Brazilian Economy Outlook

Transcription

1 th edition March 2010 Brazilian Economy Outlook

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3 Summary Economic Activity 5 Mass Consumer Market 27 Inflation 35 Interest Rates and Credit 43 International Overview Reduction of External Vulnerability Highlight: Current Account Fiscal Policy 91 Glossary 110 3

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5 Economic Activity

6 A new economic and social policy Brazilian economy recorded -0.2% of GDP growth in However, policy measures undertaken to cope with the international financial crisis restrained the economy to face a 2.0% to 3.0% drop last year. In the coming years, it is expected that the Brazilian economy will get back to a new development cycle under an average growth rate estimated at 5.5% per annum. GDP Growth in the Mid-Term (% yoy) Economic Activity PAC 1 PAC Average 1.7% Average 4.2% 4.0 Average 5.5% Average rate ( ) Average rate ( ) Average rate ( ) Data: % change from preceding year * Government Forecasts *2011*2012*2013*2014* Source: IBGE Produced by: 6 6

7 Investments drive growth in the 4th quarter of 2009 Compared to the previous quarter, the annualized 8.4% growth rate in the last quarter of 2009 was intensified by a 6.6% investment growth rate. For the second quarter consecutively, investments have led GDP growth (6.5% in the third quarter against the second one in 2009). Exports could also be considered as a driving force to growth with a 3.6% rise. Economic Activity Composition of GDP Growth (4Q 2009/3Q 2009) Data: % change from preceding quarter, seasonally adjusted figures GDP Gross Fixed Capital Formation Household Consumption Government Spending Exports Imports Source: IBGE Produced by: 7 7

8 Investments are about to increase threefold to GDP Manufacturing industry and investments, which caused the Brazilian GDP drop in 2009, are also the segments which have led economic recovery from the fourth quarter of 2009 on. Based on Government measures taken from the second quarter of 2009 (such as capital injection in BNDES) and the expectations for higher economic growth for the following years, it is expected a 18% investment rise for Economic Activity Investment and GDP Growth (% yoy) * Investiment GDP Data: % change from preceding year * Forecasts Source: IBGE Produced by: 8 8

9 Solid domestic demand growth in Brazil helps Latin American economy, according to IMF According to Jörg Decressin, Assistant Director of the IMF Research Department (World Economic Outlook), growth in Latin America is about to be consolidated because domestic demand is fairly vigorous. The IMF estimates that the world economic recovery will happen in two different paces, once the recovery in the developed countries is not as fast as during previous recession periods, while in many emerging economies we re seeing a more vigorous recovery, mainly due to the dynamics of domestic demand. Economic Activity Composition of Mass Market (% yoy) * Domestic Demand Net External Demand GDP Data: % change from preceding year * Government Forecasts Source: Brazilian Central Bank Produced by: 9 9

10 PAC 2 forecasts more than R$ 950 billions of investments up to 2014 PAC is a strategic investment program with management and infrastructure actions. One of the main results achieved was increasing investment rate from 16.4% to 18.7% of GDP from 2006 to Government investments from Federal budget and State-owned companies also raised its GDP share: from 1.6% to 2.9% in the same period. Economic Activity Investiment Rate (% yoy) PAC 1 PAC 2 Average = 20.4 Average = 17.5 Average= Current figures Forecasts - Data: % change from preceding year * Forecasts * 2011* 2012* 2013* 2014* Source: IBGE Produced by: 10 10

11 Industry confidence in March is the second highest since 1995 The ICI - Industry Confidence Index - recorded a rise in March reaching points. After a fourteenth consecutive rise, industry confidence index has reached the second highest level of the time series, initiated in April, 1995, standing after only the November 2007 rate (116.9 points). Economic Activity Industry Confidence Index (points) Optimistic view Pessimistic view Data: points 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 Source: FGV Produced by: 11 11

12 Industry can grow 8% this year without pressuring installed capacity In 2009, transformation industry shrank 7% and the main decline happened in areas related to investment, like machines and equipments, metallurgy, iron metallurgy, electric materials, communication equipments and trucks. With strong investment resumption from the third quarter of 2009 on, sustained growth for industry is expected in Economic Activity Industrial Output (% yoy) * Data: % change from preceding year * Forecasts Source: IBGE and Produced by: 12 12

13 Industrial output grew 18.4% in February on a yearly basis Non-seasonally adjusted industrial output increased 1.5% from January to February Compared to January, production of capital goods increased 1.7% and production of durable goods raised 0.7%. Also, the latter rose 26.2%, as opposed to last year February, while the former, 25.2%. Economic Activity Industrial Output Index (Jan07 = 100) Jul 07 Sep 07 Nov 07 Jan 08 Mar 08 May 08 Jul 08 Sep 08 Nov Jan 09 Mar 09 May 09 Jul 09 Sep 09 Nov 09 Jan 10 Feb 10 Data: index-number, seasonally adjusted (Jan07 = 100) Source: IBGE Produced by: 13 13

14 Industry expects a record expansion in installed capacity this year According to Getulio Vargas Foundation, Brazilian industry investment plans, as well new hirings and productive reorganization able to promote its potential output by 14.6% on average terms. It will be the greatest increase of the last eight years. Economic Activity Annual Forecast for Industry Installed Capacity Expansion (% yoy) Data: % change from preceding year Source: FGV Produced by: 14 14

15 Consumption goods: expansion of installed capacity at 27.1% for The main category to put pressure on prices - consumption goods - increased in its supply capacity. From 2010 to 2012, the forecast is a 27.1% growth, that is, an average of 7.2% per year. Economic Activity Expansion of Installed Capacity (% per three-year period) Consumption Goods Capital Goods Intermediary Goods Data: % change from preceding three-year period 2006/ / / / /2012 Source: FGV Produced by: 15 15

16 Domestic demand and profit expectations raise corporate investment levels In 2010, investments are mainly driven by domestic demand. Concerning the 2009 results, 64% of the companies considered domestic demand was a positive influence for investments. In the current year, the number of companies that expect domestic demand to be a positive drive to capacity expansion increased to 80%. Economic Activity Survey on Influential Elements for Investments (% of companies surveyed) Data: % of companies surveyed Profit Expectations Domestic Demand External Demand Conditions Interest Rates Source: FGV Produced by: 16 16

17 Car sales increased 60% in March and surpassed previous record Brazilian market auto output surpassed its own record level reaching thousand units. In the first three months of 2010, accumulated sales totaled 788 thousand units and the production, thousand. Cars and light commercial dual fuel vehicles (flex) sales amounted to thousand units in March, 87.9% of total sales. Economic Activity Total Automobile Licences (thousand of units) Feb 09 Mar Apr 09 May 09 Jun 09 Jul Aug 09 Sep 09 Oct Nov 09 Dec Jan 10 Feb 10 Mar 10 Data: thousand of units Source: Anfavea Produced by: 17 17

18 Industry will invest R$ 500 billion in 4 years BNDES estimates that nearly R$ 500 billion will be invested in the whole industry in the next four years. According to the study, investments in the sectors related to domestic demand will increase at an annual rate of 9.4% up to Good perspectives for electro-electronics, another segment related to domestic demand. The sector shall explore new technologies for the great public by investing R$ 21 billion up to Economic Activity Industry Resource Distribution (R$ billions and % share) Fuel and Gas Iron Metallurgy Minerals Petro Chemicals Vehicle % -1.9% 57.1% 89.5% 39.1% 40.0% 11.8% 60.5% Electronics Cellulose and Paper Industry Total Change between periods above Data: R$ billions and % share Source: BNDES Produced by: 18 18

19 Consumer confidence rises in March After a period of purchase anticipations, lower income households drove consumer confidence index up in March. According to FGV, moderate optimism is the consumers evaluation over their own economic situation as well as the whole economy. Among lower income households (up to R$ 2,100 per month), confidence index raised 1.5%, while among upper income classes (above R$ 9,600 per month), there was a slight decrease of 0.5%. Economic Activity Consumer Confidence Index (points) Data: points Nov 08 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 Source: FGV Produced by: 19 19

20 Retail sales grew 1.6% in February 2010 compared to January 2010 The main contribution came from the Furniture and Household Devices, with a 22.2% increase compared to February Retail trade, which includes other segments like Vehicles, Motocycles, Parts and Pieces, and Construction Material, grew 11.9% in volume of sales since January, Economic Activity Sales Volume in Retail Trade (% yoy) Feb 08 Mar 08 Apr 08 May 08 Jun 08 Jul 08 Aug 08 Sep 08 Oct 08 Nov 08 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 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: 20 20

21 Retail Sales: positive results in the economic activities It s worth mentioning the increase in the Automobiles, Motorcycles, Parts and Pieces, and Construction Material segments has been induced by federal discretionary fiscal measures in order to face the crisis. Nominal revenue for trade sales had a 2.2% expansion in February, as compared to the prior month. On the same nominal basis, trade revenue was up 15.3% compared to February Economic Activity Real Retail Sales (% mom) Weight Activity Feb 10 / Jan Broad Retail Trade Retail Trade Pharmaceutical, medical, orthopedic and perfumery articles Textile, clothing and footwear Hyper/Supermarkets, food, beverages and tobacco Construction material Automobiles, motorcycles, parts and pieces Other articles of personal and domestic use Furniture and household devices Fuels and lubricants Office, computer and communication supplies -0.8 Books, newspapers, magazines and stationery articles Data: % change from preceding month Source: IBGE Produced by: 21 21

22 Monthly Survey of Trade IBGE Economic Activity Monthly Survey of Trade Seasonally adjusted (%) Before seasonal adjustment Preceding period of the previous year (%) Basis: February, 2010 Preceding month: January, 2010 February 2009 Yearly accumulated 12-month period Retail Trade Fuels and lubricants Hipermarkets, supermarkets, food, beverages and tobacco Textiles, clothing and footwear Furniture and household devices Broad Retail Trade Automobiles, motorcycles, parts and pieces Construction materials Data: % change Source: IBGE Produced by: 22 22

23 Composition of Gross Domestic Product Economic Activity Gross Domestic Product Seasonally adjusted change in the preceding quarter (%) Preceding period of the previous year (%) 4 Q Q Quarter Yearly Accumulated Accum. 2009/ 2008 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Farming Industry Mining Manufacturing Construction Services Trade Transportation, Storage and Mail Information Services GDP (current prices) Household Consumption Consumption of Public Administration Gross Fixed Capital Formation Exports of Goods and Services Imports of Goods and Services (-) Data: % change Source: IBGE Produced by: 23 23

24 Industrial Production Economic Activity Industrial Production Seasonally adjusted (%) Before seasonal adjustment Preceding period of the previous year (%) Basis: Preceding month: Quarterly February, 2010 January, 2010 Average February Yearly Accumulated 12-month General Industry Mining industry Manufacturing industry Capital goods Industrial serials non-serial Agricultural Agricultural parts Construction Electricity sector Transportation equipment Mixed-use Intermediate Goods Durable Consumer Goods Consumer Durable and Non-Semi Data: % change Source: IBGE Produced by: 24 24

25 Consumer Survey and Indicators of Industrial Output Economic Activity Consumer Survey (FGV) Mar 10 Jan 10 Feb 10 Mar 10 Yearly Accum. 12-month period Consumer Confidence Index Intention of Durable Goods Purchases Situation of the Local Economy at the Moment Family Financial Situation at the Moment Coincident Indicators of Industrial Output Seasonally adjusted Preceding month (%) Before seasonal adjustment Preceding year Jan 10 Feb 10 Mar 10 Dec 09 Jan 10 Feb 10 Anfavea - Total Vehicle Production Dec 09 Jan 10 Feb 10 Dec 09 Jan 10 Feb 10 ABCR - Heavy Vehicles Flow on the Highways ABPO - Shipping Paper Imports - intermediate goods (quantum) Exports - intermediate goods (quantum) Energy Consumption (GWh) Data: % change Source: FGV, Anfavea, ABPO and ABCR Produced by: 25 25

26 Industry Sales Industrial Sales (CNI) February Preceding month Quarterly Average February Yearly Accumulated 12-month Real revenues Hours worked in production Packages (ABPO) Feb 10 Preceding month Quarterly Average February Yearly Accumulated 12-month Wavy paper Dispatch Economic Activity Automobiles (Anfavea) March-10 Preceding month Quarterly Average February Yearly Accumulated 12-month Automobile production Automobile licensing (domestic and imported) Automobile exports Survey of Manufacturing Industry (FGV) Mar 10 Preceding period of the previous year (%) Jan 10 Feb 10 Mar 10 Yearly Accumulated 12-month Expected production Level of employment provided Domestic demand External demand Inventories Capacity utilization level Data: % change Source: CNI, ABPO, FGV and Anfavea Produced by: 26 26

27 Mass Consumer Market

28 Middle class growth despite crisis Research from Getulio Vargas Foundation corroborates the argument that international financial crisis has not reached the majority of the Brazilian population. The poorest went on growing and class C share increased from 51.8% to 53.8% of the country s population. According to the study, total household income considers the following wage ranges: class E (until R$ 804), class D (from R$ 804 to R$ 1,115), class C (from R$ 1,115 to R$ 4,807), class A/B (from R$ 4,807 on) (prices in December, 2008). Mass Consumer Market A New Class C (% of population) Increase of 26% Class D/E (until R$ 1,115) Class C (from R$ 1,115 to R$ 4,807) Class A/B (from R$ 4,807) Data: % share of population * Prices in December, 2008 Source: FGV Produced by: 28

29 Net employment generation has best results in March since 1992 In there was an expansion of thousand formal jobs in Brazil. In the first quarter of 2010, net employment generation jobs has reached thousand new jobs, surpassing best record from January to March, 2008 (554 thousand). By the end of 2010, Brazil will have returned to the level of generating more than 1.8 million new jobs. Mass Consumer Market Net Job Generation (thousands of jobs) 10.5 million formal jobs 1,800 1, ,523 1,254 1,229 1,617 1, ,0 Jan-Mar, 2010 generated jobs * Data: thousands of jobs * Forecasts Source: Labor and Employment Produced by: 29

30 Net employment generation: civil servants and formal jobs Considering civil servants and formally employed jobs, since 2003 there has been created 12.4 millions of new jobs. It's been estimated that almost 2 million jobs will be created in the category, resulting in a 13.8 million new job expansion from 2003 to Mass Consumer Market Net Job Generation (thousands of jobs) 13.8 million jobs 2,000 1, , , , , , , , * Jan-Mar, 2010 accomplished jobs Data: thousands of jobs * Forecasts Source: Labor and Employment Produced by: 30

31 Despite the crisis, formal employment rises and informal employment drops The rate of formalization, defined as the proportion of the population formally employed over occupied population, has had an annual growth of 0.4 p.p. reaching 50.7% in February, Mass Consumer Market Rate of Formalization (% formally employed over the occupied people) 50, ,0 49,5 49,0 48,5 48,0 47,5 47,0 46,5 46,0 45,5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Data: % formally employed over the occupied people Source: IBGE Produced by: 31

32 Greater poverty reduction in the poorest regions The increase in cash transfers in recent years, especially of minimum wage and Bolsa Família Program, has substantially and comprehensively reduced poverty levels in the country. In 2009, the year of the crisis, poverty continued its downward trend due to the already mentioned reasons and the little crisis impact on job market. Mass Consumer Market Poverty (% of population) North Northeast Southeast South Mid-West Data: % of population Source: IBGE and IPEA Produced by: 32

33 Social improvements and inflation control increase real income of lower classes The stronger growth of the economy, coupled with cash transfer programs and inflation control, has ensured a significant income increase. Lower income encompasses the population below the average poverty line, which was 41.1% of the Northern population, 51.3% of the Northeastern, 17.6% of the Southeastern, 17.3 of the Southern, and 18.2 from the Mid-Western. Mass Consumer Market Real income per capita Growth (% 2008/2003 average) North Northeast Southeast South Mid-West Lower income Others Data: % change from 2008/2003 average period Source: IBGE and IPEA Produced by: 33

34 Purchasing power is the largest in 14 years The 9.5% increase in minimum wage has allowed improvements in the purchasing power of the population over the last year. The improvements also consider a smoother rise in the essential products 12-month period rate, like food & beverages, and a reduction in the staple food basket cost. For example, one minimum wage used to buy only 1.38 staple food basket in June, From then on, minimum wage purchasing power has increased 29%. Mass Consumer Market Minimum Wage (number of staple food baskets) The highest level of the decade Devaluation of Real against US dollar due to 2002 election increase the staple food basket cost Commodities price pressure erodes consumer purchasing power 2009 Jan 10 Feb 10 Data: number of staple food basket Staple food baskets are consumer goods (such as bread, milk, paper, sugar) that are bought often and consumed routinely. Staples offer little differentiation and usually compete on the basis of price Source: Dieese and LCA Consulting Produced by: 34

35 Inflation

36 IPCA inflation index within the target Inflation The first quarter of 2010 was strongly influenced by inflationary pressures from price adjustments in education, sugar and alcohol, public tariffs and in natura food. On the latter sector, the increase in the rainfall volume has damaged products like fruits and vegetables. Despite market expectations, we still tend to believe in an annual IPCA closer to 4.5% inflation target. IPCA Inflation Index (% yoy) * 2011* 2012* 2013* 2014* Inflation target Lower and upper bounds IPCA inflation index Data: % change from preceding year * Market Expectations FOCUS Report from April 9th, 2010 Source: IBGE and Brazilian Central Bank Produced by: 36

37 IPCA inflation index falls to 0.52 percent in March Inflation Despite the delay to the end of rainfalls, IPCA index declined in March. The rise in prices as of March was in the food index (from 0.96 percent to 1.55 percent), representing 0.35 percentage points in the overall index. IPCA declined substantially. Market expectations express a 4.7% change in the next 12 months until April, IPCA Inflation Index and its Expectations(% mom) 0,9 0, ,7 0,6 0,5 0,4 0,3 0,2 0,1 0, Jan 10 Fev Mar Abr 10 Mai 10 Jun 10 Jul 10 Ago 10 Set 10 Out 10 Nov 10 Dez Jan 11 Fev 11 Mar 11 Abr 11 Mai 11 Jun 11 Realized IPCA figures Monthly Average IPCA Data: % change from preceding month * Market Expectations FOCUS Report from April 9 th, 2010 Source: IBGE and Brazilian Central Bank Produced by: 37

38 Index for vegetables posted the largest increase in the 4-week CPI Inflation Persistence in tropical rainfalls has been crucial to the food index rises. The index for vegetables posted the largest increase in the food group, expanding 14.5 percent in April after increasing 12.7 percent in March. The tomato (42.7 percent) and sweet potato (12.7 percent) are the two items with the highest changes among all prices in the index composition. A substantial reduction in the overall index is expected as the rain diminishes in intensity. IPC-S Inflation Index - Food Group (% mom) 15 14, jan 08 feb 08 mar 08 apr 08 may 08 jun 08 jul 08 aug 08 sep 08 oct 08 nov 08 dec 08 jan 09 fev 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 3,1 1,0 Food General index Vegetables Data: % change from preceding month Source: FGV Produced by: 38

39 IGP-M inflation index falls substantially Inflation The fall in the IGP-M index for the first one-third of April is a good sign for the next months of The index number was close to the estimates in the market. Drop in the inflation was felt in transportation (especially alcohol and gas fuels), housing and education. The components still pressuring on prices are UHT milk and beans. IGP-M Inflation Index - (% mom) Abr 09 Mai 09 Jun 09 Jul 09 Ago 09 Set 09 Out 09 Nov 09 Dez 09 Jan 10 Fev days 11-20days days 1-10 days 11-20days days 1-10 days 11-20days days 1-10 days 11-20days days 1-10 days 11-20days days days days Mar days Abr 10 Data: % change from preceding month Source: FGV Produced by: 39

40 2009/2010 grain crop beats historical records Inflation According to IBGE, the 2009/2010 grain crop shall reach the historical record of million of tons. The expected increase in the grain production is due to the recovery of productivity, mainly in the crops of corn and soy. The estimated crop shall occur in an area of 47.9 millions of hectares. South of Brazil will be responsible for 60.8 millions de tons. Brazilian Grain Crop 2009/2010* (1990/1991 = 100) / / / / / / / / 2010* Pronaf Financing (R$ billions) Corporate Financing (R$ billions) Crop Quantum (millions of tons) Data: index-numbers (1990/91 = 100) * Seventh Survey April, 2010 Source: CONAB Produced by: 40

41 Inflation Index Table Inflation Inflation Index March/10 February/10 March/09 xxxxxxxxxxxxxxxx Accum Accum Month Forecast 2010* IPCA Food and Beverages nd Housing nd Home Supplies nd Clothing nd Transportation nd xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Health nd Personal Expenses nd Education nd Communication nd INPC IPC - FIPE March/10 February/09 March/09 Accum Accum Month Forecast 2010* General Index IGP - M March/10 February/09 March/09 Accum Accum Month Forecast 2010* General Index IGP-DI March/10 February/09 March/09 Accum Accum Month Forecast 2010* General Index IPA IPA Agriculture nd IPA Industry nd IPC nd INCC nd ICV - DIEESE March/10 February/09 March/09 Accum Accum Month Forecast 2010* General Index nd Data: % change na = not available * Market Expectations FOCUS Report from April 9 th, 2010 Source: Produced by: 41

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43 Interest Rates and Credit

44 Interest rates Interes rates, both nominal and real, reached their lowest historical levels in 2009, signaling the compatibility between lower interest rates and inflation control in the Brazilian economy. However, real interest rate presents an upward trend. Interest Rates and Credit SELIC rate and real ex-ante interest rate (% yoy) Reduction in interest rates and inflation control 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 Jan 10 Mar 10 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: 44

45 Future expectations of interest rates The January 2011 and 2012 curves serve as a benchmark for pricing National Treasury bonds while rolling over the domestic fixed rate bond. As we can see, from September 2009 on, future expectations have increased the cost of rolling over public debt as they are embedded in the financial market curve. Interest Rates and Credit Future Contracts of DI* (% yoy) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx , , , , , , , ,5 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/ /3/ January 2013 January 2012 January 2011 Data: % change from each 12-month period * DI: One-day interbank deposit (future) Source: BMF&Bovespa Produced by: 45

46 Credit concessions may reach 49% of GDP Forecasts of a 20% average credit growth in 2010 can increase available credit volume to a 49% of GDP record and fund the productive sectors as well as consumption. The increased credit level and employment generation place altogether the Brazilian domestic market as a driving force for the economic growth in the following years. Interest Rates and Credit Financial system loans (% of GDP) Current Forecast * Data: % of GDP * Forecasts Source: Brazilian Central Bank Produced by: 46

47 Credit: non-earmarked resources expected to increase in 2010 The increase in credit supply to GDP ratio in 2009 compared to 2008 provided the Brazilian economy to overcome the economic crisis. For 2010, there is still an increasing trend of credit offerings, especially within the non-earmarked resource type. Interest Rates and Credit Credit operations with earmarked and non-earmarked resources (R$ billion and % of GDP) 45% 40% 41% 25% 25% 22% 23% Feb 02 Feb 03 Feb 04 Feb 05 31% 28% Feb Feb 07 35% Feb 08 Feb 09 Feb 10 Earmarked (R$ billion) Non-Earmarked (R$ billion) Totals (% of GDP) Data: R$ billion, current prices Source: Brazilian Central Bank Produced by: 47

48 Credit for individuals grows 24% Bank credit supply for individuals grew 24% compared to the amount disbursed in September, when the economic crisis effectively began. There was a 19.8% increase, considering a change from each 12-month period. Interest Rates and Credit Credit transactions targeted to individuals* Sep 08 - R$ billions Feb 10 - R$ billions Leasing and Acquisition of Goods 39% Credit Card 6% Mortgages 1% Overdraft 4% Others 14% Credit Unions 4% Personal Credit 32% Leasing and Acquisition of Goods 35% Credit Card 6% Mortgages 1% Overdraft 4% Others 15% Credit Unions 5% Personal Credit 35% Data: % share * Non-earmarked credit operation types Source: Febraban and Brazilian Central Bank Produced by: 48

49 Corporate borrowing reacts Regarding the pre-crisis period, loans to corporations have increased by 8.8%, led mainly by public banks. In the latest twelve months, it has increased 16.8%, signaling a corporate recovery in investments. Interest Rates and Credit Credit transactions for corporations* Sep 08 - R$ billions Feb 10 - R$ billions Others 13,98% Rural Financing 1% Import Financing 4% Advances on Exchange Contract and Export Funding 15% Others 14% Rural Financing 1% Import Financing 3% Advances on Exchange Contract and Export Funding 9% Hot Money 0,02% Rolling Capital 34% Promissory Note Discount 3% Check Credit for Companies 11% Vendor 2% Leasing and Aquisition of Goods 16% Hot Money 0,1% Rolling Capital 45,3% Vendor 2% Leasing and Acquisition of Goods 14% Promissory Note Discount 3% Check Credit for Companies 9,9% Data: % share * Non-earmarked credit operation types Source: Febraban and Brazilian Central Bank Produced by: 49

50 Post-crisis bank lending Public banks played an important role to unlock bank lending during the critical period of the crisis. From September 2008 to February 2010, the amount disbursed by these institutions has grown 52%, well above 13.4% increase by private banks and the 3.7% by foreign banks operating in Brazil. Public banks market share has reached 41.7%, as opposed to 40.5% of the private domestic banks and 17.8% of the foreign ones. Interest Rates and Credit Financial system credit transactions development, according to capital control - index-number (Sep 08 = 100) % % Public Financial Institution Foreign Financial Insitution Domestic Private Financial Institution 100 Sep 08 Oct 08 Nov 08 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 % Feb 10 Data: index-number (Sep 08 = 100) Source: Brazilian Central Bank Produced by: 50

51 Interest rates for corporations Along with the drop in default rates and a more positive scenario towards employment and wage improvements, bank interest rates for corporations reached 25.9% yoy in February, the second lowest level of the historical time series. However, for 2010, bank interest rates are expected to stop falling. Interest Rates and Credit Banking spread for corporations (% yoy) Jan 05 Apr 05 Aug 05 Dec 05 Apr 06 SPREAD Aug 06 Dec 06 Apr 07 Aug 07 Dec 07 Apr 08 Aug 08 Dec 08 Feb Apr 09 Aug 09 Feb Dec 09 Feb Funding Rate Lending Rate Spread between funding and lending rates Data: % change from each 12-month period Source: Brazilian Central Bank Produced by: 51

52 Interest rate for individuals at the lowest level in 16 years The banking average loan rate for individuals decreased to 41.9% yoy in February, the lowest level since the beginning of the historical time series. The decrease occurred in spite of the raise in the cost of funding. Interest Rates and Credit Banking spread for individuals (%) Dec 04 Apr 05 Aug 05 Dec 05 Apr 06 Aug 06 Dec 06 Apr 07 Aug 07 Dec 07 Apr 08 SPREAD Aug 08 Dec Feb Feb Apr 09 Aug Dec 09 Feb 10 Funding Rate Lending Rate Spread between funding and lending rates Data: % change from each 12-month period Source: Brazilian Central Bank Produced by: 52

53 Bank loan offerings shall be driven by earmarked resources In the last 12 months up to February 2010, total disbursements from BNDES amounted to R$ billions, a 53% increase compared to February Along with the expectations of continued economic recovery, it s estimated that bank credit shall be driven by earmarked resources, which include loans from BNDES, for the rural sector and for housing programs. Such credit lines respond for one-third of total credit disbursed and are expected to increase 26% in Interest Rates and Credit BNDES credit (R$ billion) Disbursements Approvals Data: R$ billions, amount from each 12-month period Source: BNDES Produced by: 53

54 Banking interest rates drop to historical levels The reduction in default since November 2009 and the positive outlook for credit recovery caused yearly average banking interest rates decreases to historical levels: 41.9% for individuals and 25.9% for corporations. Interest Rates and Credit Consumer credit cost Lending Costs Interest Rate Evolution Category Dec Jan Feb Monthly Change General credit 34.3% 35.1% 34.3% -0.8 p.p. Credit for individuals 42.7% 43.0% 41.9% -1.1p.p. Credit for corporations 25.5% 26.5% 25.9% -1.1 p.p. Individuals Dec Jan Feb Monthly Change Loans for durable goods 54.8% 51.7% 50.9% -0.8 p.p. Loans for automobiles 25.4% 25.2% 24.1% -1.1 p.p. Overdraft check 159.1% 161.1% 159.5% -1.6 p.p. Private loans 44.4% 44.8% 43.8% -1.0 p.p. Data: % yoy Source: Brazilian Central Bank Produced by: 54

55 Credit Market Credit Market (% GDP) Feb 10 Share (%) Change (np) compared to Change (np) compared to Dec 09 Feb 09 Total Credit Volume Earmarked Resources xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Non-earmarked Resources Credit Market (US$ billion) Feb 10 Share (%) Change (%) compared to Change (%) compared to Dec 09 Feb 09 Interest Rates and Credit Financial System Credit Total Credit Volume (balance at end of period) 1, Public Sector Private Sector 1, Industry Housing Rural Trade Individuals Other Services Data: % change Source: Brazilian Central Bank Produced by: 55

56 Credit Transactions - Earmarked Resources Loan Operations Credit Market (US$ billion) Feb 10 Share Change Change Dec 09 Feb 09 Total Credit Volume (balance at end of period) BNDES Rural (excluding leasing and financing, and direct transfers from BNDES) Housing (for individuals and housing cooperatives) Other (development banks and fomenting agencies) Loan Operations - Free Segment Total Credit Volume (balance at end of period) to Individuals the Corporations Domestic Resource External Resources Free Segment - New Credit Offers Total Concession Volume to Individuals Personal Loan (including safekeeping/consigned transactions) Acquisition of Goods Credit Cards to Corporations Working capital Guaranteed Account Acquisition of Goods Advances on Exchange Contracts Foreign Onlendings (relending in connection to new money loans) Data: % change Source: Brazilian Central Bank Produced by: Interest Rates and Credit 56

57 International Overview

58 G-20 Economic growth 2009 and 2010 In general, emerging markets have been recovering well due to strong government intervention. Currently, they share 49% of world GDP. In 2010, emerging economies will take the world economic leadership position, on account of cyclical and corrective measures. Even though there was a decrease in the GDP, Brazilian economic performance in 2009 has turned better than advanced economies and other emerging economies like Russia, South Africa and Mexico. International Overview GDP growth (% yoy) * 6.0** China India Brazil Japan United States Germany Russia Mexico Euro Zone Data: % change from preceding year * The Economist Forecasts ** Government Forecasts Source: The Economist Produced by: 58

59 The Brazilian GDP is one of the best performances among G-20 countries in 2009 Brazilian economy recorded -0.2% of GDP growth in Brazilian GDP growth in the last quarter is close to China's and India's performances. International Overview GDP Evolution in the 4Q/2009 (% qoq, annualized) Sweden India -1.2 Italy Germany Euro Area Korea United Kingdom France Switzerland South Africa Australia Japan Canada United States Argentina Brazil Mexico Indonesia China Russia Data: % change from the preceding quarter in an annualized basis Source: Produced by: 59

60 Dinamycs of Brazilian domestic demand Emerging-market economies performed surprisingly well on the upside, both while the global economy was going down, but also now that it s coming up. Figures from retail sales in the world show Brazil has a solid domestic demand growth below China. International Overview Retail Sales in the World (% yoy) / China Brazil Australia Chile United Kingdom France Germany Italy European Union Euro Zone Japan United States Data: % change from preceding year Source: Produced by: 60

61 Brazil: 4th world market for automobiles In the first quarter of 2010, Brazil has become the 4th largest world market for automobiles, right after China, US and Japan. In 2010, according to Roland Berger Consulting, a German firm, sales in the domestic market are estimated at 3.2 million automobiles and light commercial vehicles, and have a potential to reach near 6 million units by International Overview Automobile Market (thousands of units) China United States Japan Brazil Germany France Italy India United Kingdom Russia Automobile sales Automobile production Data: thousands of units * Consulting Forecasts Source: Roland Berger Consulting Produced by: 61

62 Mining and metal merger & acquisitions in world markets Brazil was one of the highlights in M&A in the mining and metal industries in 2009, a trend that willcontinue in Increasing investments from Asia and Middle East will happen, despite the expected volatility throughout the industry Countries Ranking US$ millions Share (%) Ranking US$ millions Share (%) International Overview Australia United States Canada Brazil China South Africa Russia United Kingdom Colombia Venezuela Indonesia Kazakhstan Argentina India Germany Turkey Netherlands Zambia Mongolia Czech Republic Others Total st 2 nd 3 rd 4 th 5 th 6 th 7 th 8 th 9 th 10 th 11 th 12 th 13 th 14 th 15 th 16 th 17 th 18 th 19 th 20 th - 5 7,5 27,5 22,5 10,540 8,397 7,022 6,134 6,008 2,474 2,414 2,347 2,268 1,970 1,856 1, ,847 60, Fonte: Ernst & Young th 3 rd 1 st 5 th 6 th 21 st 10 th 2 nd 36 th 46 th 7 th 8 th 51 st 23 rd 24 th 12 th 39 th 31 st 63 rd ,531 17,821 30,653 13,278 6, ,672 20, ,814 1, , , , ,035 Data: US$ millions and % share Source: Ernest & Young Produced by: 62

63 Employment: highest rate in the world Manpower Consulting conducted a research over the expected employment generation in 2010 and placed Brazil at the forefront within a list of 14 countries (Brazil, India, Singapore, Argentina, China, Japan, Canada, US, South Africa, German, France, England, Spain and Italy). The survey interviewed 850 employers in Brazil. International Overview Expectations for Net Employment Generation (% qoq) Data: % change from preceding quarter Brazil India Singapore Argentina China Japan Canada United States South Africa Germany France England Spain Italy Source: Manpower Consulting Produced by: 63

64 Unemployment: one the smallest in the world The strong recovery of the emerging economies around the world converts these markets in a stable and attractive investment environment. Their economically active population grows in an accelerated pace, which, in turn, makes it possible an income increase and the insertion of even larger groups to the so called middle class. For 2010, it s expected Brazil will have the 5th smallest unemployment rate among developed and emerging economies. International Overview Unemployment rate Selected countries (% yoy) Spain Turkey France United States Argentina Italy Russia Chile United Kingdom Germany 6,8 7.4 Brazil Mexico Australia Japan South Korea Unemployment rate 2009 Unemployment rate 2010 Data: % change from preceding year Source: Bloomberg, OCDE and Country's Statistics Offices Produced by: 64

65 The second best fiscal balance among G-20 countries in 2010 Brazil presented one of the least nominal deficits of the G-20 countries in For 2010, it is expected the fiscal result to decrease to around -1.5% of GDP well above the average achieved by G-20 economies. International Overview Fiscal Result (% of GDP) G-20 economies % average Saudi Arabia Argentina Brazil Mexico Indonesia Australia China Canada Russia South Korea Turkey Germany Italy India South Africa Euro Zone Japan France United States United Kingdom Data: % of GDP Source: The Economist Produced by: 65

66 Interests share in government spending falls for the sixth consecutive year The continuous process of interest rate reduction in the Brazilian economy since 2005 resulted in less government spending on interest payments which fell to 5.4% of GDP in 2009, allowing some fiscal space for the government to expand spending on public investment, social programs and spending priorities on education, health, public security, among others. International Overview Evolution of interest Payments (% of GDP) Decrease of 36.5% * Data: % of GDP * Government Forecasts Source: Economist Intelligence Unit Produced by: 66

67 Interest rate burden in Brazil remains among the highest in the world In recent years, Brazil has experienced macroeconomic conditions to join the group of countries with lower interest rates. The reduction of external vulnerability, combined with price stability and fiscal responsibility, will enable the country to keep a falling interest rate trend. International Overview How much other countries spend in debt interests(% of GDP) 2009 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Data: % of GDP 3,0 2,2 1,2 2,8 4,0 Alemanha Argentina Austrália Bélgica Colômbia Estados Unidos 1,5 4,1 2,3 6,7 6,7 3,0 4,7 4,6 14,6 2,3 2,2 5,4 Filipinas França Grécia Hungria Índia Israel Itália Jamaica Malásia México Brasil Peru Portugal Reino Unido República Tcheca 1,2 2,9 3,3 3,1 4,2 4,5 Taiwan Turquia * EIU Forecasts Source: Economist Intelligence Unit Produced by: 67

68 Bank lending in Brazil still low when compared to other economies In recent years, bank credit in Brazil has grown at rates exceeding 15% yoy, a rate compatible to its growth. It s expected that in 2010 it will continue to grow at a sustainable pace, reaching an estimated 49% per GDP ratio, which is similar to the financing levels of benchmarks in a large number of economies worldwide. International Overview Credit (% of GDP) - Selected Countries and 2010 United States (03/08) Spain (03/08) 155 England (03/08) 153 Canada (03/08) 103 France (03/08) 98 Japan (03/08) 97 Italy (03/08) 88 South Africa (12/08) 81 Hungary (12/08) 78 India (12/08) 74 Chile (12/08) 58 Czech Rep. (12/08) 57 Poland (12/08) 49 Brazil (03/10) 33 Mexico (12/08) 12 Argentina (09/08) Data: % of GDP Source: Ecowin and Moodys Produced by: 68

69 Expansion in mortgages expected for 2010 Credit lending registered a 41.6% rise in the latest 12 months ended in February, 2010, a record. Nevertheless, the 3% mortgage/gdp ratio is among the lowest in the world. The housing deficit in the country, around 8 million units, enables a market expansion with larger availability of credit lines and access by all segments of society. International Overview Mortgage credit (% of GDP) Brazil India 5% 3% China 12% South Africa 34% Japan 40% Spain 59% USA 78% United Kingdom 83% Australia Denmark 84% 100% Data: % of GDP Source: ABECIP, Brazilian Central Bank and World Bank Produced by: 69

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71 Reduction of External Vulnerability

72 International liquidity - Central Bank reserves The country s international liquidity is mainly the result of consecutive trade surpluses and direct foreign investment, which enables the reduction of external vulnerability. Among the main benefits of reserves accumulation, we could mention avoiding sudden stops in the country s current account. Reduction of External Vulnerability Brazilian international Reserves and IMF Loans (US$ billion Gross) * Net Reserves (IMF loans off) IMF loans Data: R$ billion * Forecast Source: Brazilian Central Bank Produced by: 72

73 Lower external vulnerability Brazil has consistently reduced its external debt and enlarged its volume of international reserves in the latest years. The increase in international reserves and the reduction of debt has also enabled the country to overcome the worst crisis in years. Brazil is an international creditor with cash disbursements to the IMF nowadays. International Reserves and Foreign Debt (% of GDP and index) Reduction of External Vulnerability Reserves /GDP Foreign Debt / GDP Foreign Debt / Reserves (index) Data: % of GDP Source: Brazilian Central Bank Produced by: 73

74 Highlight Current account deficit does not impact growth forecasts Differently from the past, current account deficit will not jeopardize growth trend in the coming years. With the world economic recovery, the increase in iron ore price and the improvement in the competitiveness of our products, we expect the deficit at around 2.2% of GDP in Reduction of External Vulnerability Current account (US$ billion and % of GDP) * 2011* 1,8 1,6 4 0,8 1, , ,8-3,5-4,0-4,2-3,8-4,2-1,5-1,8-1,5-2,2-2,5 US$ billion % of GDP Source: Brazilian Central Bank Produced by: 74