Brazilian Economy Outlook

transcript

Brazilian Economic

OUTLOOK14 Special Edition | February | 2012

Ministry ofFinance

B R A Z I L I A N G O V E R N M E N T

Ministry of Finance

Special Edition | Year 2011

Foreword

Economic Activity

Employment and Income

Inflation

Interest Rates and Credit

Fiscal Policy

External Sector

International Overview

Special Section – Brazil: A Decade of Progress

Glossary

Summary

Brazilian Economic Outlook is published by the Ministry of Finance. The report consolidates and updates the main macroeconomic variables resulting from the economic policy conducted by the following Secretariats from the Ministry of Finance: Economic Policy Secretariat (SPE), National Treasury Secretariat (STN), International Affairs Secretariat (SAIN), Secretariat for Economic Monitoring (SEAE) and Federal Revenue Secretariat (RFB).Data used in this report were updated by February 2nd, 2012.

Ministry of Finance

Foreword

2011 at a glance and prospects for 2012

In the global context, 2011 was affected by the worsening of the 2008 financial crisis, sovereign debt problems within the Eurozone and the political gridlocks in the U.S. The quantitative easing policy fostered by the United States and Europe turned out to put upward pressure on commodity prices, fueling global inflationary process and leading to the breaching of inflation targets in most inflation targeting countries.

The Brazilian government acted promptly to quell the acceleration of prices via macro-prudential and fiscal measures. It’s worth noting the fiscal consolidation program issued early in 2011, which helped to meet the full primary surplus at the end of the year and had a decisive role in the monetary easing process. In the FX market, the management of capital inflows has been recognized by international experts and agencies, and it has helped price stabilization policy in Brazil, in addition to financial stability.

In 2011, the success of the economic growth model adopted by the Brazilian government included several important measures, such as: new stages of “PAC” investment and strategy program, and “Minha Casa, Minha Vida” housing program; expansion of the “Bolsa Familia” conditional cash transfer program along with the “Brasil sem Miseria” program; the new industrial policy in the “Brasil Maior” plan; expansion of the “Simples” tax regime for microenterprises; “Pronatec” program aiming technical and professional qualification of workers and “Crescer”, a productive-oriented microcredit program. Furthermore, several measures of bureaucratic rightsizing and modernization were taken by the Internal Revenue Service and the National Treasury. It is still worth mentioning the consolidation of a long-term minimum wage increase policy, with a real increase of 66% since 2003, reaching R$ 622 in January 2012.

As a result of the growth model, Brazil has become the world’s 6th largest economy. Forecasts from international agencies indicate that the country may be the 5th largest world power in the near future. The year of 2012 has

Ministry of Finance

Foreword

started with a more competitive exchange rate, lower interest rates, sound fiscal and financial institutions, low unemployment, controlled inflation, high consumer and business confidence, along with a strong portfolio of public and private investments for the coming years in various sectors of the economy.

For 2012, the Federal Government will work to support the well-succeeded growth model, encouraging public and private investments in infrastructure and industry, increasing professional qualification, and substantially reducing extreme poverty.

Brazilian Economy

OUTLOOK

Ministry ofFinance

Economic Activity

Ministry of Finance

Special Edition | Year 2011Econom

ic Activity

By the third quarter of 2011, government policies and international crisis worsening have put the Brazilian economy into a process of accommodation. From that time on, policies have been gradually withdrawn, especially those for easing economic activity. Late in 2011, the country’s economic performance started to rebound even under the aggravation in the international landscape. Such recovery can be seen through the economic indicators such as Economic Activity Index of the Central Bank of Brazil, industrial production and energy consumption.

The quality in 2011 GDP growth has been even more important than its expansion pace. Investment has grown faster than household and government consumptions, which indicates increase in the productive capacity higher than demand in the coming years. Thus, the Government announced a set of measures in 2011 focusing on the strengthening of the domestic industry. Such policy is called “Plano Brasil Maior” filled with tax proposals, trade policy and a wide workforce qualification program.

It’s also worth mentioning the vigorous growth of “PAC” investment and strategy program, from R$ 29.7 billion in 2010 to R$ 35 billion in 2011. The disbursements of “Minha Casa, Minha Vida” housing program amounted to R$ 41.4 billion, compared to R$ 37.2 billion in 2010.

Economic growth even under worsening international crisis

Ministry of Finance

ic Activity

GDP Growth (% YoY)

Data: % annual

* 2011: IBGE data accumulated in the first three quarters over the same period in 2010** Ministry of Finance estimates

Source: IBGE and Ministry of FinanceElaboration: Ministry of Finance

A sustainable economic growth in Brazil

The year of 2011 was important to consolidate the Brazilian long term growth path in an environment of international growth slowdown. After a lower growth in 2011, the Brazilian economy will grow faster in 2012. Since investments will come from both private and public sectors, the average growth rate until 2014 will be higher than previous four years.

2014**

2013**

2012**

2011*2010

20092008

20072006

20052004

20032002

20012000

19991998

3.5%Average

4.6%Average

4.8%Average

3.24.0

0.00.3

2.73.2

InternationalCrisis

4.5 5.5 6.0

1.7%Average

Ministry of Finance

ic Activity

Economic Activity Index (index number, seasonally adjusted)

Data: index number, seasonally adjusted (2002=100)

Source: Central Bank of BrazilElaboration: Ministry of Finance

Index indicates growth in the economic activity

According to the IBC-BR (Economic Activity Index of Central Bank of Brazil), there has been a 1.15% expansion in November 2011 compared to the previous month. Therefore, a positive change is expected in the third and fourth quarters of the year.

Nov 2011

Apr 2011

May 2010

Jun 2009

Aug 2007

Sep 2006

Oct 2005

Nov 2004

Dec 2003

Jan 2003

140.19

Ministry of Finance

ic Activity

Industrial Production Index (index number, seasonally adjusted)

Data: index number, seasonally adjusted (average 2002=100)

Source: IBGEElaboration: Ministry of Finance

Industrial production

Industrial production grew 0.3% in 2011 below the 10.5% posted in 2010. In the first three months of the year, there was a general increase in the level of production due to the expansion pace in 2010. In 2011, the main highlights are the transportation sector and the capital goods industry as a whole, with a 3.3% hike in annual terms.

Dec 20112011

20102009

Oct 2008

20082007

Ministry of Finance

ic Activity

Retail Sales Volume (%, 12-month basis)

Retail Monthly Survey Retail Monthly Survey (Broad)* Retail Sales Per Sector

Data: % in a 12-month basis up to November 2011

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

Retail sales growth slows down

In the accumulated 12 months up to November, retail sales grew 7.0% and broad retail sales grew 7.7%. For the whole 2011, the sector’s performance should be less than in 2010, when it accumulated respective increases of 10.9% and 12.2%.

Nov 2011

Aug 2011

Mar 2011

Sep 2010

Mar 2010

Sep 2009

Apr 2009

Nov 2008

Fuels and lubricants

Hypermarkets and supermarkets

Hyper&Supermkt, Food, Beverages and Tobacco

Other personal and household articles

Textiles, apparel and footwear

Vehicles, motorcycles, parts and accessories

Books, newspapers, magazines and stationery

Material of construction

Art Farm., Doctors. ort. of perf. and cosm

Furniture and household

Equip. and mat. to esc., inf. and communication 18.6

Total Per Sector

Ministry of Finance

ic Activity

Installed Capacity Utilization Level (%, seasonally adjusted)

NUCI - CNI NUCI - FIESP* NUCI - FGV

Data: %, seasonally adjusted

* Covering the industry of São Paulo only

Source: CNI, Fiesp and FGVElaboration: Ministry of Finance

Capacity utilization slows down in 2011

In line with the slowdown in industrial activity throughout the year, indicators of the Installed Capacity Utilization (NUCI) showed some decline in 2011. For 2012, more positive economic performance figures are expected and are likely to be reflected in a more intense capacity utilization of the domestic industry.

Dec 2011

Nov 2011

May 2011

Jan 2011

Sep 2010

May 2010

Jan 2010

Sep 2009

May 2009

Jan 2009

Sep 2008

May 2008

Jan 2008

Sep 2007

May 2007

Jan 2007

Sep 2006

81.5 80.9

Ministry of Finance

ic Activity

Installed Capacity Utilization Level per Sector (%, seasonally adjusted)

Data: %, seasonally adjusted

* Period: 2000-2011

Source: FGVElaboration: Ministry of Finance

Capacity utilization per sector

The process of accommodation of the economy had a slight decrease in its capacity utilization indexes. However, the sectoral levels have been within regular economic activity conditions.

NUCI per Setor Dec 2010 Dec 2011 Average by Sector*NUCI per Sector 84.9 83.4 82.6General Industry 90.3 88.6 84.6Construction material 91.2 87.1 84.5Non-metallic minerals 90.1 86.6 81.5Material of Transport 85.2 86.3 84.7Clothing and Footwear 89.2 85.9 80.8Durable goods 78.3 85.0 76.7Electrical equipment 85.2 84.5 82.0Mechanics 88.8 84.4 83.7Plastic products 84.5 83.3 80.4Capital goods 83.1 83.0 82.1Food 85.0 82.9 80.3Consumer goods 80.2 81.5 78.2Other products 74.5 69.9 69.5Pharmaceutical products 92.1 91.7 92.3Pulp and Paper 85.0 84.1 84.5Chemistry 85.9 83.8 86.2Intermediate goods 89.3 83.6 88.5Metallurgy 86.4 83.1 86.5Textiles 82.0 79.8 79.9Non-durable goods 75.1 75.8 77.8Furniture 75.1 75.8 77.8

Ministry of Finance

ic Activity

Industry and Consumer Confidence Indexes (points, seasonally adjusted)

Consumer Confidence Index Industry Confidence Index

Data: points, seasonally adjusted

Confidence in the Brazilian economy remains positive

The Industry Confidence Index has stabilized since November, closing at 101.8 points in 2011. In January 2012, there was an even better performance (102.3 points). On the other hand, consumer confidence ended the year at 119.6 points and reached 116.0 in January. Despite the marginal decline, the indicator is still at optimistic levels and a gradual recovery for the industry is expected in 2012.

Jan 2012

Dec 2011

Nov 2011

Oct 2011

Sep 2011

Aug 2011

Jun 2011

May 2011

Apr 2011

Mar 2011

Feb 2011

Jan 2011

Dec 2010

Nov 2010

Oct 2010

Sep 2010

Aug 2010

Jun 2010

May 2010

Apr 2010

Mar 2010

Feb 2010

Jan 2010

OptimisticPessimistic

Ministry of Finance

ic Activity

Brazilian Grain Crop - Cereal grains, vegetables and oilseeds (millions of tons)

Data: millions of tons

Source: CONAB/MAPAElaboration: Ministry of Finance

New record for the Brazilian harvest in 2011

The agricultural production in Brazil reached a record of 163 million tons of grains in 2011, an increase of 9.2% when compared to the previous year. The result consolidates Brazil as one of the world’s leading food producers.

2010/11

2009/10

2008/09

2007/08

2006/07

2005/06

2004/05

2003/04

2002/03

2001/02

123.2 119.1 114.7122.5

131.8144.1

Ministry of Finance

ic Activity

Rural Financing Program (R$ billion)

Total Family Agriculture Commercial Agriculture

Data: R$ billion

* Including other credits

Source: CONAB/MAPAElaboration: Ministry of Finance

Harvest Plan fosters agricultural dynamism

The 2011/2012 Agriculture and Livestock Plan reached a total of R$ 123.2 billion, an increase of 6.2% compared to the previous crop. From this total, R$ 107.2 billion is directed to business agriculture and R$ 16 billion to family farming. The resources will be used to operation funding, investment, trading, insurance premium subsidy to rural areas and support to sustainable agronomic practices.

2011/12

2010/11

2009/10

2008/09

2007/08

2006/07*

2005/06*

2004/05

2003/04

2002/03

24.732.6

46.556.9

63.070.0

108.0116.0

4.25.4

7.09.0

20.5 27.2 39.5 44.4 50.0 58.0

10.012.0

Ministry of Finance

ic Activity

GDP and Investment – GFCF (% YoY)

Investment (GFCF) GDP

Data: % annual

* Ministry of Finance estimate

Investments growing larger than GDP

Since 2004, investment growth rates have been higher than GDP growth, with the exception of 2009. The result is a higher production capacity able to meet an increasing domestic demand. For the following years, the growth model adopted by the Federal Government will give even greater emphasis on investment in all sectors of the economy.

2012**

2011*2010

20092008

2007 2006

20052004

5.7 3.

7.5 3.

9.1 3.

Ministry of Finance

ic Activity

Investment – GFCF (% of GDP)

Data: % of GDP

* Ministry of Finance estimate

Participation of investments in GDP on an upward trend

The opportunities in the Brazilian economy and the measures taken to encourage long-term investment will enlarge the contribution of investment to economic growth, which is expected to reach 20.8% of GDP in 2012.

2011*2010

20092008

20072006

20052004

20032002

16.4 15.3 16.1 15.9 16.4 17.4 19.1 18.1 19.5 19.6 20.8

Ministry of Finance

ic Activity

PAC 2 (R$ billion)

Data: R$ billion

Source: MPOGElaboration: Ministry of Finance

Investments of PAC on a rise

The second stage of the Growth Acceleration Program (PAC 2) aims to provide infrastructure through investments near R$ 1 trillion within 2011-2014. Nearly 50% of the total will be directed to investments in energy and 30% in “Minha Casa, Minha Vida” housing program. Investments in energy and transportation sectors have already been established from 2014 on.

Axes 2011-2014 After 2014 Total

PAC Better city 57.1 57.1

PAC Citizenship Community 23.0 23.0

PAC My House My Life 278.2 278.2

PAC Water and Light for All 30.6 30.6

PAC Transportation 104.5 4.5 109.0

PAC Energy 461.6 626.9 1,088.5

Total 955.0 631.4 1,586.4

Ministry of Finance

ic Activity

PAC: Committed nominal values (R$ billion)

Data: R$ billion

* LOA 2012

Source: STN/Ministry of FinanceElaboration: Ministry of Finance

PAC commitment will grow 20% in 2012

The amounts committed to PAC increased significantly, reaching R$ 35.4 billion in 2011. It represents a growth of almost 20%, when compared to 2010, and a 121.3% expansion between 2007 and 2011. In line with the economic growth model based upon investments, a 20.3% expansion has been estimated for 2012, reaching R$ 42.6 billion.

2012*2011

20102009

20082007

16.0 17.0 27.1 29.7 35.4 42.6

Ministry of Finance

ic Activity

Disbursement of MCMV Program (R$ billion)

Data: R$ billion

* Caixa Econômica Federal estimate

Source: Caixa Econômica FederalElaboration: Ministry of Finance

“Minha Casa, Minha Vida”housing program: growth with social inclusion

Since 2009, disbursements for the MCMV housing program have grown by 431% reaching R$ 37.2 billion in 2011, which is equivalent to 480,000 new homes in 2011 alone. In the period 2011-2014, two million new units are expected to be built, with investments predicted to reach a total of R$ 142.3 billion.

2012*2011

20102009

7.0 30.4 37.2 31.6 32.241.3

Goal for the 2011 - 2014period (MCMV 2):2 million homesAccomplished 2011: 480 thousand homes

Minha Casa, Minha Vida 2

Ministry of Finance

ic Activity

Investments to the 2014 World Soccer Cup (R$ billion)

Data: R$ billion

Source: Ministry of FinanceElaboration: Ministry of Finance

Investments for the World Soccer Cup

In the coming years, the country will rely on investments in several sectors, including sports. A total of R$ 33 billion will be allocated in the implementation of the infrastructure for the World Soccer Cup in 2014. Most will be directed to transportation projects, of which R$ 11.6 billion for urban mobility and R$ 5.5 billion for ports and airports.

Total Infrastructure

Hotels

Security and Health

Telecom and Energy

Civil Infrastructure (Total)

Ports and Airports

Urban Mobility

Stadiums 5.7

Ministry of Finance

ic Activity

Nine Major Projects of Ports in the World* (US$ billion)

Data: US$ billion

* In the final stages of preparation or in progress

Source: CG-LA, Exame yearbook 2011-2012Elaboration: Ministry of Finance

Brazil stands out in port investments

Brazil has two of the largest projects of investment in ports in the world: the expansion of the Port of Santos and the construction of the Açu Port in Rio de Janeiro, the largest venture investment in port in Latin America.

Port of Sohar expansion

Açu Superport (RJ)

Ras La�an Port expansion

London Gateway Port

Port of Santos expansion (SP)

Yangtze River dredging

Port of Rotterdam expansion

Panama Canal expansion

Yangshan Port 8.06.5

4.03.6

2.92.5

2.01.8

1.0Oman

Brazil

United Kingdom

Brazil

Netherlands

Panama

Ministry of Finance

ic Activity

Ten Major Projects in the Oil and Gas Sectors in the World* (US$ billion)

Data: US$ billion

Investments in the Oil and Gas sectors

Petrobras investments in building platforms and ship-oil-platforms are also highlights in the Oil and Gas sectors. Together, they total US$ 40 billion.

Abadi gas �eldIndonesia

Nabucco gas pipelineTurkey

Petrobras platform ships (ES-RJ-SP)Brazil

Trans-Saharan gas pipelineNigeria

Keystone XL oil pipelineCanada

Petrobras oil platforms (RJ-ES-SP)Brazil

Ichthys gas �eldAustralia

Wheatstone gas �eldAustralia

Pilbara gas �eldAustralia

Gorgon gas �eldAustralia 44.035.0

30.030.0

25.020.020.0

15.011.3

Ministry of Finance

ic Activity

Sixteen Major Transport Projects in the World* (US$ billion)

Data: US$ billion

Brazil has a wide investment program in transports

Among the 16 largest investment projects related to transportation in the world, four of them are in Brazil: two related to the expansion of its railway network, one for subway system and another to build highways throughout the country.

Transnordestina railroad (CE-PE-PI)BrazilHo Chi Minh City beltwayVietnamSão Paulo beltway, north sectionBrazilHau river underground railroadVietnam

São Paulo subway expansionBrazilShangai-Hangzhou trainChina

Detroit river international bridgeUSANha Trang railroadVietnam

Norte-Sul railroad (GO-MA-MG-MS-PA-SP-TO)BrazilRailroad transportation (Colorado)USA

Kuala Lumpur-Klang Valley railroadMalaysiaHong Kong-Zhuhai-Macau bridgeChinaHarbin-Dalian railroadChinaO´Hare airport modernization programUSANew Kunming AirportChina 23.1

15.014.0

10.710.3

6.96.7

5.75.3

5.04.3

4.03.83.7

Ministry of Finance

ic Activity

Fifteen Major Projects in the the Electricity Sector in the World*(US$ billion)

Data: US$ billion

Significant investments in the electricity sector

The energy sector is also a priority for the Brazilian government. Among the fifteen largest sector projects in the world, six are located in Brazil, with emphasis on the construction of the Belo Monte power plant.

Jiuquan wind power base

Teles Pires (MT-PA) hydroelectric power plantPescadero hydroelectric power plant

Mundra thermal power plantAngra 3 nuclear plant

Xiangjiaba hydroelectric power plantRomaine hydroelectric power plantPace River hydroelectric power plantXiluodu hydroelectric power plantJirau (RO) hydroelectric power plantSanto Antônio (RO) hydroelectric power plantYangjiang nuclear plantGreen Power Express transmissionSão Luiz do Tapajós (PA) hydroelectric power plantBelo Monte (PA) hydroelectric power plant

18.216.0

12.612.0

10.210.0

8.26.8

6.66.5

6.36.3

4.23.0

2.5BrazilColombia

IndiaBrazilChina

CanadaCanada

ChinaBrazilBrazilChina

USABrazilBrazilChina

Ministry of Finance

ic Activity

High-speed Train: Investment and its composition (R$ billion and % of total)

Data: R$ billion and % of total

* Estimated amounts subjected to changes

Investments: High Speed Rail

Investments for the construction of high-speed train linking the cities of Rio de Janeiro, Sao Paulo and Campinas will total approximately R$ 35 billion. The model of transport will benefit the whole population.

Total: R$ 34.6 billion*

Phase 1

High SpeedTrain (TAV)

Phase 2

6.7 billion 27.9 billion

11.3% Expropriations9.8% Systems and Equipment

7.9% Trains71% Civil Works

* Estimate data from 2009, subject to changes.

Ministry of Finance

ic Activity

Airport Concession: Planned Investments (R$ billion)

Data: R$ billion

Airport concessions generate more investments in the sector

The investments scheduled for the airport sector in Brazil are close to R$ 3 billion, if only the concessions of the airports in Brasilia, Guarulhos and Viracopos are considered. The licensing system will be important for the private sector to take part in the growth process. The well-succeeded auction showed the great interest of the private sector and its potential for profit.

GuarulhosExpansion of passengersterminal, land transportnetworks, departuresand boarding area.

2012 - 2014

R$ 627 million

2012 - 2014

R$ 1.38 billion

2012 - 2014

R$ 873 million

New terminal building,new taxiway, departureexpansion.

ViracoposTerminal building (firstphase) and departureexpansion.

Brasilia

Planned Investments

Brazilian Economy

OUTLOOK

Ministry ofFinance

Employment and Income

Ministry of Finance

Employm

ent and Income

The unemployment rate reached 4.7% in December 2011, the lowest level registered by IBGE (the Brazilian Bureau of Statistics). Growth of formalization in the labor market is equally important. Since 2003, the economy has created almost 17.3 million formal jobs. The performance is even more significant when contrasted with the adverse scenario of the labor market in the world’s largest economies.

Economic growth with social and productive inclusion has oriented Government policies. In 2011, 325,000 new households have started to collect the benefits from the “Bolsa Familia” conditional cash transfer program, totaling 13.3 million beneficiaries.

Social inclusion and job creation are the highlights in 2011

Ministry of Finance

Employm

ent and Income

Gini Income Index* (12- month moving average)

Data: 12-month moving average

* People over 10 years of age. Based upon the per capita income, considering the monthly income of all types of work effectively received

Income inequality in a continuous decrease

The Gini index, used to measure income inequality, has been falling continuously in recent years. The explanation comes from the reduction of inequality in labor income and from the minimum wage increase policy, along with the income transfer programs and macro-economic stability.

Nov 2011

Aug 2011

Jun 2011

Apr 2011

Feb 2011

Dec 2010

Oct 2010

Aug 2010

Jun 2010

Apr 2010

Feb 2010

Dec 2009

Oct 2009

Aug 2009

Jun 2009

Ministry of Finance

Employm

ent and Income

“Bolsa Família” Income Transfer Program (% of GDP, R$ billion and million of households)

Bolsa Família (% of GDP) Bolsa Família (R$ billion) Number of Households (million)

Data: % of GDP, R$ billion and million households

Source: MDSElaboration: Ministry of Finance

“Bolsa Família” cash transfer program helps to fight inequality

“Bolsa Família” is considered one of the most efficient programs to reduce poverty focused on the poorest of the population. The program has contributed significantly to the reduction of inequality, encompassing, with a relative low cost, 13.3 million households in December 2011.

2011*2010200920082007200620052004

0.20 0.27 0.32 0.34 0.35 0.38 0.38 0.410

Ministry of Finance

Employm

ent and Income

Real Minimum Wage Evolution (R$ - annual average in 2011 prices)

Real minimum wage increased more than 66% in the past 10 years

The acceleration of economic growth in recent years has led to a relevant increase in the per capita income. As a result of the Government’s policy, the minimum wage had an even more significant rise of 66% between 2002 and 2012. In January 2012, it increased from R$ 545 to R$ 622, which will inject up to R$ 50 billion in the domestic market.

Jan 2012

Mar 2011

Jan 2011

Jan 2010

Feb 2009

Mar 2008

Apr 2007

Apr 2006

May 2005

May 2004

Apr 2003

Apr 2002

200 260 300 350 380 415 465 510 540 545 622240

Nominal growth 211% Real growth 66%

Data: R$ - Annual average in 2011 prices

Source: IPEAProduced by: Ministry of Finance

Ministry of Finance

Employm

ent and Income

Unemployment Rate (% of economically active population)

Data: % of economically active population

A sharp decline in unemployment rate

Even in a scenario of low economic growth, there has been a good performance in the labor market. There was a decline of unemployment, which reached 4.7% in December 2011. It shows the dynamism of the Brazilian economy in a scenario rather different from advanced economies.

Dec 2011

Jan 2011

Jan 2010

Jan 2009

Jan 2008

Jan 2007

Jan 2006

Jan 2005

Jan 2004

Jan 2003

Dec 2002 4.70

Ministry of Finance

Employm

ent and Income

Regional Unemployment (% of economically active population)

Recife Salvador Belo Horizonte Rio de Janeiro São Paulo Porto Alegre

Data: % of economically active population

An overall drop in regional unemployment rates

With regards to a regional analysis, it is important to highlight the unemployment rates in the cities of Porto Alegre (3.1%), Belo Horizonte (3.8%) in December 2011. It’s worth mentioning the 2.2 p.p. decrease in the unemployment rate in Recife, as a result of the new cycle of investments in Pernambuco state.

Dec 20112011

20102009

20082007

20062005

20042003

4.74.74.9

3.83.1

Ministry of Finance

Employm

ent and Income

Formalization Rate (%)

Formally employed over the occupied population Contributors to social security over the occupied population

Data: %

Improving the quality of labor force

A qualitative improvement of employment in Brazil contrasts with the increase in degree of formalization of the labor market. According to IBGE, the proportion of formally employed workers in relation to the total employed population rose to an annual average of 53.6% in 2011. Similarly, the proportion of contributors to social security in relation to the employed population reached 71.9% on the same basis of comparison, which shows greater social protection for more workers.

20112010

20092008

20072006

20052004

20032002

Ministry of Finance

Employm

ent and Income

Job Creation CLT (thousands of jobs)*

Data: Thousands of jobs covered by CLT (Consolidation of Labor Law)

* Not including information declared out of time

Source: MTEElaboration: Ministry of Finance

Formal employment records the third best performance of the series

Data from the Ministry of Labor and Employment reported the creation of 1.5 million formal jobs in 2011.It is one of the best performances in the time series. Adding the jobs generated in the public service, about 17.3 million jobs were created in Brazil from 2003 to 2011.

645 1,523 1,254 1,229 1,617 1,452 995 2,137 1,566

Ministry of Finance

Employm

ent and Income

Occupied Population by Educational Level (% of total)

2003 2011

Data: % of total

Brazilian workers’ growing level of education

The increase in the educational level of the employed population provides an important explanation for the increase in productivity, which reduces production costs, raises wages and business profitability. In 2003, the occupied population with 11 or more years of schooling accounted for 46.7% of the total. The percentage jumped to 60.7% in 2011.

11 or more

of schoolin

8 to 10 years

of schoolin

4 to 7 years

of schoolin

1 to 3 y

of schoolin

No schooling or

with le

ss than1 year

of schoolin

1.6 3.4 17.3 17.0 60.73.0 6.3 24.7 19.1 46.7

Ministry of Finance

Employm

ent and Income

Composition of Brazilian Social Classes (millions of people)

Data: millions of people

A middle-class nation

In addition to strengthening the domestic market and enhancing growth of the poorest regions in the country, the new cycle of economic development fosters the expansion of the new middle class. The growing middle class has been the result of a better income for the poorest since 2003.

A Class

B Class

C Class

D Class

E Class

2002 2009

Total: 175 million Total: 188 million

Ministry of Finance

Employm

ent and Income

Average Growth Rate of the per capita Income - 2001 to 2009

Data: Average growth rate (2001-2009)

* Estimates based on PNAD (2001 to 2009)

Economic growth and income distribution

The economic growth of recent years has allowed all levels of per capita household income to record substantial growth. It’s noteworthy the 7.2% growth rate of per capita household income from the 10% poorest.

TenthNinth

Eighth

Seventh

SixthFift

ThirdSecond

7,2 6,3 5,9 5,4 4,9 4,6 4,0 3,3 2,5 1,4

10%poorest

10% richest

Brazilian Average

Brazilian Economy

OUTLOOK

Ministry ofFinance

Inflation

Ministry of Finance

Inflation

For seven consecutive years, the Brazilian inflation, measured by CPI inflation (IPCA index), has met the targets set by the National Monetary Council. Inflationary pressures in 2011 were predominantly caused by external factors, due to commodity price shocks in the first half of the year. As a result, many countries that adopt the inflation targeting regime recorded price rises above established limits.

The Brazilian Government–aware of the pressure from high prices–acted promptly, through its interest rate policy, the adoption of macro-prudential measures and a decisive fiscal consolidation program. As a result, prices have been far more behaved since mid-2011. The expectation is that consumer inflation will follow a downward trend toward the center of the target for 2012.

Inflation target is met in 2011

Ministry of Finance

Inflation

Inflation: IPCA (% YoY)

CPI inflation (IPCA index) Inflation target Upper and lower bounds

Data: % annual

* Central Bank of Brazil Inflation Report (December 2011)

Source: IBGE and Central Bank of BrazilElaboration: Ministry of Finance

Inflation within the target range

After a period of increases, price pressures observed in the first half of 2011 began to dissipate. There was a 12-month rate decline from October on. According to Central Bank of Brazil estimates*, the CPI inflation (IPCA index) will be around 4.7% in 2012, indicating convergence to the central target (4.5%).

2011*2010

20092008

20072006

20052004

20032002

20012000

8.9 6.0 7.7 12.5 9.3 7.6 5.7 3.1 4.5 5.9 4.3 5.9 6.5 4.7

Ministry of Finance

Inflation

Inflation IPCA: Headline, Market Price and Managed Goods (% YoY)

Managed Goods Market Price Goods CPI inflation (IPCA index)

Data: % annual

Market and managed prices slowdown

Increases in market prices began to fall in August, reaching 6.63% in 2011 and contributing to the decline in the overall CPI inflation (IPCA index) (6.50%). The downward trend observed in managed prices since October should continue in 2012, once adjustments to bus fares, concentrated in early 2011, should not repeat this year.

Dec 2011

Mar 2011

Nov 2010

Mar 2010

Nov 2009

Mar 2009

Nov 2008

Mar 2008

Nov 2007

6.506.20

Ministry of Finance

Inflation

Inflation: IPCA (% MoM)

2011 2010 2009

Data: % monthly

Monthly consumer inflation decreasing since October

CPI inflation (IPCA index) has been decelerating significantly since May 2011, when compared to the figures observed at the beginning of the year. The increase in the consumer price monthly index in the second half of 2011 did not go as high as the levels observed in 2010.

DecNovOctSepAugJulJunMayAprMarFebJan

Ministry of Finance

Inflation

Inflation: IPCA (% MoM)

Inflation rates decline

Consumer prices showed an unusual increase in the first months of 2011, driven by high commodity prices. Such pressure faded away throughout the year and, in the second half of 2011, mainly CPI inflation (IPCA index) started to ease down significantly.

Dec 2011

Nov 2011

Oct 2011

Sep 2011

Aug 2011

Jun 2011

May 2011

Apr 2011

Mar 2011

Feb 2011

Jan 2011

Dec 2010

Nov 2010

Oct 2010

0.750.83

0.83 0.80 0.79 0.77

0.15 0.16

0.530.43

0.52 0.50

Monthly Average: 0.77%

Monthly Average: 0.39%

CPI inflation (IPCA index) Average

Data: % monthly

Ministry of Finance

Inflation

IPCA: Major Contributions in 2011 (p.p.)

Data: percentage points

CPI inflation (IPCA index): Main sources of pressure in 2011

The “Food and Beverage” group was the main source of pressure on the CPI inflation (IPCA index) in 2011, especially “Away-from-home” food. Also, fuel and transportation costs played an important role due to the increase of public transportation fares, especially bus fares and airline tickets. Personal expenses were important as well due to increases in costs related to household maids, recreation and housing (especially, rental costs). The ten items which most contributed to the CPI inflation (IPCA index) totaled 4.28 percentage points of the 6.5% recorded in 2011.

Household articles

Communication

Clothing

Education

Health and personal care

Housing

Personal expenses

Transportation

Food and beverage

Ministry of Finance

Inflation

Inflation IPCA: Food Prices (% MoM)

2009 2010 2011

Data: % monthly

Food inflation

Food and beverage prices increased 7.19% in 2011. The last quarter of the year registered pressures from away-from-home eating and also from meat prices. Even so, towards the end of the year, monthly inflation was much lower when compared to 2010, which contributed decisively to the convergence of the CPI inflation (IPCA index) to the target set by the Monetary Policy Committee.

Ministry of Finance

Inflation

Inflation: IGP-DI and Components (% YoY, 12-month basis)

IGP-DI IPA-DI INCC-DI IPC-Br

Data: % annual in a 12-month basis

* As of December 2011

General Price Index (IGP-DI) decelerates

The General Price Index (IGP-DI) took a downward trend throughout 2011 and ended the year with inflation at 5.00%. Such dynamics was mainly related to the behavior of PPI inflation (IPA index), which increased 4.12% due to the behavior of the exchange rate and commodity prices. Moreover, construction costs (INCC-DI) reflected the dynamism of the sector and rose 7.49% in 2011, affecting especially labor costs.

Dec 2011

Nov 2011

Oct 2011

Sep 2011

Aug 2011

Jun 2011

May 2011

Apr 2011

Mar 2011

Feb 2011

Jan 2011

Dec 2010

Nov 2010

Oct 2010

Sep 2010

Aug 2010

Jun 2010

May 2010

Apr 2010

Mar 2010

Feb 2010

Jan 2010

Dec 2009

Nov 2009

Oct 2009

Sep 2009

Aug 2009

7.496.365.004.12

Ministry of Finance

Inflation

IPCA Inflation: Market Expectations (% YoY, 12-month basis)

Data: % annual in a 12-month basis

* Data achieved by December 2011. After that, forecast from the FOCUS research of Central Bank of Brazil - Jan/20/2012.

Consumer inflation is expected to ease

Following the downward trend started in October 2011, inflation expectations are showing a significant decrease in consumer prices during the first half of 2012. Such forecast was conducted by the Central Bank of Brazil in its market survey called Focus.

May 2012

Apr 2012

Dec 2011

Aug 2011

Apr 2011

Dec 2010

Aug 2010

Apr 2010

Dec 2009

Aug 2009

Apr 2009

Dec 2008

Ministry of Finance

Inflation

IPCA Inflation: Weighting and Classifications Structure (p.p.)

Previous Classification Actual Classification

Data: percentage points

Source: IBGE and Central Bank of BrazilElaboration: Ministry of Finance

Services weight on the new CPI inflation weighting structure

CPI inflation (IPCA index)´s new weighting structure has given more consideration to service costs. The main reason was related to the new rules followed by the Central Bank of Brazil, according to international standards recommended by the UN. For instance, away-from-home food was previously classified as a non-durable good, and it is now under the heading “services” and with 7.97 percentage points in the new weighting structure. Mobile phone and airline tickets, previously classified as managed prices, now weight 1.52 p.p. and 0.57 p.p. respectively.

Non-durableSemi-durableDurableServicesManaged

24.5 33.7 10.5 8.7 22.628.9 24.8 7.9 9.2 29.2

Ministry of Finance

Inflation

Inflation IPCA: Official versus Reweighted Results (% YoY)

Official results Reweighted results

Data: % annual

Source: IBGE and Ministry of FinanceElaboration: Ministry of Finance

Inflation would have been lower with new structure

Simulations considering CPI inflation (IPCA index)´s new weighting structure (POF 2008/09), applied to price variations collected from 2006 to 2011, show much lower results than the ones officially released and based on the IBGE’s Household Budget Survey (POF 2002/03).

201120102009200820072006

Brazilian Economy

OUTLOOK

Ministry ofFinance

Ministry of Finance

The recent credit expansion has significantly contributed to boost domestic economic activity. It was as a result of economic stability, evolution of labor market and inclusion of a larger share of the Brazilian population into the banking system. The mass consumption market includes more people without compromising the solvency of Brazilian financial institutions. In 2011, credit to GDP ratio reached 49.1%, an increase of 3.9 pp compared to 2010.

The total percentage is consistent with an environment of moderate expansion in economic activity. The corporate segment increased by 17.4% when compared to 2010. Part of the expansion could be attributed to external funding access. The segment of individuals, on its turn, had a 20.8% increase, if compared to 2010. It’s important to underline that the cycle of monetary easing and credit measures carried out in the 2nd half of 2011, as the reduction of capital requirements for loans up to 60 months, should boost credit growth during 2012.

Credit growth consistent with the country’s degree of development

Ministry of Finance

Nominal Interest Rate (Selic Target) and Real Ex-Ante Interest Rate* (% YoY)

Selic Interest Rate (Target) Real Ex-Ante Interest Rate

Data: % annual

* Real rate deflated by the 12-month ahead inflation expectations

Real and nominal interest rates

After an upward interest rate cycle, Central Bank of Brazil reduced the benchmark interest rate (Selic) in 2.0 p.p, to 10.5%, by means of a 50bp pace reduction in August, October and November 2011, along with an additional one in January 2012.The decision took into consideration the macroeconomic fundamentals and the deterioration of the external outlook. The real interest rate reached 4.35% in January 2012. In its last report, the Central Bank of Brazil stated that Selic rate can drop below 10%.

Jan 2012

Nov 2011

Jan 2011

Jan 2010

Jan 2009

Jan 2008

Jan 2007

Jan 2006

Jan 2005

Jan 2004

Jan 2003

Jan 2002

Ministry of Finance

Term Structure of Interest Rates (% YoY)

Jan 2013 Jan 2014 Jan 2016

Data: % annual

The recent behavior of the term structure of interest rates

In the second half of 2011, there was an overall drop in one-day interbank deposit rates, after the Central Bank of Brazil’s decision to start an interest rate reduction cycle.

Jan 2012

Nov 2011

Oct 2011

Aug 2011

Jun 2011

May 2011

Apr 2011

Mar 2011

Feb 2011

Dec 2010

Nov 2010

Oct 2010

Sep 2010

Aug 2010

Jun 2010

May 2010

Apr 2010

Mar 2010

Feb 2010

Jan 2010

10.810.4

Ministry of Finance

Brazilian Financial System: BNDES share of total credit (% of total)

Data: % of total

The BNDES share in total credit remains at historical levels

In 2011, BNDES share in total credit reached 20.8%, a similar level as of 2010 (21.0%). The disbursements remain in line with the 20.6% historical average between 2000 and 2011.

20112010

20092008

20072006

20052004

20032002

20012000

18.9 21.0 24.3 24.0 22.1 20.4 19.0 17.1 17.1 20.0 21.0 21.0

Ministry of Finance

Credit for Businesses (% accumulated in the period)

Average 2008 - 2011 Accumulated surplus in the period

2008 2009 2010 2011

Data: % accumulated in the period

Banking credit to businesses

Banking credit for businesses grew 17.4% in 2011, compared to 19.2% in 2010. The moderate performance has been consistent with the reduction in the growth rate in the last 12 months.

DecNov

OctSep

AugJul

MayApr

MarFev

7.16 6.40

20112010

20092008

Average 21.2

Balance growth rate (% yoy) Change in balance over the year (% of total)

Ministry of Finance

Credit for Individuals (% accumulated in the period)

Average 2008 - 2011 Accumulated surplus in the period

2008 2009 2010 2011

Banking credit to individuals

Daily average credit disbursements to individuals have increased 20.8% in 2011 compared to 22.4% in 2010. The performance is consistent with an environment of moderate expansion in economic activity. Real estate financing, though, had a remarkable rise of 44.5% in the same period.

DecNov

OctSep

AugJul

MayApr

MarFeb

6.195.37

20112010

20092008

Balance growth rate (% yoy) Change in balance over the yer (% of total)

Average 21.9

Ministry of Finance

Daily Average Credit Disbursements to Businesses* (R$ billion, constant prices, December 2011)

2009 2010 2011

Data: R$ billion, constant prices of December 2011 (IPCA)

* According to the Central Bank of Brazil Regulation n. 3445 (2009)

Daily average credit disbursements to businesses

Daily average credit disbursements to businesses, at constant prices, reached R$ 5.76 billion at the end of 2011, an amount close to R$ 5.44 billion in 2010. The slight increase was consistent with the economic moderation in the last 12 months.

5.765.445.41

Ministry of Finance

Daily Average Credit Disbursements to Individuals* (R$ billion, constant prices, December 2011 (IPCA))

2009 2010 2011

Data: R$ billion, constant prices of December 2011 (IPCA)

* According to the Central Bank of Brazil Regulation n. 3445 (2009)

Daily average credit disbursements to individuals

Daily average credit disbursements to individuals have shown relative stability in 2011. The monetary easing and credit measures taken in the second half of the year should have a greater impact on the total amount of credit during 2012.

3.3 3.1

Ministry of Finance

Credit Transactions with Earmarked and Non-Earmarked Resources (R$ billion and % of GDP)

Total (% of GDP) Earmarked Resources (R$ billion) Non-Earmarked Resources (R$ billion)

Data: R$ billion and % of GDP

Earmarked credit at the forefront of credit expansion

Non-earmarked total credit amounted to R$ 1.3 trillion in December, with a 16.7% annual increase. Earmarked total credit had an even more robust expansion, totaling R$ 727 billion, an annual increase of 23.2%. In the last quarter, the retake has been driven mainly by public banks.

Dec 2011

Dec 2010

Dec 2009

Dec 2008

Dec 2007

Dec 2006

Dec 2005

Dec 2004

Dec 2003

Dec 2002

35.2%30.9%

28.3%25.7%24.6%26.0%

144.2 162.6 180.8203.3

234.3275.2

356.1459.8

240.2 255.6 317.9 403.7 498.3 660.8 871.2 954.5 1,116.1 1,303.1

Ministry of Finance

Banking spread to individuals (% YoY)

Funding Interest Rate Lending Interest Rate

Data: % annual

Banking spread to individuals

Banking spread to individuals, although still high in comparison with other economies, remains at historically lows. Over the past six years, it fell 9 p.p. to 34 p.p in December 2011. For 2012, due to the cycle of falling interest rates and some easing in macro-prudential measures announced in November 2011, a continuity of the spread reduction to individuals is expected.

SpreadSpread34 p.p

20112010

20092008

20072006

20052004

20032002

20012000

Ministry of Finance

Banking Spread to Corporations (% YoY)

Funding Interest Rate Lending Interest Rate

Data: % annual

Banking spread to businesses

The banking spread for businesses is still at a historically high level. Over the past two years it had a slight decline, i.e., a 0.2 pp in 2010 and 0.4 pp in 2011. The spread encourages Brazilian companies to access external funding via international markets.

20112010

20092008

20072006

20052004

20032002

20012000

Spread18 p.p

Ministry of Finance

Average Term of Credit Operations (Days)

Individuals Corporations

Data: days

Credit average term for individuals

In 2011, the average term of credit operations for individuals increased 41 days, from 559 to 600 days. In the last 6 years, it expanded 311 days, as a result of the favorable evolution in the labor market. Nevertheless, the average term in the business segment have remained somewhat stable in 2011.

600 600

20112010

20092008

20072006

20052004

20032002

20012000

Ministry of Finance

Default Rates (% of total)

Individuals Corporations

Data: % of total

Default rates within historical levels

Despite its recent rise, credit for individuals default rates have remained at historical average. As for the business segment, it has also remained stable, at around 4% since mid-2009.

20112010

20092008

20072006

20052004

20032002

20012000

Ministry of Finance

Credit to the Private Sector in 2010* (% of GDP)

Data: % of GDP

* Financial resources provided to the private sector, such as loans, equity purchase (except stocks), commercial credit and other receivables. Data released by the World Bank include financial sector asset categories not considered as credit to the private sector by the Central Bank of Brazil.

Source: World Bank and Central bank of BrazilElaboration: Ministry of Finance

Room to prudent credit growth

Despite its recent expansion and potential growth, domestic credit to the private sector in Brazil remains low, as opposed to other economies. In China and South Africa, for instance, it goes beyond 120% of GDP. So, there is room for expansion in the coming years, which will happen in a prudent way and without increase in risk taking.

2,09 5,88 1,54 48,46 105,743 7,76

Brazil

Argentin

Mexico

Turkey

Latin Americ

and Caribbean

RussiaIndia

Germany

Eurozone

East Asia

South Afri

caOECD

United Sta

202 169 162 145 136 134 130 108 49 45 44 44 25 15

Ministry of Finance

Credit Transactions for Individuals (R$ billion)

Automotive Housing Payroll

Data: R$ billion

Housing credit stands out

Housing credit has presented an outstanding performance in recent years by encouraging investment, growth and employment in the construction sector and other segments of the economy. Only in 2011, total amount allocated for housing finance grew by R$ 58 billion, far above other modalities.

Dec 20112011

20102009

200.5200.6

Ministry of Finance

Real Estate Financing: Main Funding Sources (R$ billion)

Disbursements 2010

Disbursements 2011

Data: R$ billion

* SBPE: Brazilian System of Saving and Lending

FAR: Residential Leasing Fund

OGU: Union General Budget

Source: Caixa Econômica FederalElaboration: Ministry of Finance

Funding to real estate

The expansion of new housing supply has benefited millions of Brazilian population over the past few years. The Guarantee Fund for Long Working Service (FGTS) - with disbursements amounting to R$ 33.4 billion in 2011, as compared to R$ 24.4 billion in 2010 - and savings, with an increase of around R$ 5 billion between 2010 and 2011, were the main funding sources.

Total SBPEFGTS **FAR0

Total SBPEFGTS **FAR

55.8 6.

Ministry of Finance

“Crescer” Microcredit Program: General Numbers and Regions (R$ million)

Data: R$ million

Microcredit program benefits 600,000 people

The “Crescer” program, a productive-oriented microcredit initiative, focus on stimulating job creation and income among the micro entrepreneurs. In just four months, more than 600,000 transactions have been made, with a per capita average amount around R$ 1,200, totaling R$ 745 million.

Acomplished in 2011

Number of Transactions Total Amount Total Average Amount

606.638 R$ 745.5 million R$ 1.229

Percentage of Total amount Per Region

Northeast79%

Southeast12%

South6%

Mid-West2%

North1%

Brazilian Economy

OUTLOOK

Ministry ofFinance

Fiscal Policy

Ministry of Finance

Fiscal PolicyFiscal policy in Brazil was plenty of success in 2011. At the beginning of the year, the removal of fiscal stimuli given during the financial crisis was accomplished without jeopardizing the performance of the many sectors in the economy. It was also a fiscal policy role to smooth economic growth pace and enhance the primary result, in order to differentiate Brazil within a context of international fiscal fragility. All these measures were implemented without compromising social gains achieved in recent years.

Throughout 2011, along with good performance in revenues and reduction of social security deficit, it was possible to retain expenditures at the beginning of the year. It was also possible to raise the central government primary surplus target by R$ 10 billion, in a clear demonstration of commitment to fiscal soundness.

Fiscal results could be noticed not only by the improvement in fiscal sustainability, but also by market recognition related to economic policy management. Brazil has paid the lowest yield on the country’s sovereign bond ever issued in the international capital markets and has also been upgraded by all major rating agencies, whereas some developed countries have been downgraded.

Fiscal policy soundness stands out internationally

Ministry of Finance

Fiscal Policy

Central Government Primary Fiscal Balance (R$ billion and % of target)*

Primary surplus Primary surplus / Year target

Data: R$ billion and % share

* Not including state-owned, companies and authorized, reductions in the Budget Law

Primary surplus larger than predicted

The main challenge for fiscal policy during last year was the strengthening of the primary result in terms of the economic growth smoothing. The Central Government exceeded the primary surplus target, which had been increased from R$ 10 billion in August, by R$ 1.27 billion. In 2012, the goal is to meet the full target again (R$ 139.7 billion).

20112010

20092008

20072006

20052004

200350

112.1114.3

38.7 52.4 55.7 51.4 59.4 71.3 78.7 93.0

125.9119.4

112.1 114.3

106.0101.3

Ministry of Finance

Fiscal Policy

Public Sector Fiscal Balance (% of GDP)

Public Sector Primary Result Central Government Primary Result Subnational Entities Primary Result (States and Municipalities) State-owned Companies Primary Result Public Sector Nominal Result

Data: % of GDP

Economic growth with fiscal consolidation

One of the Brazilian economic policy guidelines is to pursue the fiscal target in line with fiscal responsibility principles. On that sense, the public sector primary result has increased by over 0.4 percentage point in 2011 compared to 2010. The 3.1% of GDP primary surplus will remain the target for 2012.

2.16 2.28 2.

2.23 2.35

2.09 2.25

20112010

20092008

20072006

20052004

2003 2002

PrimárioTotal

0.90 0.99

0.55 0.

3.2 3.3 3.7 3.83.2 3.3 3.4

2.02.7

-4.4-5.2

-2.9-3.6 -3.6

-2.5 -2.6

Ministry of Finance

Fiscal Policy

2011 Fiscal Contraction: Spending Components (R$ million)

Data: R$ million, constant prices (IPCA)

* Not including expenses with judicial verdicts, judicial deposits, redundance payments, reimbursements and other charges** Transfers to States, Municipalities and private-owned companies

Source: SIAFI/STNElaboration: Ministry of Finance

Fiscal consolidation

After the fiscal consolidation review in February, the Government has significantly diminished its spending, with a special focus on business trips and per diem. Despite the well-known difficulties of reducing those expenses, there was a real reduction of 2% in total Government intermediate consumption and consumption transfers in 2011.

R$ Million - Constant Prices (IPCA) 2010 2011 Var. %Intermediate Consumption* 47,104 46,293 -1.70%Supplies 11,369 11,338 -0.30%Material for free distribution 1,478 1,934 30.90%Cultural, scientific and other awards 124 79 -36.40%Tickets, transportation and commuting expenditure 1,062 653 -38.50%Per diem 1,377 836 -39.30%Short-term labour contract 1,216 515 -57.60%Labour lease and Outsourced contract 4,163 4,750 14.10%Outsourcing services - individual 1,827 1,649 -9.70%Outsourcing services - commpany 24,259 24,273 0.10%Consulting services 228 265 16.30%Consumption Transfers** 58,488 57,144 -2.30%Contributions 55,530 53,459 -3.70%Previous years expenditures 2,957 3,685 24.60%Total 105,591 103,437 -2.00%

Ministry of Finance

Fiscal Policy

Central Government Fiscal Balance – Above the Line (% of GDP)

Data: % of GDP

* Including social security benefits, allowance and unemployment insurance, assistential benefits (LOAS and RMV) and Bolsa Família Program. * Including the Sovereign Wealth Fund constitution (2008) and the capitalization operation of PETROBRAS (2010)

Source: STN/Ministry of Finance; Siga-Brasil/Federal SenateElaboration: Ministry of Finance

Improvement on public spending profile

The Central Government balance has been going through considerable changes since 2002, due to the formalization of the economy and the focus on reducing inequalities. As occurred in 2011, the increased net revenues should be allocated into income transfers to households and public investment in 2012.

% of GDP 2002

Gross revenue 21.7 21.0 21.6 22.7 22.9 23.3 23.6 22.8 22.4 24.0Transfers to states and municipalties 3.8 3.5 3.5 3.9 3.9 4.0 4.4 3.9 3.7 4.2Net revenue 17.9 17.4 18.1 18.8 19.0 19.3 19.2 18.9 18.7 19.8

Primary expenditure 15.7 15.1 15.6 16.4 17.0 17.1 16.4 17.7 17.4 17.5 Payroll 4.8 4.5 4.3 4.3 4.5 4.4 4.3 4.7 4.4 4.3 Income transfers to households** 6.8 7.2 7.6 8.1 8.4 8.5 8.1 8.7 8.5 8.6 Investments 0.8 0.3 0.5 0.5 0.6 0.7 0.9 1.0 1.2 1.0 Health and education 1.7 1.6 1.7 1.8 1.7 1.8 1.7 1.9 2.0 2.0 Other expenses 1.6 1.6 1.5 1.8 1.8 1.8 1.4 1.4 1.4 1.5

Primary result without sovereign wealth fund and onerous assignment 2.1 2.3 2.5 2.5 2.1 2.2 2.8 1.2 1.2 2.3

Impact of sovereign wealth fund and onerous assignment** 0.0 0.0 0.0 0.0 0.0 0.0 -0.5 0.0 0.8 0.0

Final primary result (above the line) 2.1 2.3 2.5 2.5 2.1 2.2 2.4 1.2 2.1 2.3

Net revenue minus income transfers 11.1 10.3 10.5 10.8 10.6 10.8 11.1 10.2 10.2 11.1

Ministry of Finance

Fiscal Policy

Public expenditures (% of GDP)

Investments Transfers to households Payroll

Data: % of GDP

Fiscal consolidation program

In the last years, there has been efforts to enhance the workforce of the civil servants. In 2011, payroll costs have reached 4.3% of GDP, below the average for the past 10 years. The constraint was important to the fiscal consolidation dynamics last year.

8.48.5

8.58.6

4.3 4.3

4.54.4

4.44.3

0.5 0.5

20112010

20092008

20072006

20052004

20032002

7.27.6

8.18.4 8.5

8.78.5 8.6

4.84.5 4.3 4.3

4.5 4.4 4.34.7

4.4 4.3

0.50.6

0.91.0

Ministry of Finance

Fiscal Policy

Social Security (% of GDP)

Revenue Benefits Deficit

Contributors/ occupied population

Data: % of GDP and % of occupied population

Job creation helps social security balance

The social security deficit declined to 0.86% of GDP, the lowest level in the last ten years, contributing critically to the primary balance in 2011. In part, such performance derives from more rigid rules for benefits concessions. Growth on Social Security revenues and the formalization process within the labor market are the most important factors. For instance, the number of Social Security contributors registered a record of 71% of the occupied population in December 2011.

2011*2010

20092008

20072006

6.8 5.

Dec 2011

Dec 2010

Dec 2009

Dec 2008

Dec 2007

Dec 2006

Dec 2005

Ministry of Finance

Fiscal Policy

Composition of Central Government Spending (% of GDP)

Data: % of GDP

* LOAS/RMV

Fiscal consolidation with income transfers

From 2002 to 2011, primary spending rose from 15.7% of GDP to 17.5% of GDP. The increase is mainly explained by income transfers, which increased 1.8 pp in the period, and should be raised more in 2012 due to the minimum wage raises. Investment and education spending also grew respectively by 0.2 pp and 0.3 pp of GDP since 2002. On the other hand, payroll costs and other expenses have been reduced.

% of GDP 2002 (% of GDP)

2011* (% of GDP)

Change 2011 -2002

(p.p. of GDP)

Contribution to growth

(% of Total)Primary expenditures 15.7 17.5 1.8 -Payroll 4.8 4.3 -0.5 -26.4Income transfers 6.8 8.6 1.8 102.0

Social security benefits 6.0 6.8 0.9 47.3Allowance and Unemployment insurance 0.5 0.8 0.3 18.9Social assistance benefits (LOAS and RMV)** 0.2 0.6 0.4 20.6“Bolsa Família” program 0.1 0.4 0.3 15.2

Investments 0.8 1.0 0.2 10.2Consumption 3.3 3.5 0.3 14.2

Health 1.4 1.4 0.0 0.9Education 0.3 0.6 0.3 16.0Others 1.6 1.5 0.1 -2.7

Ministry of Finance

Fiscal Policy

Gross General Government Debt and Net Public Sector Debt (% of GDP)

Gross General Government Debt* Net Public Sector Debt**

Data: % of GDP

* Methodology since 2008** Excluding assets and liabilities of Petrobras and Eletrobras

Public debt drops to pre-crisis levels

In 2011, fiscal policy in Brazil resulted in a strong decline of public debt (% of GDP), a trend of the post-crisis period. For instance, Gross General Government Debt went from 63.1% in October 2009 to 54.3% in December 2011, whereas Net Public Sector Debt went from 42.9% to 36.5% in the same period, the lowest value of the series initiated in 2001.

Dec 2011

Oct 2011

Apr 2011

Jan 2011

Oct 2010

Apr 2010

Jan 2010

Oct 2009

Apr 2009

Jan 2009

Oct 2008

Apr 2008

Jan 2008

Oct 2007

Apr 2007

Jan 2007

Ministry of Finance

Fiscal Policy

Federal Public Debt Profile (% of total debt)

Fixed Rate Inflation Linked Floating Rate* Exchange Rate

Data: % of total debt

* Including SELIC, TR and others ** Including domestic and external debts managed by the National Treasury.

Federal Public Debt profile improving

The profile of the Federal Public Debt has shown an increase in the share of fixed rate bonds (from 33.1% in Jan/2011 to 37.2% in Dec/2011) and a decline in the floating-rate ones (from 33.5% to 30.1% in the same period). Refinancing and market risks have also been prevented by the lengthening of the debt’s average maturity and the reduction of its percentage maturing in 12 months.

Dez 20112011

20102009

20082007

20062005

Indicadores 2004 2006 2009 2010 2011Estoque da DPF** em Mercado (R$ bilhões)

1.013.9 1.237.0 1.497.4 1.694.0 1.866.4

DPF: Prazo Médio (anos) 2.9 3.0 3.5 3.5 3.6DPF: Vincendo em 12 meses 39.3% 32.4% 23.6% 23.9% 21.9%

Indicators** 2004 2006 2009 2010 2011

Stock of FDP held by the public 1,013.9 1,237.0 1,497.4 1,694.0 1,866.4

FDP: Average Maturity (years) 2.9 3.0 3.5 3.5 3.6

FDP: Percentage Maturing in 12 months 39.3% 32.4% 23.6% 23.9% 21.9%

Ministry of Finance

Fiscal Policy

Federal Public Debt Holders* (% of total)

Fixed Rate Floating Rate Inflation Linked Other

Data: % of total

* Including funds administered by the Federal Government

A diversified investor base helps mitigate risks

A diversified investor base, with respect to investment terms, risks preferences and reasons for trading assets, is essential for stimulating transactions, increasing the liquidity of public bonds and obtaining government financing under various economic scenarios. The data below show that non-resident investors demand much more fixed rate bonds, while pension funds, for instance, prefer inflation-linked bonds.

53.3 23.7 18.7 80.9 19.9 20.8

51.6 10.9

63.0 24.8

14.817.924.7

17.2 54.4

InsuranceGovernmentNon-Resident

Social Security

FundsBanks

Ministry of Finance

Fiscal Policy

Non-resident Share in Federal Public Debt (% of total domestic debt)

Data: % of domestic debt

Non-resident investors in Brazilian public debt

In 2011, Brazilian domestic public bonds remained attractive to foreigners. Typical non-resident investors have distinct characteristics from domestic ones: they demand more fixed rate bonds and have more appetite for longer maturities, which contributes to the improvement of the DPMFi profile. The 6% IOF taxation enhanced the longer term profile of Brazilian bonds by foreign investors.

Dec 2011

Oct 2011

Mar 2011

Oct 2010

Mar 2010

Nov 2009

Mar 2009

Oct 2008

Mar 2008

Nov 2007

Mar 2007

IOF 1.5% onForeign Investment In�ow Tax

IOF 2.0% onForeign Investment In�ow Tax

IOF: 6.0% Foreign Investment In�ow Tax

11.3511.80

Ministry of Finance

Fiscal Policy

Yield at the issuance of 10-year Brazilian bonds (% YoY)

Issuance Date Yield

Data: % annual

Brazil pays the lowest yield on 10-year bond

The Brazilian National Treasury carried out, on last January 3rd, the reopening of its 10-year benchmark bond, the Global Bond 2021, in the amount of US$ 825 million. The bond was priced at 110.997 per cent of its face value, resulting in a 3.449 per cent per year yield, the lowest rate for a Brazilian Global bond issuance.

Jan, 3

rd 2012

Jul, 7

th 2011

Jul, 2

7th 2010

Apr, 15th

Dec, 15th

May, 7th

Jan, 6

th 2009

May, 7th

Apr, 3rd

Nov, 7th

Nov, 9th

Jun, 2

1st 2005

Feb, 28th

Dec, 8th

Jul, 1

4th 2004

Jun, 1

7th 2003

Jan, 1

1th 2002

Oct, 25th

Global2009

Global2012

Global2013

Global2014

Global2014 Global

2015Global2015 Global

2015Global2017 Global

2017 Global2017

Global2019N

Global2021 Global

2021 Global2021 Global

5.314.6 12.6 10.6 10.8 8.2 7.9 7.7 7.8 6.2 5.9 6.1 5.8 4.8 5.0 4.6 4.2 3.5

Ministry of Finance

Fiscal Policy

Rating on Sovereign Risk of Brazil

Data: Rating

Source: Risk agenciesElaboration: Ministry of Finance

Continuous improvement in risk assessment by rating agencies

The degree of investment in Brazil is the result of solid macroeconomic fundamentals, which include improvements in federal debt profile, maintenance of a responsible fiscal policy and monetary policy credibility. The policy, kept in a context of high volatility, has ensured upgrades from all the major credit rating agencies.

20112011

DCCCCCC

B-BB+BB-BBBB+BBB-BBBBBB+

A-AA+AA-AAAA+AAA

DCCCCCC

B-BB+BB-BBBB+BBB-BBBBBB+

A-AA+AA-AAAA+AAA

CCaCaa3Caa2Caa1

B3B2B1Ba3Ba2Ba1

Baa3Baa2Baa1

A3A2A1Aa3Aa2Aa1Aaa

Fitch Ratings Standard & Poor’s Moody’s

Signi�cance in scale

Investment gradeHigh quality andlow risk

Investment gradeAverage quality

Speculative grade and lowquality

High risk ofdefault andlow demand

Brazilian Economy

OUTLOOK

Ministry ofFinance

External Sector

Ministry of Finance

External Sector

The results of the Brazilian external sector in 2011 have shown the perception of foreign investors regarding the country’s macroeconomic fundamentals and its ability to manage and absorb external shocks.

Trade surplus ended 2011 at US$ 29.8 billion, almost US$ 10 billion more than the balance of 2010. The robust result outweighed the increase in net spending on services and remittances of profits, and generated a fall in current account deficit in 2011 to 2.12% of GDP, compared to 2.21% of GDP in 2010.

Under a positive perspective on a dynamic and sustainable domestic market, there was a record amount of investments in the country in 2011. Foreign direct investment reached US$ 66.7 billion, which is more than enough to finance the current account deficit (US$ 52.6 billion).

Trade balance and foreign investment with a positive performance

Ministry of Finance

External Sector

Trade Balance (US$ billion, accumulated in the year)

Exports Imports Trade Balance

Data: US$ billion, accumulated in the year

Source: MDICElaboration: Ministry of Finance

Successive records in foreign trade

Exports reached US$ 256 billion in 2011, the highest amount ever exported by Brazil in yearly terms, a 26.8% annual rise. The increase in exports is associated with the continued diversification of markets and rising commodity prices. Imports, on its turn, totaled US$ 226 billion and the total value of trade reached US$ 482 billion. As regards to trade balance, the country accomplished a US$ 29,8 billion surplus, a 46.9% annual rise.

20112010

20092008

20072006

20052004

20032002

20012000

19991998

19971996

19951994

58 49 56 56 47 48 63 74 91 121

51 48 55 58 60 73 97 118

Ministry of Finance

External Sector

Percentage Share of Major Trading Partners (% of total exported)

1990 1998 2004 2011

Data: % of total exported

Source: MDICElaboration: Ministry of Finance

More diversified exports

Market diversification has played a pivotal role to growth in exports from Brazil. The exports share to China and Mercosur markets has grown up importance in recent years. Over the last twenty years, Chinese participation rose from 1.2% to 17.3% of the total, while Mercosur increased from 4.2% to 10.9%.

MercosurEUUnited StatesChina

Ministry of Finance

External Sector

Trade Balance of Service (US$ billion, annual)

Services Equipment rental International travels

Data: US$ billion, in an annual basis

Services pushed current account deficit

Net imports of services amounted to US$ 38 billion in 2011, the major result of the series. It is consistent with the growth path followed by the country in recent years. Equipment rentals and international travel expenses pressured the net expenses due to the increase in investment and income in the country.

-14.5-16.7

20112010

20092008

20072006

20052004

20032002

20012000

Ministry of Finance

External Sector

FDI Composition (US$ billion)

Foreign Direct Investment Equity participation Intercompany lending

Data: US$ billion

Record flows of foreign direct investments

The increase in foreign direct investment in 2011 was mainly due to the large increase in equity markets. It shows that the Government’s measures were effective in improving the profile of foreign capital in the country, widening the FDI and also lengthening the period of funding for loans and securities in foreign markets.

20112010200920082007200620052004

34.618.8

3.58.5

18.615.0

15.4 26.1 30.1 19.9 40.1 54.8

Ministry of Finance

External Sector

Manufactured Trade Balance (US$ billion)

Manufactured exports Manufactured imports Manufactured trade balance

Data: US$ billion

Source: FuncexElaboration: Ministry of Finance

External crisis and currency dynamics damage manufacturing

Anticompetitive conduct and monetary policies - which depreciated currencies to increase earnings from exports - influenced the deterioration of trade balance of manufactured goods. From 2005 to 2011, Brazil has gone from a US$ 8.5 billion balance surplus in the manufacturing sector to a US$ 92 billion deficit. In order to change this perspective, the Brazilian Government has taken some measures, such as the “Brasil Maior” industry enhancing program, aimed at slowing these effects and promoting employment, local production and technological innovation.

20112010

20092008

20072006

20052004

20032002

20012000

19991998

1997-200

-183.9

Ministry of Finance

External Sector

Current Account Balance (US$ billion and % of GDP)

Current Account Balance Current Account/GDP in 12 months (%)

Data: US$ billion and % of GDP

A stable current account deficit to GDP ratio

In 2011, the current account deficit as remained at the same level as in 2010 in terms of GDP. The foreign trade performance has partially offset the deficits of services and income accounts. It’s worth noting the expansion of income transfers, especially for remittances of profits and dividends, reflecting Foreign Direct Investment (FDI) growth and predominant participation among the options of foreign investments.

20112010

20092008

20072006

20052004

20032002

20012000

19991998

19971996

4.21.6

-23.5 -30.5 -33.4 -25.3 -24.2 -23.2 -7.611.7 14.0 13.6

-28.2 -24.3 -47.3 -52.6

-3.5-4.0

-4.3-3.8

1.8 1.61.3

-1.7 -1.5

-2.2 -2.1

Ministry of Finance

External Sector

FDI in 2011 – Selected Countries (US$ billion)*

Data: US$ billion

* Global Investments Trend Monitor, January 2012

** Including Hong Kong

Source: UnctadElaboration: Ministry of Finance

Brazil as one of the main foreign direct investment destinations

According to Unctad survey, Brazil is among the economies which received major amounts of FDI in 2011. It was ranked at the fourth position, only behind the United Sates, China and United Kingdom.

SwedenSpain

Luxembourg

Germany

France

Singapore

BelgiumRussia

Ireland

Brazil

United Kingdom

China **

United Sta

Ministry of Finance

External Sector

Main Destinations of FDI: 2010-2012 (number of citations)*

Data: number of citations

* World Investment Prospects Survey, 2010-2012

Source: UnctadElaboration: Ministry of Finance

And it must continue attracting higher FDI flows

Unctad survey shows that, for the first time, the four major emerging economies are among the five most cited as attractive destinations for FDI by major transnational corporations in the period 2010-2012. Brazil ranks third, only behind China and India.

PeruSpain

South Afri

caChile

CanadaJa

Malaysia

France

Australia

Poland

Thailand

Germany

Indonesia

Vietnam

United Kingdom

Mexico

RussiaUSA

Brazil

IndiaChina

Ministry of Finance

External Sector

Foreign Investments (FDI and Portfolio) and Current Account Balance (% of GDP)

Foreign Direct Investments Foreign Portfolio Investments Current Account

Data: % of GDP

* As of December 2011

Different dynamics for direct and portfolio investments

In 2011, foreign investment profile changed in Brazil. Portfolio investments decreased substantially, reaching 0.7% of GDP at the end of 2011 and FDI grew, reaching 3.2% of GDP in October, and 2.7% at year end.

Dec 2011

Sep 2011

Dec 2010

May 2010

Oct 2009

Mar 2009

Aug 2008

Jan 2008

Ministry of Finance

External Sector

Private Capital Flow to Emerging Countries (US$ billion)*

Emerging Asia Emerging Europe Brazil Latin America Africa/Middle East

Data: US$ billion

*IFF Research Note as of January 24, 2012

Source: IIFElaboration: Ministry of Finance

Brazil at the forefront positions with regards to private capital flows

According to the Institute of International Finance (IIF) forecast, private capital flows to emerging economies are expected to fall from US$ 910 billion in 2011 to US$ 746 billion in 2012. However, the private capital volume estimated for Brazil should rise from US$ 137 billion in 2011 to US$ 142 billion in 2012, maintaining the upward trend since 2009.

2012*2011

20102009

20082007

20062005

20042003

Ministry of Finance

External Sector

International Reserves (US$ billion)

Data: US$ billion, international liquidity concept

International reserves on rise

The accumulation of international reserves has been a pillar of Brazilian economic policy to reduce external vulnerability. In December, reserves totaled US$ 352 billion (about 14.2 of GDP). International reserves continued to outperform total external debt, keeping the country as net external creditor.

20112010

20092008

20072006

20052004

20032002

20012000

19991998

19971996

19951994

38.8 51

Ministry of Finance

External Sector

External Debt and International Reserves (US$ billion)

Data: US$ billion

* Estimated position to December 2011

External debt profile

Total external debt to reserves ratio dropped from 89% in 2010 to 84.5% in 2011, and the net debt to GDP ratio, from -2.4% to -3.2%. Following the decline, there was an increasing participation of long-term debt relative to total debt—from 77.7% to 86.9%, respectively. The rise in international reserves helped to maintain good levels of solvency of the economy. Furthermore, external debt is predominantly private, around two thirds of the total. Though not immune, the profile states the country much less vulnerable to external shocks.

External Debt and International ReservesUS$ billion

2010 2011*Reserves 288.6 352.0Total Debt 256.8 297.3Long Term 77.7% 86.9%Short Term 22.3% 13.1%Public 36.9% 34.5%Private 63.1% 65.5%

Debt Indexes (%)Total Debt/Reserves 89.0% 84.5%Long term debt/Reserves 69.1% 73.4%Short Term/Reserves 19.9% 11.1%Net External Debt/GDP -2.4% -3.2%

Ministry of Finance

External Sector

Composition of External Liabilities (%)

Other liabilities Fixed income Stocks Direct Investment

Data: %

External debt mostly comprised of FDI

On the composition of foreign investments, FDI and stocks prevail in the country’s external liability, exceeding the amount related to debt. The profile states there is more flexibility to transfers of income abroad and strengthens the pro-cyclical nature of the current account.

26.4 26.4 30.6 26.5 22.4 14.2 13.4 11.0 16.8 10.9 11.0 13.9

30.4 30.9 32.1 27.8 24.121.5 18.0 15.8

19.917.2 15.0 16.1

11.6 9.97.9

13.117.3

25.1 30.739.6

21.634.9 29.1 23.9

36.1 39.2 37.9 41.637.1

44.9 46.0

201120102009200820072006200520042003200220012000

31.6 32.8 29.4 32.7 36.1 39.2 37.9 33.6 41.6 37.1 44.9 46.0

11.6 9.97.9 13.1

17.325.1

30.739.6

21.634.9 29.1

23.930.4 30.9

32.127.8

24.121.5 18.0 15.8

19.917.2 15.0 16.1

26.4 26.4 30.6 26.5 22.4 14.2 13.4 11.0 16.8 10.9 11.0 13.9

Ministry of Finance

External Sector

External Vulnerability Indicator (% of GDP)

Total external debt International reserves Current account

Data: % of GDP

External vulnerability indicators point to a drop

Low external vulnerability conditions prevailed in 2011. Total amount of international reserves far exceeded the external debt. And yet, the current account deficit has remained stable at a safely financed level, i.e., long-maturing investments. The scenario is quite different from that observed in previous periods, when the external weakness prevailed in the Brazilian economy.

201120081998198719821974

18.1 31.5 42.9 26.5 12.0 12.04.8 1.5 2.6 5.3 11.7 14.2

-6.8 -6.0 -0.5 -4.0 -1.7 -2.1

First Oil ShockImpact

Debt Crisis External DebtDefault

Before FloatingExchange

Rate Regime

InternationalFinancial Crisis

(subprime)Current

Situation

Ministry of Finance

External Sector

FDI by Country* (% of total)

Data: % of total

* Survey of foreign capital in Brazil 2011, base year 2010

U.S. and Spain at the forefront of direct investments in Brazil

Foreign capital survey in Brazil has shown that the United States and Spain are the main investors in the final investor criteria, with inventories of US$ 104.7 billion (18% of total) and US$ 85.3 billion (15% of total), respectively. There is a relative diversification, if types of industry are considered, particularly for investments in financial services, beverages, telecommunications, extraction of oil and natural gas.

28%18%

2%Netherlands

Mexico

ItalyJapan

Germany FranceUnited Kingdom

Belgium

United States

Others

Ministry of Finance

External Sector

Nominal Exchange Rate (R$/US$)

Data: R$/US$

Exchange rate dynamics in Brazil

In 2011, after a period of continued exchange rate appreciation of the Brazilian real, the dollar returned back to the R$ 1,80 range and R$ 1.87 at year-end. Macroprudential measures, along with the accumulation of foreign reserves, contributed to the reduction of exchange volatility, in spite of some confidence crisis caused by international financial instability in Europe. Under the floating regime, the Government has acted to ensure a competitive exchange rate for the country.

CompulsoryRequirementson Exchange

IOF overForeignLoans

Selic TaxReduction

IOF TaxIncrease

DerivativesTaxation

Jan, 2

4th 2012

Dec 2011

Oct 2011

Aug, 31st 2

Jul, 2

6th 2011

Apr 2011

Mar, 29th

Mar 2011

Jan, 7

th 2011

Nov 2010

Oct, 19th

Oct, 5th

Sep 2010

May 2010

Mar 2010

Jan 2010

Nov 2009

Oct, 19th

Sep 2009

May 2009

Mar 2009

Jan 2009

Nov 2008

Sep 2008

May 2008

Mar 2008

Jan 2008

Jan 2011

IOF TaxIncrease

Brazilian Economy

OUTLOOK

Ministry ofFinance

Ministry of Finance

The poor performance of the advanced economies and the slow recovery estimated to last for a few more years –given the complexity of financial and fiscal imbalances in Europe – were the economic facts that marked the world scene in 2011. The IMF reduced its world economic growth forecast to 3.3% in 2012, a drop of 0.7% in the last estimate for the same year. GDP contraction in the Eurozone (-0.5% in 2012) and low growth in the U.S. (1.8%) are some of the reasons for an increase of only 1.2% in advanced economies, as opposed to the 5.4 % in emerging economies.

In the short term, it is worth pointing the high concentration of debt maturity in key European economies in the first half of 2012. It could raise some attention on the subject. In the medium term, global economic growth perspective is about to be driven by the dynamism of some emerging markets like Brazil.

A solution to the crisis is expected in advanced economies

Ministry of Finance

Growth forecasts for G20 countries

GDP (% YoY)

SaudiArabia

Brazil**

Russia

Argentina*

Indonesia*

SouthKortea

France

Germany

Australia*

Japan United States

South Africa

Turkey

Mexico

CanadaUnited

Kingdom

3.67.0

2.2-2.2

0.2 3.3

1.71.8

1.7 0.30.9

6.60.4

6.57.4

1.88.0

2.33.0

* WEO/IMF September 2011

** 2011: IBGE data accumulated in the first three quarters over the same period in 2010 and for 2012: Ministry of Finance estimates

Source: IMFElaboration: Ministry of Finance

Ministry of Finance

Data: % of GDP

Fiscal results forecasts for G20 countries

20112012

Fiscal Result(% of GDP)

SaudiArabia

Brazil

Russia

Argentina

Indonesia

SouthKorea

France

Germany

Australia

Japan United States

South Africa

Turkey

Mexico

CanadaUnited

Kingdom

3.6-8.0

-1.5-1.1

-2.8 -1.8

-7.6-5.0

-1.9 -0.9

-2.1-2.6

6.5-8.3

-3.7-2.9

-3.0-1.4

Ministry of Finance

Data: % of GDP

Current account balance forecasts for G20 countries

20112012

Current account (% of GDP)

SaudiArabia

Brazil

Russia

Argentina

Indonesia

South Korea

France

Germany

Australia

Japan United States

South Africa

Turkey

Mexico

CanadaUnited

Kingdom

14.2-2.2

-7.4-3.0

-2.5 3.5

2.8-2.1

-3.8 4.9

-10.3-3.5

20.6-2.2

-2.2-0.3

-3.35.0

Ministry of Finance

2011: realized inflation

2012: inflation expectation

* As of September 2011

** As of November 2011

Source: IMF and Central BanksElaboration: Ministry of Finance

Inflation forecasts for G20 countries

20112012

In�ation(% YoY)

SaudiArabia

Brazil

Russia

Argentina

Indonesia

SouthKorea

France

Germany

Australia

Japan United States

South Africa

Turkey

Mexico

CanadaUnited

Kingdom

5.38.6

6.91.6

1.4 7.3

-0.51.2

2.1 1.32.4

10.53.3-2.5

5.39.1**

-0.5**

3.5*9.5

2.32.1

Ministry of Finance

Difference between the Inflation Target and the Observed Inflation in 2011 (p.p.)

Data: Percentage Points

Source: BloombergElaboration: Ministry of Finance

Rising inflation as a global phenomenon in 2011

In 2011, the contagion of global inflation in commodity prices contributed to the breach of inflation targets by the majority of inflation targeters. Turkey and Peru had faced major impacts. In Brazil, the Government acted promptly, taming the acceleration of prices and its distribution, while keeping the CPI inflation (IPCA index) within the ranges of the target.

TurkeyIceland

PeruUnited Kingdom

PolandBrazil

South AfricaChile

South KoreaHungaryThailand

MexicoColombiaAustralia 0.6

0.70.80.91.11.21.41.62.02.12.22.22.85.0

Target

Center

2.53.03.01.83.03.03.04.54.52.52.02.02.55.5

Percentage points above the central in�ation target

Ministry of Finance

GDP 2011* and 2012** (US$ trillion and % YoY)

Data: 2011: US$ trillion and 2012: % YoY

* 2011 GDP: IMF

** GDP growth in 2012: WEO/IMF updated in January 2012. For Brazil, Ministry of Finance estimates

Source: IMF and The EconomistElaboration: Ministry of Finance

Brazil amongst the world major economies

Prominent emerging economies (Brazil, China, India, Russia) are among the most dynamic economies in the world. Recently Brazil is ranked at the 6th place among the major economies of the globe.

Russia

United Kingdom

Brazil

France

Germany

United States

GDP of 2011*, in US$ trilllion GDP growth in 2012**, in % p.a.

Ministry of Finance

Unemployment Rate: Selected Countries – December 2011 (%)

Data: %

Brazilian unemployment rate among the lowest in the world

The 4.7% unemployment rate as of December 2011, is among the lowest in the world. Advanced countries such as France, USA, UK and Canada, are facing higher unemployment rates than Brazil.

South Kore

Switzerla

ndChina

Brazil

Netherla

Mexico

Australia

Germany

Russia

Canada

United

Kingdom*USAIta

Turkey

France

Ministry of Finance

ISM and PMI Indicators (points)

China PMI Global PMI ISM Index

Data: points

Global activity stabilizes

PMI (Purchasing Managers Index) and ISM (Institute of Supply Management) indicators are important to measure the economic conditions of countries and regions. In early 2011, rates have declined in the U.S. and China, and so has the overall index. Some global activity stabilization is expected.

Dec 2011

Oct 2011

May 2011

Dec 2010

Feb 2010

Sep 2009

Apr 2009

Nov 2008

Jun 2008

Jan 2008

50.3050.00

Ministry of Finance

Confidence Indexes - USA and Eurozone (points)

Consumer Confidence Index – USA Economic Sentiment Indicator - Eurozone

Data: points

Source: Eurostat and Conference BoardElaboration: Ministry of Finance

Confidence falls in Europe, but starts to recover in the U.S.

Confidence indicators in the U.S. and Europe show distinct signs. In Europe, consumer sentiment has been in decline since early 2011. In the U.S., though, the North American consumer confidence showed signs of recovery in the last two months of 2011.

Dec 2011

Jan 2011

Jan 2010

Jan 2009

Jan 2008

Ministry of Finance

USA: Economic Activity (index)

Chicago Fed Philadelphia Fed Richmond Fed

Data: index

Economic activity in the United States

Economic activity in the United States shows signs of recovery. The Philadelphia Fed Manufacturing index reached 6.8 points in December and 7.3 in January 2012. The Richmond Fed index reached 12 points in January, a 9 points rise over the previous month. Chicago’s Fed National Activity Index reported 0.17 in December 2011.

Jan 2012

Dec 2011

May 2011

Dec 2010

Feb 2010

Sep 2009

Apr 2009

Nov 2008

Jun 2008

Jan 2008 -5

Ministry of Finance

USA: Unemployment Rate (%)

Data: %

Unemployment rate is declining in the U.S.

There has been a decrease in the American unemployment rate in recent months. But the unemployment rate remains well above than in the past. Estimates of the Federal Reserve indicate that, at least until 2014, the unemployment rate will still be above the long-term trend.

Dec 2011

Dec 2010

Aug 2009

Apr 2008

Dec 2006

Aug 2005

Mar 2004

Oct 2002

Jun 2001

Jan 2000

Ministry of Finance

Unemployment Rate: Euro Zone and Selected Countries (%)

Data: %

* As of October 2011

Source: EurostatElaboration: Ministry of Finance

Unemployment rate in the euro zone

One of the most perverse consequences of the economic crisis in Europe has been the steady increase in unemployment throughout the region, reaching 10.4% in the euro zone as a whole. In disaggregated terms, figures in Spain (22.9%) and Greece (19.2%) stand out.

Dec 2011

Sep 2011

Jan 2011

Jan 2010

Jan 2009

Jan 2008

Jan 2007

Jan 2006

Jan 2005

Greece*

Ireland

Portugal

Eurozone

France

Finland

Belgium

Germany

Luxembourg

Netherlands

Austria

UnemploymentEurozone

Ministry of Finance

GDP Growth (% YoY) Consumer Inflation (% YoY)

GDP real growth Inflation

Data: % annual

* WEO/IMF January 2012 forecast

* WEO/IMF September 2011 forecast

China and the global economic activity

China has an important role in global economic activity. Although the country has grown over 9% in 2011, a slowdown has been estimated for 2012 due to low growth forecasts for advanced economies which will affect the Chinese exports performance. Likewise, the inflation forecast points to a slowdown, with a 4.1% estimated for the end of 2012.

2012*2011

20102009

20082007

20062005

20042003

20022001

2000-1

2011**

20102009

20082007

20062005

20042003

20022001

Ministry of Finance

Five-Year CDS Spreads: Selected G20 Countries (b.p.)

Data: basis points

* As of Oct/25/2011

Risk of default of the G20

A Credit Default Swap (CDS) contract is a protection against a possible default and, therefore, indicates the financial market’s perception over risks related to sovereign debt. Within 2008 and 2012 period, an increasing risk perception can be seen on European nations while there was a downward one for emerging markets.

Five-year CDS Spreads as of 12/31/2008

AustraliaUnited Kingdom

IndonesiaJapan

South AfricaRussia

ItalyIndia

South KoreaFrance

MexicoGermany

United States*China

TurkeyBrazil

AustraliaUnited Kingdom

IndonesiaJapan

South AfricaRussia

ItalyIndia***

South Korea**France

MexicoGermany

United StatesChina*Turkey

Brazil

Five-year CDS Spreads as of 01/16/2008

Ministry of Finance

Risk Rating: Standard and Poor’s

Data: risk rating

Downgrade for advanced economies

There has been an increase in the lack of confidence among the economic agents. It is reflected in the recent risk rating changes of most countries of the Euro zone, and the United States. Greece, Portugal, Ireland and Spain suffered major downgrades, which has also somewhat hit France. In the opposite direction, Brazil has achieved constant upgrades issued by the rating agencies.

Jan 2012Aug to Nov 2011

Jul 2011Mar 2011Dec 2010Dec 2009Dec 2004Dec 2003

High quality and lower risk*

InvestmentGrade

SpeculativeGrade

High defaultrisk

Ireland

Greece

Portugal

Brazil

FranceAAAAA+

AAAA-A+

BBB+BBB

BBB-BB+

BBBB-B+

Ministry of Finance

Commodity Research Bureau (CRB) Index (index number, 1951=100)

CRB Spot CRB Foodstuff CRB Metals

Data: index number, 1951=100

Commodity prices behavior

The evolution of commodity prices has been characterized by the decoupling of metal commodities until the 2008 crisis, when metals had been strongly devalued. The world economic recovery led to a new decoupling. Again, the recent crisis affects the prices of metal commodities.

Jan 2012

Sep 2011

Feb 2011

Dez 2009

May 2009

Oct 2008

Mar 2008

Aug 2007

Jan 2007

Jun 2006

Nov 2005

Apr 2005

Sep 2004

Feb 2004

Dec 2002

May 2002

Oct 2001

Mar 2001

Aug 2000

Jan 2000

908.81

433.20

312.85

Ministry of Finance

VIX Index – USA and ITRAXX Index (points and basis points)

ITRAXX VIX

Data: points and basis points

Stock exchange in the U.S. and risk in Europe

The VIX index measures the expected volatility of 30 days in the stock market, based on the price volatility of options on the S&P 500. Itraxx, on its turn, is an average risk index, covering regions such as Europe, Australia and Japan. The most recent levels denote the worsening of the market perception related to the fiscal crisis in the U.S. and in Europe. Since the end of 2011, though, there has been an improvement in such indexes.

Jan 2012

20112010

20092008

2007 50

Ministry of Finance

Brent Oil Price (US$/barrel)

Constant Prices (US$ from December 2011) Current Prices (US$)

Data: US$/barrel

Source: U.S Energy Information Administration and BloombergElaboration: Ministry of Finance

International oil prices overview

Oil price moves are almost always linked to the dynamics of global economic activity, international liquidity availability, and the existing political tensions in key producing countries located in the Middle East. Since mid-2011, oil prices have remained at high levels due to the lack of investments caused by Middle East crises and by the demand from some countries.

102030405060708090

100110120130140150

2011 2010

20092008

20072006

20052004

20032002

20012000

19991998

19971996

1995 1994

19931992

19911990

19891988

19871986

19851984

19831982

19811980

Current Prices (US$)

Ministry of Finance

G20 Countries: Change in Stock Market in 2011 (% accumulated in the period)

Stock market dynamics in the G20

Stock exchanges all over the world have also undergone through the impact of European financial crisis. Regarding the G20 countries, losses in 2011 were substantial, especially late in the year, when losses were more concentrated. However, since November 2011, there has been some recovery of stock market indexes, especially in Germany, France and Brazil.

Fluctuation from 01/03/2011 to 01/20/2012

ItalyArgentina

TurkeyIndia

RussiaFrance

Euro ZoneJapan

China (Hong Kong)Australia

BrazilGermany

CanadaSouth KoreaSaudi Arabia

MexicoUnited Kingdom

USA - S&P500USA - Nasdaq

South AfricaIndonesia

USA - Dow Jones

GermanyFrance

BrazilEuro ZoneIndonesia

USA - Dow JonesSaudi ArabiaSouth Africa

USA - S&P500United Kingdom

ArgentinaSouth Korea

China (Hong Kong)USA - Nasdaq

JapanMexico

ItalyCanada

AustraliaTurkey

IndiaRussia

-2.9-3.2-3.4-5.8-7.8-8.4

-10.9-11.2-14.2-14.3-14.5-14.9-15.5-18.6-18.8-21.0-23.5

9.06.94.33.53.4

-5.3-4.7-2.3-1.2

-0.7-0.2

0.11.32.22.22.52.72.93.13.23.84.54.85.45.65.77.4

Ministry of Finance

Real Effective Exchange Rate* (index number, 2005=100)

USA Euro zone China Brazil

Data: index number, 2005=100

* Deflator: Consumer Price Index from each country. A rise means exchange appreciation and a fall means depreciation

Source: BISElaboration: Ministry of Finance

Real effective exchange rate

The real effective exchange rate is a reference to the level of investment and trade between a country and its commercial partners. The U.S. dollar has shown a continuous decreasing trend, bringing upheavals to the international economic outlook, both in terms of trade, and also in the financial standpoint.

Dec 2011

Jan 2011

Jan 2010

Jan 2009

Jan 2008

Jan 2007

Jan 2006

Jan 2005

98.597.5397.56

107.97

Ministry of Finance

G20 Countries: Exchange Rate Variation* (%)

Data: %

* Positive changes mean currency depreciation and negative changes mean currency appreciation

Source: ReutersElaboration: Ministry of Finance

Exchange rate dynamics in the G20

The behavior of the exchange rate in the G20 countries has shown a more pronounced variation due to the worsening of the financial crisis in the eurozone. More recently—since mid-December 2011 up to mid-January 2012—the exchange rate trend reverted. Not only Brazil, but several other countries are going through an appreciation of the exchange rate.

IndiaAustralia

BrazilSouth Africa

MexicoSouth Korea

CanadaRussia

IndonesiaJapanChina

United KingdomEuro

Argentina

8.614.022.02-3.79-7.23-1.274.391.591.169.39

12.294.88-6.2110.54

Ministry of Finance

Maturing Debt of European Countries in Crises (€ million)

Data: € million

European agreement aims to contain fiscal imbalances

In January 2012, a new European agreement to curb fiscal imbalances was settled. It will be achieved by maintaining the structural government deficit below 0.5% of nominal GDP. If a member state breaks the rule, an automatic correction will be triggered. There is also a penalty for noncompliance.

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Dec 2012

Nov 2012

Oct 2012

Sep 2012

Aug 2012

Jun 2012

May 2012

Apr 2012

Mar 2012

Feb 2012

Jan 2012

Ministry of Finance

European Central Bank’s balance (€ billion)

Data: billion of euros

European Central Bank’s balance

The ECB’s balance sheet reached a € 2.7 trillion record at the end of last year due to the increase of loans to banks in Europe. It has acted as a lender of last resort as it did during the 2008 turmoil.

Jan 2012

Dec 2011

Jan 2011

Jan 2010

Jan 2009

Jan 2008

Jan 2007

Jan 2006

Oct 2004

2,706.2

Brazilian Economy

OUTLOOK

Ministry ofFinance

Special Section

Ministry of Finance

Special

After two decades of low economic dynamism, the progress of the Brazilian economy has been considerable in recent years. The economy entered a period of robust expansion, based on a development model focused on domestic market strengthening, with job creation and income distribution, promoting investment and expanding credit market, with inflation under control, and outstanding sound fiscal and financial systems. Thus, Brazil has reached high levels of growth, combined—in an unprecedented manner—with justice and social development.

Far different from the former financial and currency crises, Brazil has vigorously faced one of the most serious and profound ongoing global crises. In the past, same magnitude crises have driven the economy into imbalances in the balance of payments, public debt increases and higher country risk perception, inhibiting new investments and damaging economic growth. Nowadays, the macroeconomic results are worthy to be recorded. From 2002 to 2012, average inflation has fallen from 15% to less than 5% per year, public debt to GDP ratio has declined by almost half, exports have risen by more than five times, poverty has shrunk by more than 50%, and the country grows twice as much as experienced in previous decades.

For the period 2012-2014, the Federal Government is committed to stimulate the economy towards a 4.8% annual growth rate, with investment rate reaching 24% of GDP, inflation under control and low level of insolvency risk. According to international organisms’ estimates, the country shall be the 5th largest world economy in 2016. By then, more than eight million workers will have gone through professional training, and another 16 million people will have climbed the ladder out of extreme poverty.

Brazil: a decade of progress

Ministry of Finance

Special

* IMF forecast

Brazil stands out in the international scene

US$ 500 billion

US$ 2.6 trillion

6th World's largest economy

US$ 2,800

US$ 13,300

Gross Domestic Product (GDP)

GDP per Capita

Ministry of Finance

Special

Elaboration: Ministry of Finance

Auto industry and agriculture are also growing internationally in importance

Source: MDA-MAPA

Automobile production “Plano Safra”Rural Financing Program

2011/20122002/2003

R$ 123.2 billion

R$ 24,7 billion

Source: MDA-MAPA, CONAB, FAO

163.0 million tons

1stWorld’s leader in sugarcane production Runner-up in soybean production

20112002

96.8 million tons

Source: ANFAVEA (Yearbook of the Brazilian Automotive Industry, 2011)

20112002

3.4 million units

The world's sixth-largest Autoproducer in 2011

1.8 million units

The Brazilian harvest (millions of tons of grains)

Ministry of Finance

Special

Investments are crucial for the country´s development and growth

16.4% of GDP

20.8% of GDP

Source: IBGE

2011 US$ 66.6 billion

2002 US$ 16.5 billionFourth place in Foreign Direct Investment in�ows Source: UNCTADSource: Central Bank of Brazil

Investment Rate (in % of GDP)

Foreign Direct Investment (in US$ billion)

* Ministry of Finance estimates

Ministry of Finance

Special

Within a decade, inflation rate has fallen considerably

Source: IBGE Source: IBGE

Source: FGV

2012**

In�ation IPCA-Managed, % YoY

15.32%

2012**

In�ation IPCA, % YoY

In�ation IGP-M, % YoY

* Central Bank of Brazil Projections - Inflation Report Dec/2011** Focus Report Projections: Jan/27/2012

Ministry of Finance

Special

Job creation: millions of people in the formal labor market

Unemployment Rate (%)

Unemployment rate observed in December 2011 is the lowest in history

Source: IBGE/PME

Source: CAGED/MTE

Mar 2002Dec 2011

Formalization Rate (% formally employed over the occupied population)

20022011

Over 18 million jobs created between 2002 and 2011

20022011

1.49 million jobs

1.94 million jobs

Job creation over the years

Ministry of Finance

Special

Higher income has decreased poverty in Brazil

R$ 200

R$ 622Real Increase of 66%

12.8%Source: FGV

0.541Source: IPEA 8.9%

Decrease of

Minimum Wage at current prices Gini Income Index

Poverty rate *

Source: MTE

* Share of total population belonging to E class

Ministry of Finance

Special

In the last decade, middle class jumped from 37% to 50% of total population

Middle Class37% of total population

Middle Class50% of total population

Ministry of Finance

Special

The strong emphasis on expanding access to higher education (technical and university level) has been a priority, without leaving aside basic education

20122002Source: MEC

Number of registrations in professional education

565 thousand

924 thousand

20122002Source: MEC

Number of seats o�ered by Federal Colleges and Universities

124 thousand

248 thousand

20112002Source: IBGE

Percentage of labor force with 11 years of formal education or more

44.7 %

60.5 %

Quali�cationQuali�cation

Ministry of Finance

Special

* PNPG projections 2011-2020

Scholarship granting for postgraduate studies triples, leading to the increase of Masters and Doctorate degrees

Quali�cation

2012* 41,396

2002 23,445

Source: CAPES PNPG 2011-2020

Number of Master’s Degree Graduates

Number of scholarships for Masters and Doctorate provided by Capes and CNPq

2010 74,000 scholarships

2002 35,000 scholarships

105,000 scholarships

Source: CNPQ, CAPES PNPG 2011-2020

2012* 13,304

2002 6,894

Source: CAPES PNPG 2011-2020

Number of DoctorateGraduates

Ministry of Finance

Special

Brazil has established itself as a safe and promising place for investments

Nov 2011 BBB (Investment Grade)

Jul 2002 B+ (Speculative Grade)

Rating Classi�cation (S&P)

2011 R$ 1,605 bi

2002 R$ 136 bi

Source: BM&F Bovespa

Trading Volume on BM&F BOVESPA (in R$ billion)

Source: S&P

Jan 2012 (average) 220 points

2002 (year average) 1,372 points

Country Risk(EMBI+)

Source: JP Morgan

Jan 2012 (average) 157 points

2002 (year average) 1,910 points

Country Risk (Credit Default Swap – CDS)

Source: Bloomberg

Ministry of Finance

Special

In the last decade, Brazil has become an international lender

Total Net Foreign Debt

International Reserves

Source: Central Bank of Brazil

Total Net Debt = Short-term debt + Long-term debt - - International Reserves - - Brazilian credits abroad - - Commercial banks Assets

2002 US$ 165 bi

Dec 2011 US$ -79,1 bi

Jan 2002 US$ 36 bi

Jan 2012 US$ 353 bi

Ministry of Finance

Special

Even within a currency war scenario, Brazilian exports have quadrupled in a decade

US$ 60 bi

US$ 256 bi

Exports

US$ 29.8 bi

US$ 13.1 bi

US$ 108 bi

US$ 482 bi

Source: MDIC

Value of total trade *Trade balance

* Exports plus Imports

Ministry of Finance

Special

Domestic real interest rates, as well as interest rates paid abroad, have reached minimum historical levels

Jan 2002 10.99% YoY

Dec 2011 4.14% YoY

Real Interest (Selic) Rate (% YoY)*

Dec/31/2002 25.0% YoY

Jan/31/2012 10.5% YoYSource: Central Bank of Brazil

Nominal Interest (Selic) Rate (% YoY)

Jan 2002 12.6% YoY

Jan 2012 3.5% YoYSource: STN/MF

10-year Treasury Bond (Issuance Yield)(% YoY)

*Ex-post interest rate: the ratio between the Selic rate and annualized IPCA

Ministry of Finance

Special

Within a decade, credit to GDP ratio doubles in Brazil. Housing credit has also reached record highs recently

Financial System Credit Operations (% GDP)

Housing Credit (O�cial Bank CAIXA)

R$ 4.4 bi

R$ 84.3 bi2012*2002

26.0% GDP

49.1% GDP20112002

BNDES Disbursement

R$ 37.4 bi

R$ 103.4 bi20112002

Source: Central Bank of Brazil Source: CAIXA

* CAIXA estimates

Ministry of Finance

Special

Fiscal solvency has been guaranteed by the continuing decline of the public debt, as well as by the improvement of the debt profile

Percentage of debt indexed to the interest rate, reference interest rate (TR) and others

Dec 2002Dec 2011

Source: STN/MF

43.89%

30.14%

20022012

Federal Public Debt:Percentage maturing in 12 months

Percentage of debt indexed to the exchange rate

Public Sector Net Debt (% GDP)

Dec 2002Dec 2011

Source: STN/MF

Source: STN

Percentage of �xed rate debt + price indexes

45.83%Dec 2002Dec 2011 65.50%

Source: STN/MF

10.28%

Dec 2006*Dec 2011

32.42%

21.89% 36.9%

* Focus Report Projections: Jan/27/2012** 2006 data are used because the current methodology is not retroactive to previous years

Ministry of Finance

Special

A larger increase in expenses, in relation to revenues, is justified by income transfers and spending related to health and education

Total Net Revenue (% GDP) Primary expenditure (% GDP)

Source: STN/Ministry of Finance and “Siga-Brasil”/Federal Senate

15.7% of GDP

17.5% of GDP

20122002

Income transfers to households

6.8% of GDP

8.6% of GDP

Source: STN/Ministry of Finance and”Siga-Brasil”/Federal Senate

20112002

17.9% of GDP

19.8% of GDP 20112002

Federal Government Spending in Education

in constant prices of January 2012

Federal Government spending in Healthcare

in constant prices of January 2012

222% growth in real terms

Source: STN and Budget Guidelines Law (LOA) 2012

R$ 36.0 billion

R$ 85.4 billion

107% growth in real termsSource: STN and Budget Guidelines Law (LOA) 2012

2012*2002

R$ 18.7 billion

R$ 68.6 billion 2012*

* LOA 2012

Ministry of Finance

Special

On the other hand, payroll expenditures decreased

Payroll expenditures (% GDP)

2012*2002

4.8% GDP

4.4% GDP

* Predicted Value - Budget Guidelines Law 2012 (12.595 – Jan/19/2012)

Ministry of Finance

Glossary - Institutions

ANFAVEA National Association of Automobile Manufacturers

BC Central Bank of Brazil

BIS Bank for International Settlements

BNDES National Bank of Economic and Social Development

CG-LA Competitiveness Group Long-Term Assets

CNI National Industry Confederation

CNPq National Council for Scientific and Technological Development

FAO United Nations Food and Agriculture

FED Federal Reserve Bank

FGV Getulio Vargas Foundation

FIESP Federation of Industries of the State of São Paulo

IBGE Brazilian Institute of Geography and Statistics

IMF International Monetary Fund

MDA Ministry of Agrarian Development

MDIC Ministry of Development, Industry and Foreign Trade

MDS Ministry of Social Development and Fight against Hunger

MEC Ministry of Education

MPOG Ministry of Planning, Budgeting and Management

MTE Ministry of Labor and Employment

NASDAQ National Association of Security Dealers Automated Quotation

RFB Federal Revenue Secretariat

S&P Standard & Poor's

SAE/PR Secretariat for Strategic Affairs

SAIN International Affairs Secretariat

SEAE Secretariat for Economic Monitoring

SPE Economic Policy Secretariat

STN National Treasury Secretariat

UNCTAD United Nations Conference on Trade and Development

Ministry of Finance

Glossary - Terms

CAGED General Register of Employed and Unemployed

CAPES Coordination of Improvement of Higher Education Personnel

CDS Credit Default Swap

CLT Consolidation of Labor Laws

CRB Commodity Research Bureau

DI Interbank Deposits

DPMFi Domestic Federal Public Securities Debt

EMBI+ Emerging Markets Bond Index Plus

FAT Worker Support Fund

FBCF Gross Fixed Capital

FGTS Severance Pay Indemnity Fund

FSB Sovereign Fund of Brazil

IBC-Br Economic Activity Index

IED Foreign Direct Investment

IGP-DI General Price Index – Internal Supply / FGV

IGP-M General Price Index Market

INCC-DI National Construction Cost Index – Internal Supply / FGV

IOF Financial Transaction Tax

IPA-DI Producer Price Index – Internal Supply / FGV

IPC Consumer Price Index / FGV

IPCA Broad Consumer Price Index / IBGE

ISM Institute of Supply Management

LDO Budgetary Guidelines Law

LOAS Organic Law of Social Assistance

NUCI Installed Utilization Capacity Level

PAC Growth Acceleration Program

PIB Gross Domestic Product

PMC Monthly Retail Survey / IBGE

PME Monthly Employment Survey / IBGE

PMI Purchasing Managers' Index

PNAD National Household Sample Survey

PNPG National Plan of Graduate Studies

PRONATEC National Program for Access to Technical Education and Employment

RMV Lifetime Monthly Income

Selic Brazilian Benchmark Interest Rate

SIAFI Integrated Financial Management System

TR Reference Rate

WEO World Economic Outlook/IMF

Ministry of Finance

President of the Republic: Dilma Vana RousseffMinister of Finance: Guido MantegaDeputy Minister of Finance: Nelson BarbosaSecretary of Economic Policy: Márcio Holland Chief of Staff: Marcelo Fiche

Production and ExecutionEconomic Policy SecretariatAdvisory to the Minister of Finance on Economic Affairs

Editorial BoardAdriano SeabraCleomar GomesFabio Graner José Gilberto Scandiucci FilhoLígia Ourives

Technical SupportNational Treasury Secretariat - STNInternational Affairs Secretariat - SAINSecretariat for Economic Monitoring - SEAEFederal Service of Data Processing - SERPRO

www.fazenda.gov.brFinished in February 8th, 2012

Ministry ofFinance

ArtVisual Project and Final Art: Viviane BarrosCover: André Nóbrega Layout Development: Alline Luz and Viviane BarrosDesign Trainee: Letícia Lopes and Weslei LopesEconomics Trainee: Andrea Motta

Brazilian Economy Outlook

News & Politics