Challenges to economic growth in a global crisis scenario

Luciano CoutinhoPresident

New York, April 23rd, 20122012 Brazil Summit – Brazilian-American Chamber of Commerce

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US Signs of improvements, but recovery will be slow

EuropeCentral Bank warded off panic, but fundamental problems remain.

China Soft landing

A scenario of slowdown in world growth: according to the IMF, growth will be at 3.5%.

Europe’s growth will be below the world average, with some countries in recession.

The Global Scenario in 2012-13

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Purchasing Managers Index (PMI), selected countries In basis points*

Source: BloombergProduced by: APE/BNDES * Values higher than 50 indicate growth

Manufacturing slowdown is a global challenge

Germany France Italy

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USA: Fifty months after the beginning of the recession, employment had not yet recovered

Source: Bloomberg. Produced by APE/BNDES

Path of recovery of US employment following recessions since 1960(t = 0 in the month immediately prior to the beginning of a recession)

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Europe

3

3.5

4

4.5

5

5.5

6

6.5

7

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PortugalSpain

Bond Profitability over 10 years (in %)Updated 04/10/2012

European crisis is still a focus. Spanish bonds spiked recently.

Source: Bloomberg.

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China Growth Rate(var. % Q-on-Q from previous year)

11.310.1

9.0

6.8 6.2

7.99.1

10.711.9

10.39.6 9.8 9.7 9.5 9.1 8.9

8.1

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

Chinese gov't expects growth of 7.5% in 2012

China 2011: Slight slowdown

2006 12.72007 14.22008 9.62009 9.22010 10.42011 9.2

Annual Growth(in var. %)

Source: Bloomberg. Elaborated by APE/BNDES

7Souce: FMI/WEO april/2012. 2012-2017: forecasts.

Real variation of GDP (moving average - 4 years)*Advanced economies vs. Emerging economies

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

19831984

19851986

19871988

19891990

19911992

19931994

19951996

19971998

19992000

20012002

20032004

20052006

20072008

20092010

20112012

20132014

20152016

2017

Emerging

AdvancedForecast

Trends: relocated growth. Emerging countries lead global expansion

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Why can Brazilian economy achieve a

sustainable growth?

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The Brazilian economy

Social inclusion sustains dynamic domestic market;

Investment leading GDP growth;

The Brazilian government has room to maneuver;

Several investment opportunities:Oil & Gas, Infrastructure, Energy, PAC 2,

Competitive sectors, 2014 World Cup, 2016 Olympic Games...

Robust banking system that is not exposed to problematic assets/countries;

Growth is sustainable

Challenge: To increase the competitiveness of industry/services/public sector.

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Growth sustainability

GDP growth, in % per year

Source: IBGE.Produced by: Ministry of Finance. *forecast

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Consumer IPCA Inflation Index (% MoM)

Source: IBGEProduced by: Ministry of Finance

Inflation slowing down

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Fiscal sustainability

Net Debt of the Consolidated Public Sector (% GDP) Net Debt of the Consolidated Public Sector (% GDP) End of Fiscal PeriodEnd of Fiscal Period

Public indebtedness is falling and public accounts are under control.

52.0

60.4

54.8

50.648.4

47.345.5

38.5

42.1

39.2

36.5 36.435.0

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

Source: Bacen

* Market expectations

The Finance Ministry expects to reach a

nominal result close to zero in 2014.

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5.7

11.4

12.9

4.7

7.5

8.9

10.210.8

13.1

4.0

6.0

8.0

10.0

12.0

14.0

16.0

Mar-

02Jul-0

2

Nov-02

Mar-

03Jul-0

3

Nov-03

Mar-

04Jul-0

4

Nov-04

Mar-

05Jul-0

5

Nov-05

Mar-

06Jul-0

6

Nov-06

Mar-

07Jul-0

7

Nov-07

Mar-

08Jul-0

8

Nov-08

Mar-

09Jul-0

9

Nov-09

Mar-

10Jul-1

0

Nov-10

Mar-

11Jul-1

1

Nov-11

Unemployment falling

Unemployment rate (%)

August, 2003

February, 2012

Source: IBGE

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Minimum Salary: Real Variation (Deflator- IPCA)(%)

Workers’ salaries have risen

Average of 5.7% p. a.

Source: Ministry of Labour and Employment, Central Bank

2.23%1.83%

6.57%

-3.97%

4.77%

10.71%

-1.26%

9.79%

0.68%

9.17%

13.11%

3.94%3.13%

7.42%

3.56%

0.34%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

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Social sustainability

Average growth of income between 2000 and 2008, in % p.a.Average growth of income between 2000 and 2008, in % p.a.

Improved distribution of income

8.5%

5.8%

0.0%1.0%

6.6%7.6%

0.9%

15.1%

1.8%2.8%

Brasil Índia China África do Sul Rússia

Source: OECD and Finance Ministry

20% more poor

20% more rich

BRICS: Inequality of income has fallen in Brazil

Brazil India China Sth. Africa Russia

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Brazilian Population: Economic Classes (millions of people)

Source: FGVProduced by: Ministry of Finance

* Based on PNAD (IBGE) data

Brazilian is now a middle class country

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Total Credit for Housing – in % of GDP

Source: Brazil’s Central Bank

Credit has the potential to expand

30.8

35.2

40.5

43.545.0

48.8

4.70

1.4825

30

35

40

45

50

55

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0Total Credit

Housing Credit

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Investment rate in % of GDP (GFFC/GDP)

Investment perspectives are firm

Source: IBGE. *Projections from the Finance Ministry

16.4

15.3

16.1 1616.4

17.4

19.1

18.1

19.5 19.3

20.4

22.0

24.0

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

*

2013

*

2014

*

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2007-2010 2012-2015 % % yearIndustry 263 341 29.5 5.3Oil & Gas 136 202 48.5 8.2Mining 39 33 (13.9) (2.9)Steel 18 12 (33.6) (7.9)Chemical 14 14 4.9 1.0Vehicles 20 32 58.8 9.7Electronics 12 14 17.5 3.3Pulp & Paper 11 15 30.9 5.5Textile and Apparel 6 8 33.3 5.9Ind. Health Care Complex 6 6 9.1 1.8Aviation 2 4 158.5 20.9

Infrastructure 187 229 22.2 4.3

Housing 341 491 44.2 7.6

TOTAL 791 1062 34.1 6.0

SectorsUS$ billion Growth

Investment perspectives are firm

Oil and Gas, as well as Infrastructure will lead investments over the coming

years.

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In million tons of grains (cereals, legumes and oilseeds)

Source: Conab/MAPAProduced by: Ministry of Finance

New record of the brazilian crop in 2011

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PAC 2 and several investment challenges in the infrastructure sector

PAC 2 Projects (US$ bn) 2011 - 2014 After 2014 TotalPAC Better City 32.6 - 32.6

PAC Citizens' Community 13.1 - 13.1

PAC My House, My Life 159.0 - 159.0

PAC Water & Electricity for all

17.5 - 17.5

PAC Transport 59.7 2.6 62.3PAC Energy 263.8 358.2 622.0

Total 545.7 360.8 906.5

US$/R$ = 1.75

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In US$ billion

Source: Ministry of Sports and Ministry of Finance

Investments: World Cup 2014

18.9

1.1

2.6

2.2

13.0

3.1

6.6

3.3

Total Infra

Hotelaria

Segurança e saúde

Telecom e energia

Total Infra Civil

Portos e Aeroportos

Mobilidade Urbana

Estádios

US$/R$ = 1.75

Stadiums

Urban Mobility

Ports and Airports

Telecoms and Energy

Health and Safety

Hotels

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Challenges to industrial sectorIndustry is facing strong competition

Manufactures Goods Balance – US$ billion

Source: MDICProduced by: Ministry of Finance*12-month basis by February 2012

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Nominal Exchange Rate (R$/US$)

Source: CMA BrasilProduced by: Ministry of Finance

Evolution of exchange rate

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1) Tax reductions (payroll)

2) Domestic production stimulus

3) Foreign trade financing

4) Barriers to unfair competition

5) Incentives to Information Technology and communications sectors

6) Credit for investment – PSI 4

7) Automotive Regime (2013-2017)

Challenges to Industrial sectorRecent measures of “BRASIL MAIOR” Plan

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Some challenges must be overcome to sustain long-term growth

Long-term Agenda

Diversify sources of long-term funding;

Increase the rate of domestic savings;

Solid and growing investment in infrastructure;

Improve competitiveness of Brazilian industry: reduce systemic costs

Training/education of the workforce to maintain significant gains in productivity;

Foster innovation and sustainability;

Generate continuous opportunities for social ascension and to eradicate poverty;

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