BRAZIL – MACRO

1. Inflation

Currently: Annual inflation rate is currently at 6,1%; it went down again last September.Forecast:Brazilian Central Bank: 4,85% end 2009.Economists cobering Brazil’s economy: 5,15% the coming 12 months (October 08 > October 09)

Brazil South Africa

Inflation Sep 08 (CPI) 6,1% 13,6%

Forecast end 2009 4,85% 7,1% (if oil price per barrel remains below 100 $ !!)

Brazilian Inflation South African inflationnote the high core inflation (inflation -impact of oil)

BRAZIL – MACRO

2. Prime interest rate

Currently: After almost a year of a stable interest rate of 11,25%; the central bank moved the intrest rate up in April,

June, July ad September to the current 13,75%. This very tight monetary policy of the Brazilian central bank (cf. Their inflation trauma’s) has been succesful in keeping inflation below 6%.

Forecast:The projections for yearend 2009 are 13,5%.

Brazilian prime interest rate

BRAZIL – MACRO

3. Growth

Currently: Brazil’s economic growth reached 6,1% in the first half of 2008, surpassing expert’s estimates of 5-5,3%.

The IMF foresees in it’s bearish report of October 8th a growth of 4,5% in 2008 and 3,5% in 2009. Forecast:The IMF foresees in it’s bearish report of October 8th a growth of 4,5% in 2008 and 3,5% in 2009. In the

same report, the IMF foresees South African GDP growth to be 3,5% in both 2008 and 2009.

Brazilian tradeBrazilian trade remained very stron in August and September, a trend that started during the second quarter of the year.

Brazilian industrial production

Brazil South Africa Belgium

GDP growth 2008 4,5% 3,5% 1,4%

GDP growth 2009 3,5% 3,5% 0,6%

BRAZIL – MACRO

4. Current account deficit / surplus

Currently: The current account of Brazil will be 0,3% of the GDP, however I personally see this ending slightly negative

after the recent trends. In the meantime, the current account deficit of South Africa soared to -7,25% of the SA GDP.

Brazil South Africa

Current account 2008 -0,5% -7,5%

Current account 2009 -0,8% ?

Trade balance 2008 24,9 billion US$ -6,2 billion US$

Trade balance 2009 16,5 billion US$ ?

World debt 2007 Current account SA 1953 - 2007

BRAZIL – MACRO5. Currency

Currently: From June on, the BRL went well above the 0,375 against the € and reached in september peaks above

0,40. At that level I’ve been seriously concerned of the currency being overvaluated. I wrote on August 5th that the R$ could devaluate 15 – 20%; from September 12th (6 weeks later) on till today it devaluated ... 17% !

Anything in the band 0,35 – 0,375 BRL/EU makes us feel more comfortable.

BRAZIL – MACRO

5. Currency (2)

Future: In the turmoil of this week, the R$ dipped for a minute to 0,32 against the €. This was mainly due to

Brazilian exporters who had speculated en masse on a further appreciation of the R$ and had taken futures on their sales contracts, which created a sudden shortage in dollars on the market. On October 9th, the R$ gained 7% (biggest gain since August 2002) as the inrtrest rate cuts by central banks eaded investor aversion to higher-yielding assets and as the Brazilian Central Bank drew on it’s considerable foreign reserves to support the currency.Yet for sure the global currency market will remain volatile for the coming months. With the current tight monetary focus there is no reason why the currency would be at structural risk.Bloomberg projected on Ocober 7 the BRL trading at 1,82 per USD by yearend 2009. Currently 1 USD= 2,2 BRL (a 22% rise against today).

BRAZIL – MACRO

5. Currency (2)

Future: In the turmoil of this week, the R$ dipped for a minute to 0,32 against the €. This was mainly due to

Brazilian exporters who had speculated en masse on a further appreciation of the R$ and had taken futures on their sales contracts, which created a sudden shortage in dollars on the market. On October 9th, the R$ gained 7% (biggest gain since August 2002) as the inrtrest rate cuts by central banks eaded investor aversion to higher-yielding assets and as the Brazilian Central Bank drew on it’s considerable foreign reserves to support the currency.Yet for sure the global currency market will remain volatile for the coming months. With the current tight monetary focus there is no reason why the currency would be at structural risk.Bloomberg projected on Ocober 7 the BRL trading at 1,82 per USD by yearend 2009. Currently 1 USD= 2,2 BRL (a 22% rise against today).Update November 2:The Real moves back to pre-crisis patterns as predicted: see this analysis of Bloomberg:

http://www.bloomberg.com/apps/news?pid=20601086&sid=a_Sq2axtn_UY&refer=news

BRAZIL – MACRO

*. Brazilian economy conclusion

While inflation in the country remained slowed down a bit during August, both on a monthly basis as well as on a year-over-year basis, the central bank’s fear was until end September that a continuation of the current strong economic performance could put pressures on inflation over the next several quarters. In the current context where the stagflation phantom is raising above Europe and the US, growth will be lower then the 6,1% of the first half year. On the other hand, the recent downward pressure on the domestic currency could also contribute to higher pressure on inflation in the future. This means that the central bank will probably keep prime on 13,75%. This inflation-focus is a good choice in the mid-long term for the country. For this reason, I project, as the IMF (and contrary to most other analysts), a growth of 3,5% in 2009 (other analysts foresee 4,5%, see below).

BRAZIL – MACRO

6. Real Estate Brazil (1)

Long period of growth expected.

a. In 2006 the lending time period of a loan was maximum 15 years. It is now wlosly increasing to 30 years.

b. Important measures in the legal field (eg1. The time period of repossession of the asset from a defaulting buyer has dropped from an average tiome of 5 years to just 6 months) (eg2. In the case of a buyer wanting to question the contract or the value of the installments with the seller, a new legal norm makes it obligatory for the buyer to continue with the regular payments during the action at law)... These legal measures are all considered by the Higher Courts and constituional binding; bring extra needed security for investors.

c. New measures are under study aimed at eliminating the red tape in real estate operations and speeding up approval of projects.

d. Unemployment rates have been falling substantially (the rate of formal job creation was 40% higher in the year to this July as in the previous 12 months).

e. Brazil, previously notorious for its extremes is now a middle-class country.The country has a housing deficit of 8 million units.

f. Even when this deficit would be erased, the natural demand would be 1,4 million units a year.

g. The so-called subprime crisis has not seriously affected the Brazilian real estate market. The impacts are macro-economical and drop in the Bovespa -Bovespa is more than 40% represented by Petrobras (oil) and Rio Vale Doce (iron)-. Subprime operations are quasi non existing in Brazil and in addition to this, the previously mentioned legal measures have drastically reduced the defaulting effects in credits.

BRAZIL – MACRO

6. Real Estate Brazil (2)

h. The lower-income market is rising and there is a gigantic unment demand in this market; also new markets are emerging in new towns (ethanol, mineral exploitations,...)

i. There is a room for further reduction in interest rates, contrary to elsewhere in the world.j. Real Estate financing in relation to GDP is only a fraction compared Europe or the US,

there is plenty room for growth; whereas in Europe and the US we have reached “Peak Credit”

k. The real estate market share in the Brazilian GNP has climbed from 1,7% in 2006 to 2% in 2007, while in the United States this number was around 69% in the same time period.

BRAZIL - MACRO

ANNEX 1: Public Debt as GDP