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Alexandre Tombini
Governor
October 15, 2012
Brazil Economic Overview
Tokyo
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Brazil is among the largest countries in
terms of territory, population and GDP
Brazil has vast natural resources,including recently discovered largeoffshore oil fields, a diverse industrialbase, a dynamic and sophisticatedprivate sector, and a well-structured
public sector
Brazil is a vigorous democracy, with freemultiparty elections and a stable politicalsystem
Brazil has good relations with all itsneighbors and has increased its ties withall regions of the world
Source: IBGE
Brazil
6th largest GDP: US$ 2,475 billion (2011)
Continental country: 5th largest area8,514,877 km2
5th largest population: 191 million people(2010)
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Executive Summary
Macroeconomic and financial stability, sustainableeconomic growth and targeted social policies have allcontributed to poverty reduction and better incomedistribution
Economic growth is accelerating in the second half of2012, with inflation under control
The outlook is for sustainable economic growth overthe coming years, with substantial investmentopportunities, particularly in infrastructure
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Economic and Social
Achievements
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The main features of the macroeconomic policy
framework are inflation targeting, fiscal responsibility, andexchange rate flexibility
Macroeconomic Policy
The macroeconomic fundamentals, combined with strongprudential policy and intensive bank supervision, haveled to macroeconomic and financial stability andsustainable economic growth
Economic growth and stability, together with inclusivesocial policies, have reduced poverty and inequality andhelped 40 million people join the middle class
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6Source: BCB
Achieved Inflation Target Eight Years in a Row
0
2
4
6
8
10
12
14
16
18
jan00
jan01
jan02
jan03
jan04
jan05
jan06
jan07
jan08
jan09
jan10
jan11
jan12
%
YoY
5.3%
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7/507Source: BCB
Declining Net Public Debt
*Aug 12
52,0
60,4
54,8
50,6
48,447,3
45,5
38,5
42,1
39,2
36,435,1
30
33
36
39
42
45
48
51
54
57
60
63
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012*
%o
fG
DP
-25.2 p.p.of GDP
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8/508Source: BCB
Robust International Reserves
US$billion
4 5 12 12 7 7 9 10 10 9
2432 39
5260
5245
36 33 3638
49 53 54
86
180194
239
289
352
378
0
50
100
150
200
250
300
350
400
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012*
*Oct 9th
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9/509Source: BCB
Brazil Has Become a Net External Creditor
US$billion
*Aug 12 estimate
7987 88 92
10310696 97
105108100 9988 92
101
131
182190 190
163165
151
136
101
75
-12
-28
-62-51
-73
-95-110
-70
-30
10
50
90
130
170
210
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012*
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Improvements Reflected in Sovereign Credit Ratings
Source: Moodys / S&P / Fitch
5
6
7
8
9
10
11
12
13
14
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Moody's S&P Fitch
Investment grade
upgrades in 2011: April: Fitch June: Moodys November: S&P
A3 / A-
Baa1 / BBB+
Baa2 / BBB
Baa3 / BBB-
Ba1 / BB+
Ba2 / BB
Ba3 / BB-
B1 / B+
B2 / B
B3 / B-
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11/5011Source: IPEA
Declining Poverty and Inequality
0,50
0,51
0,52
0,53
0,54
0,55
0,56
0,57
0,58
0,59
0,60
0,61
0,620,63
0,64
0,65
0
2
4
6
8
10
12
14
16
18
20
1981
1983
1984
1985
1986
1987
1988
1989
1990
1992
1993
1995
1996
1997
1998
1999
2001
2002
2003
2004
2005
2006
2007
2008
2009
%o
fhou
seholds
Extreme Poverty Gini Index (RHS)
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Recent EconomicDevelopments
ActivityInflation
Credit & Financial System
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Economic Activity
Brazil underwent a typical business cycle downturn
There are consistent signs that growth is accelerating
Industrial production has grown for three consecutive
months
Agriculture: record grains crop expected for 2012
The services sector continues to expand faster than theoverall economy
Demand is underpinned by a strong labor market andincreasing incomes
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0,5
1,6
4,34,0
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
5,0
1Q12 2Q12 2H12* 2013*
%
Source: BCB (Focus)
Growth Will Accelerate in the 2nd half of 2012Market Forecast
Change over Previous Period (annualized)
*Focus Market Forecast (Sep 28th)
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Economic Stimulus Measures
A set of stimulus measures have been introduced since
2011 in order to help the economy resume its growth path
Stimulus measures in place:
Lower interest rates
Improved liquidity conditions for the financial system
Better financing conditions for households and firms
These measures impact the real economy with lags
Fiscal and tax incentives
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449
353
0
50
100
150
200
250
300
350
400
450
500
Dec06
Dec07
Sep08
Dec08
Dec09
Dec10
Dec11
Oct12*
Source: BCB
Monetary and Liquidity Stimulus MeasuresPolicy Interest Rate (% annual) Required Bank Reserves (R$ billion)
*Oct 5th
6,0
7,0
8,0
9,0
10,0
11,0
12,0
13,0
jul/11
ago/11
set/11
out/11
nov/11
dez/11
jan/12
fev/12
mar/12
abr/12
mai/12
jun/12
jul/12
ago/12
set/12
out/12
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17Source: IBGE
Unemployment Rate at Historical Low
%(seasonally
adjusted)
5
6
7
8
9
10
11
12
13
14
jan03
jan04
jan05
jan06
jan07
jan08
jan09
jan10
jan11
jan12
Aug 125.2%
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18Source: IBGE
Growing Incomes and Payroll
Jan-Aug 12 /
Jan-Aug 11+5.9%
+4.0%
+1.8%
9899
100
101
102
103104
105
106
107
108109
110
Jan11
Feb11
Mar11
Apr11
May11
Jun11
Jul11
Aug11
Sep11
Oct11
Nov11
Dec11
Jan12
Feb12
Mar12
Apr12
May12
Jun12
Jul12
Aug12
Jan11
=100
Employment Real Income Real Payroll
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Supply
Industry: consistent indications that a moderate recovery is
under way Three consecutive months of output growth
Growth in industrial employment
Improving business confidence
Increased capacity utilization
Agriculture: 2012 grains crop to be record
Services: expected to continue to grow faster than overalleconomy
Strong performance reflects structural changes in theBrazilian economy over the last decade
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1,5
-2,0
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
jan12
fev12
mar12
abr12
mai12
jun12
jul12
ago12
%
monthly change
Source: IBGE
Growing Industrial Productionseasonally adjusted
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164
130
135
140
145
150
155
160
165
170
2007 2008 2009 2010 2011 2012*
millionto
ns
production of grains
Source: BCB
Agriculture: 2012 Grains Crop to be Record
*Sep 12 Estimate
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22Source: IBGE
Services Growing Faster than Overall Economy
1,61,5
0,8
0,5
0,0
0,5
1,0
1,5
2,0
1Q 12 2Q 12
%Q
/Q-4
Services Total GDP
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23Source: BCB
GDP Coincident Index
5,10%
0,96%
-1,49%
-0,17%
2,63%
1,88%
5,87%
-2,00%
-1,00%
0,00%
1,00%
2,00%
3,00%
4,00%
5,00%
6,00%
7,00%
1 Q 11 2 Q 11 3 Q 11 4 Q 11 1 Q 12 2 Q 12 3 Q 12*
Quarterly Growth (annualized)Seasonally Adjusted
* July-August average
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Recent EconomicDevelopments
ActivityInflation
Credit & Financial System
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Inflation is Under Control
Inflation is converging to the target in a nonlinear fashion
Short term: adverse supply shock
In the medium term, the global economy should have adisinflationary influence on domestic prices
External: agricultural commodities due to weather
conditions in the United States
The outlook for inflation, although negatively impactedin the short term by adverse supply shocks, is favorablein the medium term
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100
115
130
145
160
175
jun10
ago10
out10
dez10
fev11
abr11
jun11
ago11
out11
dez11
fev12
abr12
jun12
ago12
Jun10=
100
Agricultural Commodities (IC-Br in US$)
Source: BCB
Commodity Price Shock
Increase in Jul-Aug/12: +10.5%
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27Source: BCB
Achieved Inflation Target Eight Years in a Row
-
2,0
4,0
6,0
8,0
10,0
12,0
14,0
16,0
18,0
dez/99
jun/00
dez/00
jun/01
dez/01
jun/02
dez/02
jun/03
dez/03
jun/04
dez/04
jun/05
dez/05
jun/06
dez/06
jun/07
dez/07
jun/08
dez/08
jun/09
dez/09
jun/10
dez/10
jun/11
dez/11
jun/12
dez/12
jun/13
dez/13
yoy
%
Reference
Scenario
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Recent EconomicDevelopments
ActivityInflation
Credit & Financial System
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Credit and Financial System
The Brazilian financial system is wellcapitalized, liquid and holds ample provisions
Credit is growing at a sustainable pace
Access to banking services is improving
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30Source: BCB
Credit / GDP
25,8 26,0 24,6 25,728,3 30,9
35,2
40,543,7
45,2
49,051,0
-5
5
15
25
35
45
55
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012*
%o
fGDP
2009-2011: 18.3%(average growth of nominal credit)
2005-2008: 25.2%(average growth of nominal credit)
*Aug 12
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31Source: BCB
Real Estate Credit is Leading Credit Growth
37.1%
17.0%
up to Aug 2012 / Real Estate up to Jul 12
15.7%
-15
-10
-5
0
5
10
15
20
25
30
3540
45
50
jan02
jan03
jan04
jan05
jan06
jan07
jan08
jan09
jan10
jan11
jan12
%YoY
Total Corporations Households Real Estate Credit
18.5%
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17,5 17,116,5
15,7 15,7 15,5 15,1 14,7 14,7 14,6 14,2 14,0 13,912,7 12,7
11,6
0
2
4
68
10
12
14
16
18
20
Indonesia
Brazil
Turkey
UnitedKingdom
Mexico
Argentina
Canada
UnitedStates
SouthAfrica
Russia
Japan
SouthKorea
India
China
Italy
Australia
%
Source: IMF / FSI - financial sector indicators
Regulatory Capital / Risk-Weighted Assets
2012 Q2 or latest available data
Li id A t / Sh t T Li biliti
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111 109
81
7367
5652
45 43 43 41 3832 32
22
3
0
20
40
60
80
100
120
Brazil
Korea,
Russian
Turkey
United
Mexico
Japan
Canada
China,
Argentina
Australia
United
Indonesia
South
India
Italy
%
Liquid Assets / Short Term Liabilities
2012 Q2 or latest available data
Source: IMF / FSI - financial sector indicators
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Provisions Net of Non-performing Loans / Capital
9 8
4 4
-2 -3-5 -6
-9 -10
-16 -18 -18-22
-30
-65-70
-60
-50
-40
-30
-20
-10
0
10
20
Mexico
Brazil
Argentina
China
Turkey
SouthKorea
Indones
ia
Canada
Russ
ia
Ind
ia
UnitedKingdo
m
UnitedStates
Australia
Japan
SouthAfrica
Ita
ly
%
2012 Q2 or latest available data
Source: IMF / FSI - financial sector indicators
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3535
2000 2010
0 (20%)
>0 to 2 (22%)
>2 to 5 (40%)
>5 to 10 (16%)
>10 (2%)
# of points per 10,000 adults(% of municipalities)
0 (0%)
>0 to 2 (0%)
>2 to 5 (6%)
>5 to 10 (29%)
>10 (65%)
# of points per 10,000 adults(% of municipalities)
All municipalities have a least one bank branch, outpost or correspondent.
Access to Banking Services
Source: BCB / IBGE
Bank branches, bank advanced outposts (PAA), credit cooperatives(headquarters and outposts) and bank correspondents
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Looking Forward
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Outlook for Brazil
Demographic bonus until 2025
Major investment opportunities
Offshore oil fields (pre-salt layer)
Social gains and expansion of the middle class
Vast reserves of mineral commodities
Potential to expand cultivated area and agricultural production
Major international sports events (FIFA World Cup and Olympics Games)
Expanding and upgrading infrastructure
Reforms to increase investment, productivity andcompetitiveness
Sustainable GDP growth in the coming years
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Population Pyramid (2010)
Source: IBGE / UN
Favorable Demographics
Dependency Ratio
Note: The dependency ratio is the ratio of the sum of the populationaged 0-14 and that aged 65+ to the population aged 15-64
Brazils dependency ratio is still
declining
Brazilian population is highly
concentrated within the EconomicallyActive Population range
-10 -5 0 5 10
0-410-1420-2430-3440-4450-5460-6470-7480-8490-94100+
millions of people
men women
25
50
75
100
1950
1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
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39
49
2517
47
39
32
66
105 118
13
23 29
0
50
100
150
200
2003 2011 2014*
E D C A/B
Source: FGV
Growing Middle Class Expanding Consumer Market
millionp
eople
Social Stratification
7.6%
37.6%
26.7%
28.1%
11.8%
55.1%
20.3%
12.9%
14.9%
60.2%
16.4%
8.6%
*FGV forecast
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Reforms to Boost Growth
Reduced electricity costs due to lower taxes andrenewal of concessions
Pro-growth fiscal and tax reforms
Public sector pension reform
Tax-advantaged bonds for infrastructure and R&Dinvestment
Payroll tax cuts
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Increased public and private investment ininfrastructure
Reforms to Boost Growth
Building a skilled labor force
Science without frontiers 100 thousand scholarshipsfor undergraduate and graduate studies abroad
Pronatec expansion of professional and technologicaleducation, totaling 8 million trainees over four years
Initiative for ports and airports to be announced (4 airportconcessions already auctioned)
Concessions and public-private partnerships for
highways and railways
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42Source: Ministry of Planning and Budget
Major Infrastructure Investments Planned for 2012-2015
Other
Transportation
Oil and Gas
Energy
Affordable Housing R$ 390 billion
R$ 300 billion
R$ 228 billion
R$ 117 billion
R$ 160 billion
Total: R$ 1.2 trillion
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43Source: Federal Government of Brazil
Logistics Investment Program
Total
Investment
US$ 65.3billion
US$ 17.2 bnwithin 25 years
US$ 39 bnwithin 5 years
US$ 26.3 bnwithin 25 years
US$ 9.1 bnwithin 20 years
US$ 27.5 bnwithin 5 years
US$ 11.5 bn
within 5 yearsHighways
US$ 20.6 bn
7,500 km
RailwaysUS$ 44.7 bn
10,000 km
Exchange Rate on August 31st
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44Source: Federal Government of Brazil
Railways
Itaqui
Vila do Conde
Rio Grande
Suape
Salvador
Ilhus
Vitria
Rio de JaneiroItagua
Santos
Paranagu
Pecm
Railways
New projects Under evaluation
Under construction (PAC)
Current railway system
Circular Railway SP Northbound
Circular Railway SP Southbound
Access to the Port of Santos
Lucas do Rio Verde Uruau
Uruau Corinto Campos
Rio de Janeiro Campos Vitria
Belo Horizonte Salvador
Salvador Recife
Estrela dOeste Panorama Maracaju
Maracaju Mafra
So Paulo Mafra Rio Grande
Aailndia Vila do Conde
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45Source: Federal Government of Brazil
Highways
HighwaysPecm
Rio Grande
Itaqui
Suape
Salvador
Vitria
Rio de Janeiro
ItaguaSantos
Paranagu
Under construction (PAC)
Current highway system
BR-060 DF/GO,
BR-153 GO/MG
BR-262 MG
BR-116 MG
BR-040 DF/GO/MG
BR-101 BA
BR-262 ES/MG
BR-153 TO/GO
BR-050 GO/MG
BR-163 MT
BR-163 MS,
BR-262 MS,
BR-267 MS
E I
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46Source: EPE
Energy Investment
269
749
79
Estimated Investment (2012-2021)R$ billion
Supply of electricity
Oil and natural gas
Supply of liquid biofuels
R$ billion
2012-2021
Supply of electricity 269
Generation 213
Transmission 56
Oil and natural gas 749
Exploration and production of oil and natural gas 547
Supply of petroleum products 198
Refining 174Transportation infrastructure 24
Supply of natural gas 4
Supply of liquid biofuels 79
Ethanol (production plants) 71
Ethanol (pipeline and port infrastructure) 7
Biodiesel (production plants) 1
Total 1097
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0,00,10,10,20,3
0,30,30,40,4
1,83,2
3,811,2
1,51,61,71,7
2,12,5
3,23,4
8,414,0
So DomingosBatalha
Passo So JooGaribaldi
Ferreira Gomes
ColderSimplcio
MauSanto Antnio do Jar
Teles PiresSanto Antnio
JirauBelo Monte
Porto PrimaveraJupi
Foz do AreiaSo Simo
ItumbiaraPaulo Afonso IV
XingIlha solteira
Tucuru I IIItaipu (including Paraguay)
0 5 10 15
Potency (GW)
Source: ANEEL
Major Hydroelectric Plants under Construction
Power Plants Under Construction22 GW
Major Existing Power Plants86 GW
Oil R S G
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48Source: Petrobras
Oil Reserves Set to Grow
0
5
10
15
2025
30
35
40
45
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
future*
deepwater offshore fields(pre-salt layer)
*estimated volume
Tupi and Iracema*(8 billion boe)
Franco* (4.5 billion boe)
Libra* (8 billion boe)
Iara* (4 billion boe)
Guara* (2 billion boe)
crude oil, LNG and natural gas
billionbarreloilequivalent(boe)
Final remarks
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Macroeconomic stability
Final remarks
Inflation under control Declining net public debt (long term trend)
Low external vulnerability net external creditor
Growth is accelerating Financial stability
Financial sector is well capitalized, liquid and provisioned
Room for credit growth Expansion of the middle class (consumer class)
Multiple investments opportunities
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Brazil Economic Overview
Alexandre Tombini
Governor
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