of
crisis on
vehicle sales
6
Apr May
08 Jun
08 Jul
08 Aug
08 Sep
08 Oct
08 Nov
08 Dec
08 Jan
08 Feb
09 Mar
09 Apr
09 May
09 Jun
09 Jul
09 Aug
09 Sep
09 Oct
09 Nov
09 Dec
09 Jan
09 Feb
10 Mar
10 Apr
10 10

Data: thousand units, daily average

Source: Anfavea Produced by: Ministry of Finance

17

17

17

Economic Activity

April / May 2010

Retail sales still heated

Ministry

of Finance

The retail sector recorded increases of 1.6% in sales volume and 0.9% in nominal revenue in March compared to the previous month, while broad trade recorded raises around 5.0% for sales volume and 3.9% for nominal revenue, both seasonally adjusted, compared to the previous month.

Sales Volume in Retail Trade (% yoy) 15 9.6 10 8.0 5 0 Feb Mar
Sales Volume in Retail Trade (% yoy)
15
9.6
10
8.0
5
0
Feb Mar
08 Apr
08 May
08 Jun
08 08
Jul Aug
08 Sep
08 Oct
08 Nov
08 Dec
08 Jan
08 Feb
09 Mar
09 Apr
09 May
09 Jun
09 09
Jul Aug
09 Sep
09 Oct
09 Nov
09 Dec
09 Jan
09 Feb
10 Mar
10 10

PMC (Monthly Survey of Trade) Broad PMC *

Data: % change from each 12-month period

* Including automobiles, motorcycles, parts and pieces, and construction materials

Source: IBGE Produced by: Ministry of Finance

18

18

18

Economic Activity

April / May 2010

Retail sales: positive results in economic activities

Ministry

of Finance

In March, seven of the 10 sectors surveyed recorded growth in sales volume in seasonally adjusted terms compared to the previous month. In comparison to March 2009, eight retail activities recorded growth in sales volume. Vehicles, Motorcycles, Parts and Pieces expanded sales in March compared to February reflect consumers’rush before the IPI tax exemption was withdrawn on automotive vehicles.

Real Retail Sales (% mom)

Activity

Mar 10 / Feb 10

Broad Retail Trade

 

5.0

 

Retail Trade

Retail Trade 1.6  

1.6

 

Automobiles, motorcycles, parts and pieces

 

10.3

Office, computer and communication supplies

 

8.6

 

Construction material

 

3.0

Fuels and lubricants

Fuels and lubricants 1.5  

1.5

 

Textile, clothing and footwear

 

1.5

 

Other articles of personal and domestic use

0.6

 

Pharmaceutical, medical, orthopedic and perfumery articles

0.4

 

Furniture and household devices

-0.1

 

Books, newspapers, magazines and stationery articles

-0.2

 

Hyper/Supermarkets, food, beverages and tobacco

-0.8

 

Data: % change from preceding month

Source: IBGE Produced by: Ministry of Finance

19

19

19

Economic Activity

April / May 2010

Composition of Gross Domestic Product

Ministry

of Finance

Monthly Survey of Trade

Seasonally adjusted

(%)

Before seasonal adjustment same period of the previous year (%)

Basis:

Preceding month:

March, 2009

Yearly

12-month

March, 2010

February, 2010

accumulated

period

Retail Trade

1.6

15.7

12.8

8.0

Fuels and lubricants

1.5

6.4

5.4

1.4

Hipermarkets, supermarkets, food, beverages and tobacco

-0.8

15.3

12.4

10.4

Textiles, clothing and footwear

1.5

15.7

9.5

0.4

Furniture and household devices

-0.1

25.7

21.6

6.7

Broad Retail Trade

5.0

22.0

15.5

9.6

Automobiles, motorcycles, parts and pieces

10.3

32.4

20.7

14.6

Construction materials

3.0

19.5

14.7

-1.5

Data: % change

Source: IBGE Produced by: Ministry of Finance

20

20

20

Economic Activity

April / May 2010

Composition of Gross Domestic Product

Ministry

of Finance

 

change in the preceding quarter

 

Gross Domestic Product

Seasonally

Preceding period of the previous year (%)

adjusted (%)

Basis:

4Q 09

1Q 09

4-Quarter

early

2009 / 2008

1Q10

Accumulated

Accum.

Farming

2.7

5.1

-3.3

5.1

-5.2

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

         

Industry

4.2

14.6

0.0

14.6

-5.5

Mining

-

13.7

3.6

13.7

-0.2

Manufacturing

-

17.2

-0.4

17.2

-7.0

Construction

-

14.9

-0.8

14.9

-6.3

Services

1.9

5.9

3.6

5.9

2.6

Trade

-

15.2

3.7

15.2

-1.2

Transportation, Storage and Mail

-

12.4

2.0

12.4

-2.3

Information Services

1.9

2.6

3.9

2.6

4.9

GDP (current prices)

2.7

9.0

2.4

9.0

-0.2

Household Consumption

1.5

9.3

6.0

9.3

4.1

Government Consumption

0.9

2.0

3.1

2.0

3.7

Gross Fixed Capital Formation

7.4

26.0

-1.5

26.0

-9.9

Exports of Goods and Services

1.7

14.5

-4.2

14.5

-10.3

Imports of Goods and Services (-)

13.1

39.5

-0.4

39.5

-11.4

Data: % change

Source: IBGE Produced by: Ministry of Finance

21

21

21

Economic Activity

April / May 2010

Industrial Production - March 2010

Ministry

of Finance

Industrial Production

Seasonally adjusted

(%)

Before seasonal adjustment Change from same period of the previous year (%)

Basis:

Preceding month:

Quarterly

Mar 09

Yearly

12-month

March 10

February, 2010

Average

Accumulated

General Industry

2.8

3.0

19.7

18.1

-0.3

Mining industry

0.8

4.3

15.8

19.1

-1.1

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Manufacturing industry

2.6

3.8

20.0

18.0

-0.3

Capital goods

3.0

4.0

38.4

25.6

-8.6

Industrial

-

-

23.1

23.6

-18.3

serials

-

-

26.7

29.9

-20.4

non-serial

-

-

7.1

-1.6

-6.8

Agricultural

-

-

48.7

42.6

-14.7

Agricultural parts

-

-

4.3

21.3

-31.3

Construction

-

-

244.5

216.2

-20.7

Electricity sector

-

-

29.4

-3.3

-28.9

Transportation equipment

-

-

33.7

19.4

-4.9

Mixed-use

-

-

37.0

28.8

-3.3

Intermediate goods

1.3

3.6

18.6

19.5

-0.5

Durable Consumer goods

0.1

3.0

25.8

28.4

4.9

Semi and Non-Durable Consumer goods

1.3

3.7

11.4

9.1

1.1

Data: % change

Source: IBGE Produced by: Ministry of Finance

22

22

22

Economic Activity

April / May 2010

Consumer Forecast Survey and Forward Indicators for Industrial Output

Ministry

of Finance

Consumer Survey (FGV)

% change compared to the same period last year

 

Basis:

March

April

May

Yearly

12-month

May 2010

2010

2010

2010

Accum.

period

Consumer Confidence Index

13.2

15.8

12.9

14.6

10.5

Intention of Durable Goods Purchases

13.2

11.8

7.2

10.7

6.1

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Current Situation of the Local Economy

53.9

66.4

48.1

54.5

34.4

Current Family Financial Situation

3.6

8.8

12.5

7.3

2.8

Forward Indicators for Industrial Output

 
 

Seasonally adjusted Preceding month (%)

Before seasonal adjustment Preceding year (%)

Basis: Apr 10

Feb 10

Mar 10

Apr 10

Feb 10

Mar 10

Apr 10

Total Vehicles Production (Anfavea)

-0.6

7.4

-7.4

22.2

23.4

14.2

Heavy Vehicles Flow on the Highways (ABCR)

2.4

2.9

-1.9

11.9

13.6

8.6

Shipping Paper (ABPO)

1.8

0.9

-1.7

20.3

20.5

18.3

Imports - intermediate goods (quantum)

12.6

7.6

1.8

53.9

68.7

63.2

Exports - intermediate goods (quantum)

15.8

4.3

3.3

16.3

15.6

3.9

Consumo de Energia Elétrica (GWh)

0.8

-1.3

-1.7

11.5

8.1

7.9

 

Data: % change

Source: FGV, Anfavea, ABPO and ABCR Produced by: Ministry of Finance

23

23

23

Economic Activity

April / May 2010

Industry Sales - March and April, 2010

 

Seasonally adjusted

Before seasonal adjustment

Change (%)

Change from preceding year (%)

Industrial Sales (CNI) March, 2010

Preceding month

Quarterly

March

Yearly

12-month

February, 2010

Average

2010

Accumulated

Real revenues

4.3

3.7

14.7

12.0

0.0

Hours worked in production

2.7

3.1

10.5

6.5

-4.5

Packages (ABPO)

Preceding month

Quarterly

April

Yearly

12-month

April, 2010

March, 2010

Average

2010

Accumulated

Wavy paper dispatch

-1.7

0.8

18.3

19.3

8.4

Automobiles (Anfavea)

Preceding month

Quarterly

April

Yearly

12-month

April, 2010

March, 2010

Average

2010

Accumulated

Automobile production

-7.4

-1.8

14.2

22.5

11.5

Automobile license (domestic and imported)

-12.3

16.6

18.5

18.1

17.4

Automobile exports

-30.2

4.3

34.8

78.3

-6.2

Manufacturing Industry Survey

Change from same period of the previous year (%)

Yearly

 

April, 2010

February

March

April

Accumulated

12-month

2010

2010

2010

Expected production

39.6

25.4

12.0

28.7

15.1

Level of employment prevision

59.5

47.0

30.2

45.4

9.8

Domestic demand

62.5

59.0

50.6

60.1

11.5

External demand

34.4

41.3

36.8

36.0

-2.3

Inventories

20.2

17.6

14.8

18.6

6.3

Industry Confidence Level*

83.1

83.5

84.5

83.3

82.3

Ministry

of Finance

Data: % change

* NUCI was calculated using the annual average of the last 12 months and the last three monthly values.

Source: CNI, ABPO, FGV and Anfavea

Produced by: Ministry of Finance

24

24

24

Brazilian Economy OUTLOOK Mass Consumer Market Ministry of Finance

Brazilian Economy

OUTLOOK

Mass Consumer Market

Ministry

of Finance

Mass Consumer Market

April / May 2010

April / May 2010

Middle class supports Brazilian economy dynamism

Ministry

Ministry

of Finance

of Finance

FGV research shows the global financial crisis has not reached the majority of Brazilian people. Poverty keeps declining and Class C has jumped from 42% to 53% of country’s population (nearly 103 million) between 2003 and 2009. The social mobility generates significant changes in the Brazilian market. Since 2002, around 25 million people have moved from the bottom to the core of the social pyramid, altered the consumption profile and have been enjoying typical comforts of the middle class.

A New Class C (% of population) 53.6 47.5 53.8 46.7 52.0 46.3 44.7 50.0
A New Class C (% of population)
53.6
47.5
53.8
46.7
52.0
46.3
44.7
50.0
43.2
43.0
40.8
36.0
40.1
33.2
30.8
30.9
15.6
14.7 15.3
13.2 14.0
12.0
11.6
10.6
2002
2003 2004
2005 2006
2007 2008
2009

Total Class changes (Dec 02 - Dec 09. millions)

7.7 31.2 -25.5 Class A/B Class C Class D/E
7.7
31.2
-25.5
Class A/B
Class C
Class D/E

Class A/B (from R$ 4,807)millions) 7.7 31.2 -25.5 Class A/B Class C Class D/E Class C (from R$ 1,115 to

Class C (from R$ 1,115 to R$ 4,807)Class A/B Class C Class D/E Class A/B (from R$ 4,807) Class D/E (until R$ 1,115)

Class D/E (until R$ 1,115)A/B (from R$ 4,807) Class C (from R$ 1,115 to R$ 4,807) Data: % share of

Data: % share of population * Prices in December, 2008

Source: FGV Produced by: Ministry of Finance

26 26

Mass Consumer Market

April / May 2010

April / May 2010

Real minimum wage rises to the highest value in the past 20 years

Ministry

Ministry

of Finance

of Finance

The Brazilian economy goes through a structural transformation. Economic stability, credit expansion and GDP growth have enabled the increased purchasing power and the recovery of real minimum wage. When deflated by INPC index, the minimum wage in January 2010 has reached the highest value in 20 years. Indeed, the process leads to increased consumption, attracting investment and a keen interest in retail and consumer companies in the Brazilian market.

Real minimum wage (R$) 600 FHC (1 st ) FHC (2 nd ) Lula (1
Real minimum wage (R$)
600
FHC (1 st )
FHC (2 nd )
Lula (1 st )
Lula (2 nd )
510.0
500
400
300
200
100
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*
Fernando Collor
Itamar Franco

Data: R$, before seasonal adjustment

* In January, 2010

Source: IPEA Produced by: Ministry of Finance

27 27

Mass Consumer Market

April / May 2010

April / May 2010

Unemployment rate hits lowest value of the historical series

Ministry

Ministry

of Finance

of Finance

The unemployment rate in Brazil in April was 7.3% of the economically active population, the lowest number for the month over the past eight years. Considering seasonal adjustments of labor market, unemployment rate is even lower: 6.8%, the lowest variation throughout the series. The total of unemployed (1.7 million) was stable compared to March, but fell 16.4% compared to April 2009. Overall, the economic environment remains favorable for labor market in 2010.

Unemployment rate (% of the economically active population) 8.6 8.4 8.2 8.3 8.4 8.0 8.0
Unemployment rate (% of the economically active population)
8.6
8.4
8.2
8.3
8.4
8.0
8.0
8.0
7.9
7.8
7.7
7.7
7.5
7.2
7.1
6.8
8.2
8.5 9.0
8.9
8.8
8.1
8.0
8.1
7.7 7.5
7.4 6.8
7.2
7.4 7.6
7.3
Jan 09
Feb 09
Mar 09
Apr May 09
09
Jun 09 Jul 09
Aug 09
Sep 09
Oct 09
Nov 09
Dec 09
Jan 10
Feb 10
Mar 10
Apr 10
09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 Before

Before seasonal adjustment Seasonally adjusted figures

Data: % of the economically

active population

Source: IBGE Produced by: Ministry of Finance

28 28

Mass Consumer Market

April / May 2010

April / May 2010

Net employment generation: creation of 2 million jobs

Ministry

Ministry

of Finance

of Finance

Considering the net employment generation, since 2003, 12.4 million new jobs have already been created. It is estimated that nearly 2 million jobs will be created, resulting in an expansion of 13.8 million new jobs from 2003 to 2010.

in an expansion of 13.8 million new jobs from 2003 to 2010. Net Employment Generation (thousands

Net Employment Generation (thousands of jobs)

13.8 million formal jobs 2,000 1,038 962 88 75 274 387 502 1,235 961 1,494
13.8 million
formal jobs
2,000
1,038
962
88
75
274
387
502
1,235
961
1,494
861
1,863
1,831
1,917
2,452
1,834
995

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009*2010**

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009*2010** Accomplished jobs in 2010 Data: thousands

Accomplished jobs in 2010

Data: thousands of jobs

* The Result of 2009 refers only to CAGED balance

**Ministry of Finance forecasts

Source: Ministry of Labor & Employment Produced by: Ministry of Finance

Mass Consumer Market

April / May 2010

April / May 2010

Employment generation logs record

Ministry

Ministry

of Finance

of Finance

The generation of formal jobs in Brazil registered a record high in the first quarter of 2010: 962,300 job surplus in employment generation. In addition to the best April in history, the opening of 305,100 new places is the second largest CAGED series figure, started in 1992 (the monthly record is 309,400 in June 2008). The sectors that have contributed most were services (96,600) and manufacturing (83,100). In cumulative terms over the past 12 months, there has been generated 1.9 million new jobs in the country.

Net job generation in the formal market (thousand of jobs, accumulated in 12 months)

652 580 390 326 329 299 468 756 995 1279 1479 1710 1909 Apr 09
652
580
390
326
329
299
468
756
995
1279
1479
1710
1909
Apr 09
May 09
Jun 09
Jul 09
Aug 09
Sep 09
Oct 09
Nov 09
Dec 09
Jan 10
Feb 10
Mar 10
Apr 10
Net job generation in the formal market Data: thousand of jobs,
Net job generation in the
formal market
Data: thousand of jobs,

accumulated in 12 months

Source: Ministry of Labor & Employment Produced by: Ministry of Finance

30 30

Mass Consumer Market

Formal employment rises to highest level since 2006

Ministry

Ministry

of Finance

of Finance

The rate of formalization, defined as the proportion of the employed population under a formal contract in relation to the employed population, had a 0.39% monthly growth, reaching a level of 51.1% in April 2010. Still, the occupancy level in 12 months (52.4%) is very close to its record high (52.5%) registered in 2008.

April / May 2010 April / May 2010 Rate of Formalization (% formally employed over
April / May 2010
April / May 2010
Rate of Formalization (% formally employed over the occupied population)
51,5
51.1
50.9
51,0
50.7
50.3
50,5
50,0
49,5
49,0
48,5
2008
48,0
2009
47,5
47,0
2010
46,5
Data: % formally employed
over the occupied population
46,0
45,5
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Source: IBGE
Produced by: Ministry of Finance
31 31
Brazilian Economy OUTLOOK Inflation Ministry of Finance

Brazilian Economy

OUTLOOK

Inflation

Ministry

of Finance

Inflation

April / May 2010

April / May 2010

IPCA inflation index within the target

Ministry

Ministry

of Finance

of Finance

The first months of 2010 were subjected to inflationary pressures arising from food groups, compounded by an increase in the volume of rainfalls, seasonal adjustments in Education, Public Taxes, Fuel (ethanol) and price adjustments in Personal Expenses, specifically Registry Offices and Official Agents. Despite market expectations, we expect annual IPCA close to 5.0% in 2010.

IPCA Inflation Index (% yoy)

8.9 6.0 7.7 12.5 9.3 7.6 5.7 3.1 4.5 5.9 4.3 5.6 4.8 4.5 4.5
8.9
6.0
7.7
12.5
9.3
7.6
5.7
3.1
4.5
5.9
4.3
5.6
4.8
4.5
4.5
4.5
9.3 7.6 5.7 3.1 4.5 5.9 4.3 5.6 4.8 4.5 4.5 4.5 1999 2000 2001 2002

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010* 2011* 2012* 2013* 2014*

Inflation target Lower and upper bounds IPCA inflation index Data: % change from preceding year
Inflation target
Lower and upper bounds
IPCA inflation index
Data: % change from
preceding year

* Market Expectations FOCUS Report from May 10 th , 2010

Source: IBGE and Brazilian Central Bank Produced by: Ministry of Finance

34 34

Inflation

April / May 2010

April / May 2010

Dispersing food shock decreases IPCA

Ministry

Ministry

of Finance

of Finance

The IPCA drop in May 2010 compared to April 2010 resulted from the downturn in prices of four of the nine groups that consists IPCA index, namely: Food and Beverages (1.45% to 0.28%), Clothing ( 1.28% to 0.91%) Health & Personal Care (0.84% to 0.74%), and Education (from 011% to 0.04%). Among them, the greatest impact to the overall index came from Food group, with a contribution of 0.06 percentage points compared to the contribution of 0.33 percentage points in the previous month, standing below May 2009.

points in the previous month, standing below May 2009. Decomposition of IPCA Inflation (% mom) 0.

Decomposition of IPCA Inflation (% mom)

0. 46 0. 30 0. 33 0. 35 0. 49 0. 44 0. 50 0.19
0.
46
0.
30
0.
33
0.
35
0.
49
0.
44
0.
50
0.19
0.46
0.
10
0.
26
6.85
0.
22
0.
01
0.
25
0.
29
0.03
0.
05
0.
26
0.
17
0.
22
0.
26
0.
09
0.16
0.
18
0.
01
0.
29
0.
01
0.
02
0.
05
0.
30
0.
01
0.
04
0.
18
0.
17
0.
08
0.
08
0.
01
0.
03
0.
01
01
0.11
0.
01
0.
0.
07
0.
12
0.
13
0.
00
0.
00
0.
06
0.
02
0.
00
0.
00
0.
01
-0. 03
-0. 05
-0. 06
-0. 06
-0. -0. 01 02
-0. 02
-0. 06
-0. 06
-0. 02
-0. 02 -0. 03
-0. 02
-0. 12
-0. 01
-0. 02
Jan 09
Feb Mar 09
09
Apr May 09
09
Jun 09 Jul 09
Aug 09
Sep 09
Oct 09
Nov 09
Dec 09
Jan 10
Feb 10
Mar 10
Apr 10
May 10

Fuels09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Transportation

TransportationNov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Fuels Food

FoodJan 10 Feb 10 Mar 10 Apr 10 May 10 Fuels Transportation Remaining Itens Data: %

Remaining Itens10 Feb 10 Mar 10 Apr 10 May 10 Fuels Transportation Food Data: % change from

Data: % change from preceding month

Source: IBGE Produced by: Ministry of Finance

35 35

Inflation

April / May 2010

April / May 2010

Food group assumes downward trend

Ministry

Ministry

of Finance

of Finance

Since January, the responsible for price increases in the Food group have reduced its impact. Abnormal rainfalls have been affecting the group since the beginning of the year. In terms of cumulative inflation in the year (January to May), the most representative items are: Legumes, Root and Tuberous Vegetables (29.8% cumulative change in five months), Cereals, Leguminous and Oleaginous (21.5%); Vegetables and Greeneries (16.3%), Dairy Products (13.1%) and Sugar products (12.7%).

(16.3%), Dairy Products (13.1%) and Sugar products (12.7%). IPCA Food Inflation (% mom) Legumes, root and

IPCA Food Inflation (% mom)

Legumes, root and tuberous vegetables Cereals, leguminous Vegetables and Sugar products Dairy products and
Legumes, root and
tuberous vegetables
Cereals, leguminous
Vegetables and
Sugar products
Dairy products
and oleaginous
greeneries
0.4
4.0
14.8
10.9
-2.4
2.4
3.1
1.8
8.4
4.2
8.4
11.9
2.9
-2.2
-4.8
0.8
1.4
4.2
4.2
1.9
4.9
7.4
3.4
0.2
-3.5

Jan 10-4.8 0.8 1.4 4.2 4.2 1.9 4.9 7.4 3.4 0.2 -3.5 Fev 10 Mar 10 Abr

Fev 100.8 1.4 4.2 4.2 1.9 4.9 7.4 3.4 0.2 -3.5 Jan 10 Mar 10 Abr 10

Mar 101.4 4.2 4.2 1.9 4.9 7.4 3.4 0.2 -3.5 Jan 10 Fev 10 Abr 10 Mai

Abr 104.2 4.2 1.9 4.9 7.4 3.4 0.2 -3.5 Jan 10 Fev 10 Mar 10 Mai 10

Mai 101.9 4.9 7.4 3.4 0.2 -3.5 Jan 10 Fev 10 Mar 10 Abr 10 Data: %

Data: % change from preceding month

Source: IBGE Produced by: Ministry of Finance

36 36

Inflation

April / May 2010

April / May 2010

IPCA returns to the downward trend from April 2010

Ministry

Ministry

of Finance

of Finance

IPCA inflation index increased 0.43% in May 2010, decreasing from 0.57% in the previous month. The result represents the lowest monthly growth of 2010. In 12 months, the deceleration of inflation has been the first since November 2009. However, the decline in food inflation indicated in recent inflation indexes tends to determine the reduction in consumer inflation in the coming results of the IPCA, even with the strong expansion of economic activity.

IPCA Inflation Index and its Expectations (% mom) 0,9 0.78 0,8 0,7 0.75 0.57 0.57
IPCA Inflation Index and its Expectations (% mom)
0,9
0.78
0,8
0,7
0.75
0.57
0.57
0,6
0.55
0.52
0,5
0.43
0.39
0.43
0.38 0.41
0.37
0,4
0.35 0.30
0,3
0.32
0.30
0.30 0.32
0,2
0,1
0,0
Jan 2010
Feb Mar
2010 2010 Apr May 2010 2010 Jun 2010
Jul Aug 2010 2010 Sep 2010 Oct Nov 2010 Dec 2010 2010 Jan 2011 Feb Mar 2011 2011 Apr May 2011 2011 Jun 2011

Realized IPCA figures

Monthly Average IPCA

Data: % change from preceding month

* Market Expectations FOCUS Report from May 10 th , 2010

Source: IBGE and Brazilian Central Bank Produced by: Ministry of Finance

37 37

Inflation

April / May 2010

April / May 2010

Weekly index shrinks as anticipated

Ministry

Ministry

of Finance

of Finance

As anticipated in previous editions, the CPI inflation (IPC-S) up to four weeks has shrank. In May 2010 the index reached 0.21%, down from 0.76% in April 2010, below market perspectives. Regarding the third of the four weeks, in May 2010, five of the seven groups showed deceleration. The most significant drop came from the Food group (from 0.52% to -0.34%), especially for Vegetables and Greeneries, Dairy Products, Rice and Beans, and Beef. The higher pressures came from Clothing and Housing groups.

IPC-S Inflation Index (% mom) 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0 0.21 -0,5
IPC-S Inflation Index (% mom)
3,5
3,0
2,5
2,0
1,5
1,0
0,5
0,0
0.21
-0,5
-0.46
-1,0
Jan Feb 08
08 Apr
Mar
08
08 Jun
May
08 Jul
08
08 Sep
Aug
08 Oct
08
08
Nov
08 Jan
Dec
08 Feb
09
09 Apr
Mar
09
09 Jun
May
09 Jul
09
09 Sep
Aug
09 Oct
09
09
Nov
09 Jan
Dec
09 Feb
10
10 Apr
Mar
10
10 Jun
May
10 10

Food Total Index Data: % change from preceding month

Source: FGV Produced by: Ministry of Finance

Inflation

April / May 2010

April / May 2010

Index of the commodities market - CRB

Ministry

Ministry

of Finance

of Finance

The spot index CRB (Commodity Research Bureau) is one of the benchmarks for the global commodity market, constructed from six sub-indices, namely CRB Metals, CRBTextile Raw Materials Industrial CRB, CRB Food Products, CRB Fats & Oils and CRB Live Animals.The uncertainties created by the worsening of the international financial crisis led to great volatility in commodity markets, causing reduction of 37% between the highest level of the index in February 2008 and December 2008. From December 2009 until April 2010, the recovery of 11.5%, due mainly to soybeans and iron ore. In the first quarter of 2010, the commodity market showed average growth of 4.3%.

Spot Market (US$ e R$)

US$ R$ 480 1000 950 430 900 424.0 850 380 800 770.2 750 330 700
US$
R$
480
1000
950
430
900
424.0
850
380
800
770.2
750
330
700
650
280
600
Jan 08
Mar 08
Jun 08
Sep 08
Dec 08
Mar 09
Jun 09
Sep 09
Dec 09
May 10

In the first quarter of 2010,

the commodity market showed

average growth

of 4.3%.

CRB in US$ CRB in R$

Source: Reuters Produced by: Ministry of Finance

39 39

Inflation

April / May 2010

April / May 2010

Food

Ministry

Ministry

of Finance

of Finance

In the composition of the CRB index, agricultural commodities are estimated at around 34% share in the overall index. The CRB index refers to the specific behavior of prices in the spot market and it is limited to selected food products (butter, coconut, corn, swine and cattle live, lard, soybean oil, sugar and wheat grain). Therefore, the following products are not included: coffee, soybeans, powdered milk, cotton, leather (skins) and tallow, all agricultural products or their derivatives.

Food Spot Market (US$ e R$) US$ R$ 490 800 700 643.1 440 600 390
Food Spot Market (US$ e R$)
US$
R$
490
800
700
643.1
440
600
390
500
400
340
354.0
300
290
200
240
100
Jan 07
May 07
Sep 07
Jan 08
May 08
Sep 08
Jan 09
May 09
Sep 09
Jan 10
May 10

CRB Foods in US$ CRB Foods in R$

Source: Reuters Produced by: Ministry of Finance

40 40

Inflation

April / May 2010

April / May 2010

Inflation Index Table

Ministry

Ministry

of Finance

of Finance

xxxxxxxxxxxxxxxx

           

Forecast

Inflation Index

May 10

Apr 10

Apr 09

Accum. 2008

Accum. 2009

12-Month

2010*

IPCA

0.43

0.57

0.48

5.90

4.31

5.22

5.67

Food and Beverages

0.28

1.45

0.15

11.12

3.17

6.77

na

Housing

0.78

0.08

0.75

5.09

5.68

4.98

na

Home Supplies

0.59

-0.04

-0.50

1.99

3.05

4.67

na

Clothing

0.91

1.28

1.08

7.30

6.11

6.00

na

Transportation

0.09

-0.08

-0.21

2.32

2.37

3.99

na

Health

0.74

0.84

1.10

5.72

5.37

4.62

na

Personal Expenses

0.75

0.66

2.14

7.35

8.03

6.28

na

Education

0.04

0.11

0.09

4.58

6.11

6.79

na

Communication

-0.01

-0.03

0.08

1.79

1.07

0.82

na

INPC

0.73

0.71

0.55

6.48

4.11

5.49

5.72

IPC - FIPE

May 10

Apr 10

Apr 09

Acc. 2008

Acc. 2009

12-Month

Forecast 2010*

General Index

0.22

0.39

0.31

6.17

3.65

4.38

5.45

IGP - M

May 10

Apr 10

May 09

Acc. 2008

Acc. 2009

12-Month

Forecast 2010*

General Index

1.19

0.77

-0.07

9.81

-1.71

4.19

8.75

IGP-DI

May 10

Apr 10

Apr 09

Acc. 2008

Acc. 2009

12-Month

Forecast 2010*

General Index

1.57

0.72

0.04

9.11

-1.44

4.38

8.73

IPA

2.06

0.68

-0.10

9.80

-4.09

3.78

9.43

IPA Agriculture

0.19

1.51

1.36

1.67

-3.16

na

na

IPA Industry

2.66

0.42

-0.58

12.98

-4.43

na

na

IPC

0.21

0.76

0.47

6.07

3.93

5.26

na

INCC

1.81

0.84

-0.04

11.86

3.25

6.06

na

ICV - DIEESE

Apr 10

Mar 10

Apr 09

Acc. 2008

Acc. 2009

12-Month

Forecast 2010*

General Index

0.22

0.47

0.31

6.10

4.04

5.68

na

Data: % change

na = not available

* Market Expectations FOCUS Report from June 4 th , 2010

Source: DIEESE, IBGE, FGV and Brazilian Central Bank Produced by: Ministry of Finance

41 41

Brazilian Economy OUTLOOK Interest Rates and Credit Ministry of Finance

Brazilian Economy

OUTLOOK

Interest Rates and Credit

Ministry

of Finance

Interest Rates and Credit

April / May 2010

April / May 2010

Interest rates

Ministry

Ministry

of Finance

of Finance

In 2009, interest rates - both nominal and in real terms - reached their lowest historical level in a decade, signaling it is possible to have lower interest rates and inflation control in the Brazilian economy.

SELIC rate and real ex-ante interest rate (% yoy) 30 25 20 15 10.25 10
SELIC rate and real ex-ante interest rate (% yoy)
30
25
20
15
10.25
10
5
6.4
0
Jan 02
Jul 02
Jan 03
Jul 03
Jan 04
Jul 04
Jan 05
Jul 05
Jan 06
Jul 06
Jan 07
Jul 07
Jan 08
Jul 08
Jan 09
Jul 09
Jan
10 10
June

Reduction in

interest rates

and inflation

control

Selic interest target rate Real ex-ante interest rate

Data: % change from each 12-month period

Sources: BM&F and Brazilian Central Bank Produced by: Ministry of Finance

44 44

Interest Rates and Credit

April / May 2010

April / May 2010

Future expectations of interest rates

Ministry

Ministry

of Finance

of Finance

January 2011 and 2012 DI curves serve as a benchmark for pricing National Treasury Bonds while rolling over the domestic fixed rate bond. From September 2009 on, future expectations have increased the cost of rolling over public debt as they are embedded in the financial market curve.

Future DI* Contracts (% yoy)

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 12.22 11.99 10.97 2/1/2009 2/2/2009 2/3/2009 2/4/2009 4/5/2009 2/6/2009
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
12.22
11.99
10.97
2/1/2009
2/2/2009
2/3/2009
2/4/2009
4/5/2009
2/6/2009
2/7/2009
3/8/2009
2/9/2009
2/10/2009
3/11/2009
2/12/2009
4/1/2010
2/2/2010
2/3/2010
1/4/2010
3/5/2010
31/5/2010

January 2013

January 2012

January 2011

Data: % change from each 12-month period

* DI: One-day interbank deposit (future)

Source: BMF&Bovespa Produced by: Ministry of Finance

45 45

Interest Rates and Credit

April / May 2010

April / May 2010

Credit concessions may reach 49% of GDP

Ministry

Ministry

of Finance

of Finance

The economic stability has induced a strong credit offering expansion. A 20% forecast for average credit growth in 2010 may increase available credit volume to a record of 49% of GDP and provide funding to productive sectors as well as consumption. The increased credit level and employment generation place the Brazilian domestic market as a driving force for the economic growth in the upcoming years.

driving force for the economic growth in the upcoming years. Loans in the Financial System (%

Loans in the Financial System (% of GDP)

2002 2003 2004 2005 2006 2007 2008 2009 2010* 22.0 24.0 24.5 28.1 30.7 34.2
2002
2003
2004
2005
2006
2007
2008
2009
2010*
22.0
24.0
24.5
28.1
30.7
34.2
41.3
45.0
49.0

Current2010* 22.0 24.0 24.5 28.1 30.7 34.2 41.3 45.0 49.0 Forecast Data: % of GDP, as

Forecast22.0 24.0 24.5 28.1 30.7 34.2 41.3 45.0 49.0 Current Data: % of GDP, as of

Data: % of GDP, as of December * Ministry of Finance forecast (Jan 10)

Source: Brazilian Central Bank Produced by: Ministry of Finance

46 46

Interest Rates and Credit

April / May 2010

April / May 2010

Credit: non-earmarked resources expected to increase in 2010

Ministry

Ministry

of Finance

of Finance

The rise in credit to GDP ratio in 2009, as compared to 2008, reflected the Brazilian economy ability to overcome the economic crisis. In the first four months of 2010, increases of 18% and 26% in non- earmarked and earmarked resources, respectively, have been registered. For 2010, there is still a trend of increasing credit offering, especially within the non-earmarked resources category.

Credit operations with earmarked and non-earmarked resources (R$ billion and % of GDP)

45% 41% 487 36% 370 293 32% 29% 240 25% 23% 207 22% 25% 184
45%
41%
487
36%
370
293
32%
29%
240
25%
23%
207
22%
25%
184
166
143
118
226
240
270
346
431
538
725
879
981
Apr 02
Apr 03
Apr 04
Apr 05
Apr 06
Apr 07
Apr 08
Apr 09
Apr 10

Earmarked (R$ billion)03 Apr 04 Apr 05 Apr 06 Apr 07 Apr 08 Apr 09 Apr 10 Non-Earmarked

Non-Earmarked (R$ billion)06 Apr 07 Apr 08 Apr 09 Apr 10 Earmarked (R$ billion) Data: R$ billion, current

Data: R$ billion, current prices Totals (% of GDP)

Source: Brazilian Central Bank Produced by: Ministry of Finance

47 47

Interest Rates and Credit

April / May 2010

April / May 2010

Credit for individuals leads expansion in 2010

Ministry

Ministry

of Finance

of Finance

A more stable economy, the lengthening of credit terms and the lowering of credit interest rates have stimulated loan demand, both for individuals and corporations. Credit for individuals grew 28% in April, 2010 compared to the amount disbursed in September, 2008, when the economic crisis effectively began. With an emphasis in transactions that offer more tangible collaterals, i.e., Leasing & Acquisition of Goods and Personal Credit, a 19.1% increase has been observed in the last 12 months.

Credit transactions targeted to individuals*

Sep 08 - R$ 384.3 billions

Credit Card

6% Mortgages 1% Leasing and Overdraft Acquisition 4% of Goods Others 39% 14% Credit Unions
6%
Mortgages
1%
Leasing and
Overdraft
Acquisition
4%
of Goods
Others
39%
14%
Credit Unions
4%
Personal Credit
32%

Apr 10 - R$ 492.6 billions

Credit Card

5.6% Mortgages 1.0% Leasing and Overdraft Acquisition 3.6% of Goods Others 33.3% 15.6% Credit Unions
5.6%
Mortgages
1.0%
Leasing and
Overdraft
Acquisition
3.6%
of Goods
Others
33.3%
15.6%
Credit Unions
4.6%
Personal Credit
36.3%

Data: % share * Non-earmarked balance

Source: Brazilian Central Bank Produced by: Ministry of Finance