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17 Edition |December | 2012th
Brazilian Economic
OUTLOOK Ministry ofFinanceB R A Z I L I A N G O V E R N M E N T
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Foreword
Economic Activity
Employment and Income
Ination
Interest Rates and Credit
Fiscal Policy
External Sector
International Overview
Glossary
Summary
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9
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53
61
81
93
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NOTE
The Brazilian Economic Outlook Report is published by the Ministryo Finance. It consolidates and updates the main macroeconomicvariables related to the Brazilian economy. The report is coordinatedby the Economic Policy Secretariat (SPE) with the contribution o the
ollowing Ministry o Finances bureaus: National Treasury Secretariat(STN), International Aairs Secretariat (SAIN), Secretariat or EconomicMonitoring (SEAE) and Federal Revenue Secretariat (RFB). Data used inthe report were updated untilDecember 6th, 2012.
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Ministry
of Finance
Foreword
7
Brazilian economy prepared or a sustained economic growth
The Brazilian economy has shown strength in 2012, even with advanced economies remaining sluggish and world
trade stagnated. Growth accelerated in the third quarter, and the economic outlook or 2013 is strong.
In order to boost the countrys productive capacity even urther, this Administration has given incentives orinvestment and production, which have been showing consistent results. Not only do public sector investments playan important role, with emphasis on the Growth Acceleration Program (PAC 2), but also private investments are keyto economic growth.
Public-private partnerships to und relevant inrastructure projects are being stimulated, and incentives or thedevelopment o a long-term private credit market in Brazil are being implemented. As or production, payroll taxexemptions measures as well as energy cost actions have been taken, with benets or several economic sectors.
Brazil is experiencing a very promising new macroeconomic balance with low interest rates and reduced nancialcosts o investment, a more competitive exchange rate, and sound scal results. The outcome o these measures hasstarted to take eect, but a large part o their eects is still in the pipeline.
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Brazilian Economy
OUTLOOK
Ministry ofFinance
B R A Z I L I A N G O V E R N M E N T
EconomicActivity
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EconomicA
ctivity
10
Under the world economic slowdown, the Brazilian economy grew 2.4% in annual terms during the third quarter
o 2012, showing that the countrys economic activity is resilient. In addition to that, data already released showpositive results or ourth quarter. The economic outlook or 2013 is promising.
This Administration has taken a series o measures to increase the countrys competitiveness, encouraging investmentand production. For instance, inrastructure investments, through the PAC 2 and concession programs, are already inplace. Moreover, the payroll tax relie or 40 sectors, the program or reducing energy costs, and the new automotiveregime or 2013-2017 are other measures which ensures growing productive capacity.
Recovery in economic activity
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GDP Growth (% QoQ, sa)
Data: % change rom precedingquarter, seasonally adjusted
Source:IBGE
Produced by:Ministry o Finance
Growth accelerates
Even lower than expected, the GDP growth in the third quarter o 2012 is higher than the previous quarters,
indicating a recovery path. The Government stimulus measures have shown initial results, which tend tostrengthen in the coming months.
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Q3 2012Q2 2012Q1 2012Q4 2011Q3 2011Q2 2011Q1 2011
0.7 0.50.1 0.1 0.1
0.2 0.6
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GDP Growth Rate: Demand and Supply (% QoQ, sa)
Q2 2012
Q3 2012
Data: % change rom precedingquarter, seasonally adjusted
Source:IBGE
Produced by:Ministry o Finance
Economic growth: supply and demand
From a supply-side perspective, the 3rd-quarter output was driven by the perormances o the agricultural
(2.5%) and industrial sectors (1.1%), highlighted by manuacturing and civil construction industries. Froma demand-side perspective, household consumption supported GDP growth (0.9%).
-2-1
0
1
2
3
4
5
6
7
8
Gross FixedCapital
Formation
GovernmentConsumption
HouseholdConsumption
GDPServicesIndustryAgricultural
Supply Demand
2.5
1.1
0.0 0
.6 0.9
0.1
6.8
0.5
0.2 0
.7 1.0
-2
.0
-1
.8
-1
.6
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Contributions to GDP Growth: Supply Side (% YoY)
GDP
Taxes
Services
Industry
Agricultural
Data: % change rompreceding year
* On a 4-quarter basis
Source:IBGE
Produced by:Ministry o Finance
Brazil: supply-side GDP growth
2007 2008 2009 2010 2011 2012*
6.1
5.2
7.5
-0.3
2.70.9
1.1
3.5
1.3
0.2
1.1
2.8
1.0
0.3
-1.3-0.2
0.0
1.2
1.6
3.2
2.4
0.3
0.6
1.6
0.4
0.2
0.2
0.80.03
-0.2
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Contributions to GDP Growth: Demand Side (% YoY)
GDP
Inventories
Exports
GFCF
Government Consumption
Household ConsumptionImports
Data: % change rompreceding year
* On a 4-quarter basis
Source:IBGE
Produced by:Ministry o Finance
Brazil: demand-side GDP growth
2007 2008 2009 2010 2011 2012*
6.1
5.2
-0.3
7.5
2.7
0.9
0.9
2.3
3.7
1.0
0.5
-2.3
0.5
2.4
3.4
0.1
0.6
-1.8
1.0
0.6
2.6
-2.1
-1.2
-1.3
3.9
0.9
4.2
-4.0
1.3
1.3
0.50.9
0.42.4
-0.4
-1.2
0.6
1.6
0.1
-0.7
-0.5
-0.2
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Components o the Service Sector (% QoQ, sa)
Data: % change rom precedingquarter, seasonally adjusted
Source:IBGE
Produced by:Ministry o Finance
GDP growth in 3rd quarter: the behavior o the service sector
Brazils service sector did not grow in the 3rd quarter o 2012, as the nance sector shrank by 1.3%.
-1.5
-1.2
-0.9
-0.6
-0.3
0.0
0.3
Administration,
health and
education
Real estate
and rentals
Other
services
Financial
intermediation
and related services
Information
services
Transport,
storage and mail
Trade
0.6
0.4
-0.1
0.5
-1.3
0.3 0.4 0.1
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GDP, Household Consumption and Investment (% YoY)
GDP
Household Consumption
Investment
Data: % changerom preceding year
Source:IBGEProduced by:Ministry o Finance
Investment growing more than GDP since 2006
Except or the 2008 nancial crisis, since 2006 investment in Brazil has grown much aster than GDP. On
the 2006-2011 average GDP rose 4.2 percent, whilst Investment grew 9.1 percent. This is also more thanhousehold consumption growth (5.4 percent growth on average).
-10
-5
0
5
10
15
20
25
-0.3
9.8
13.9
13.6
-6.7
21.3
4.7
9.1
5.2
6.1
5.7
4.4
6.9
4.1
5.4
4.0
6.1
5.2
7.5 2
.7 4.2
Average
2006-2011
201120102009200820072006
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Industrial Production Index (index number, sa)
Data: index number, seasonallyadjusted (average 2002 = 100)
Source:IBGE
Produced by:Ministry o Finance
Industrial production points to growth recovery
Industrial production increased by 0.9% in October 2012 against September, sustained mainly by the
manuacturing o intermediate goods (0.6%). The third quarter o 2012 had already recorded an 1.1%expansion. The result strengthens the optimism in relation to the activity recovery or the industrial sector.
90
95
100
105
110
115
120
125
130
135
Oct2
012
Sep20
12
Jun2
012
Mar
2012
Dec201
1
Sep20
11
Jun2
011
Mar
2011
Dec201
0
Sep20
10
Jun2
010
Mar
2010
Dec200
9
Sep20
09
Jun2
009
Mar
2009
Dec200
8
Sep20
08
Jun2
008
Mar
2008
Dec200
7
Sep20
07
127.0
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Installed Capacity Utilization Level (%)
FGV
FIESP*
Data: %
* Sao Paulo State, only
Source:CNI, FGV and FIESP
Produced by:Ministry o Finance
Capacity utilization
FGVs Installed Capacity Utilization Level (NUCI) registered a 84% level in November 2012, whereas the CNI
NUCI has been relatively unchanging between August and September. It is expected an increase towardsa ull-load sustained output in the ourth quarter, reecting the recovery in industrial production andreduction in inventories.
75
77
79
81
83
85
87
89
84.0
81.1
Nov20
12
Sep20
12
Jul2
012
Apr2
012
Jan20
12
Oct2
011
Jul2
011
Apr2
011
Jan20
11
Oct2
010
Jul2
010
Apr2
010
Jan20
10
Oct2
009
Jul2
009
Apr2
009
Jan20
09
Oct2
008
Jul2
008
Apr2
008
Jan20
08
Oct2
007
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Retail Trade Survey (% YoY)
PMC
Broad PMC*
Data: % change rompreceding year
* Including vehicles, motorcycles,
parts and pieces, and buildingmaterials
Source:IBGE
Produced by:Ministry o Finance
Robust retail sales
Both retail sales indicators ollow an acceleration trend, registering 8.1% and 6.6% on a 12-month basis,
respectively.
8.1
6.6
0
2
4
6
8
10
12
14
Sep20
12
Jul2
012
May
2012
Mar
2012
Jan20
12
Nov2
011
Sep20
11
Jul2
011
May
2011
Mar
2011
Jan20
11
Nov2
010
Sep20
10
Jul2
010
May
2010
Mar
2010
Jan20
10
Nov2
009
Sep20
09
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Condence Indexes: Services and Industry (points, sa)
Services Condence Index
Industry Condence Index
Data: points, seasonally adjusted
Source:FGV
Produced by:Ministry o Finance
Stronger condence
Services and Industry Condence Indexes are showing grounds or optimism. Services condence showed
a third consecutive monthly rise, and industry condence has also improved. Both indicators signal thecontinuation o the economic recovery during the ourth quarter o 2012.
9095
100
105
110
115
120
125
130135
140
125.4
105.2
Nov2
012
Oct2
012
Sep2
012
Aug2
012
Jul2
012
Jun2
012
May
2012
Apr2
012
Mar
2012
Feb2
012
Jan2
012
Dec201
1
Nov2
011
Oct2
011
Sep2
011
Aug2
011
Jul2
011
Jun2
011
May
2011
Apr2
011
Mar
2011
Feb20
11
Jan20
11
Dec201
0
Nov2
010
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21
Vehicle Production (% YoY)
Data: % change romsame month previous year
Source:Anavea
Produced by:Ministry o Finance
Vehicle production boosted by Government stimulus measures
Vehicle production has been expanding, driven by stimulus measures, such as IPI rate benet or vehicles,
eective until December 31, 2012. In October, production increased by 20.2%, compared to the sameperiod o 2011. It is expected an annual record in production in the last two months o the year.
-30
-25
-20
-15
-10
-5
0
5
10
15
20
25
Oct2
012
Sep20
12
Aug20
12
Jul2
012
Jun20
12
May
2012
Apr2
012
Mar
2012
Feb20
12
Jan20
12
Dec201
1
Nov2
011
Oct2
011
Sep20
11
Aug20
11
Jul2
011
Jun20
11
May
2011
Apr2
011
Mar
2011
Feb20
11
Jan20
11
Dec201
0
Nov2
010
Oct2
010
10.1
2.
4
24.5
2.6
2.3 4
.1 6.2
4.5
1.2
20.2
-4.2
-7.2
-6.2 -
26.1
-3.6
-11.4
-7.5
-7.7
-7.5
-9.7
-9.1
-1.0
5.5
6.9
8.2
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22
Manuacturing PMI (index)
Data: index
* Values above 50
indicate growth
Source:Bloomberg
Produced by:Ministry o Finance
Promissing economic activity outlook according to PMI indicators
Manuacturing PMI points to economic activity expansion. It shows clear recovery trend, increasing ve
months in a row since July. In November, it was the highest level since April 2011.
44
46
48
50
52
54
56
58
60
52.20
Nov2
012
Sep20
12
Jul2
012
May
2012
Mar
2012
Jan20
12
Nov2
011
Sep20
11
Jul2
011
May
2011
Mar
2011
Jan2
011
Nov2
010
Sep2
010
Jul2
010
May
2010
Mar
2010
Jan2
010
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Household Consumption in 2020: Selected Countries (R$ trillion)
Data: R$ trillion
Source:Exame Magazine, Mckinsey
Consulting and Fecomercio
Produced by:Ministry o Finance
Brazilian consumer market will be the worlds 5th largest
In 2020, Brazil will be the worlds 5th largest consumer market (around R$ 3.5 trillion orecast or household
consumption). It is the result o the outstanding income improvement or Brazilians over the last years,besides being a great encouragement or new investments.
0
5
10
15
20
25
ItalyUK
Fran
ce
Brazil
Germ
any
Japa
n
China
USA
20.4
10.9
7
.0 4.4
3.5
3.2
3
.0
2
.8
2010 2020
2.2 3.5trillion
trillion
trillion
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Consumer Market (position)
Data: position
Source:Exame Magazine, Mckinsey
Consulting, Escopo, Euromonitor,
Anavea and Abraciclo
Produced by:Ministry o Finance
Brazilian consumer market will attract more and more investments
Investors recognize the growing trend o the Brazilian consumer market and, despite the international
crisis, Brazil continues as one o the leading investment destinations.
Brazilian Consumption
Sector 2012 2020
Perfumery Articles 1st 1st
Automobiles 4th 3rd
Food and beverages 4th 3rd
Clothing 5th 3rd
Domestic Aviation 4th -
Motorcycles 4th 3rd
Computers 3rd -
Refrigerators 3rd -
Products for PetAnimals 3
rd 2nd
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Brazilian Grain Harvest (millions o tons)
Data: millions o tons
* Conab orecasts
Source:Conab/MAPA
Produced by:Ministry o Finance
Record or the Brazilian harvest
The Brazilian grain harvest in 2011/2012 states a new record-breaking achievement, equal to 166.2 million
o tons, despite the lower increase in the planted area. The growing trend o agricultural production is aresult o increasing investment in the sector, and an even better result is expected or 2012/2013.
70
80
90
100
110
120
130
140
150
160
170
180
2012
/2013*
2011
/2012
2010
/2011
2009
/201
0
2008
/2009
2007
/2008
2006
/2007
2005
/200
6
2004
/2005
2003
/200
4
2002
/2003
2001
/2002
2000
/2001
1999
/200
0
83.0
100.396.8
123.2119.1
114.7
122.5
131.8
144.1
135.1
149.3
162.8166.2
180.2
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Agricultural Production in Selected Countries (index number)
Brazil
Russia
India
China
USA
Canada
European Union
Data: index number(average 2005 = 100)
Source:FAO
Produced by:Ministry o Finance
Brazilian agriculture pushed to the oreront
Brazil is one o the worlds largest producer o agricultural goods and its production will grow even urther
in the coming years. Due to outstanding agricultural production, the country has already established itselas one o the main exporters o primary goods.
40
60
80
100
120
140
160
180
2019
2016
2013
2010
2007
2004
2001
1998
1995
1992
Estimates
2014
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Federal Government Investment (R$ billion and %)
2011
2012
Data: R$ billion and % change in
the period* YTD: year-to-date
Source:STN/Ministry o Finance
Produced by:Ministry o Finance
Federal investment has increased
Federal Government investment pace has increased in the last 12 months. Until October 2012, investments
are 22.9% above the same period last year.
0
10
20
30
40
50
60
OctSepAugJulJunMayAprMarFebJan
27.9%23.3%
22.9%
-1.0%3.3%
23.5%28.9%
30.2%
29.4%
30.7%
7.7
9.6
15.7
21.1
26.2
32.8
38.8
42.5
45.2
50.9
7.8
9.3
12.7
16.4
20.2
25.1
30.0
33.2
36.7
41.4
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Public Sector Investment* (% o GDP)
State-owned companies
States and MunicipalitiesGovernment
Data: % o GDP
* Only investments carriedout directly by the NationalGovernment (not includingtransers to States andMunicipalities, to privateinstitutions or MCMV, which are
accounted by the IBGE as GFCF);** Ministry o Finance orecast
Source:STN/Ministry o Finance
Produced by:Ministry o Finance
Public investment is also increasing ast
The consolidated public investment is on an expansion track in 2012, contributing to better long-term
economic prospects.
0
1
2
3
4
5
1.6 1.5
1.5
1.3
0.80.8
0.9
1.1
1.1 1.0 1.0
1.0 1.1
1.4
1.8
1.9
1.7
1.9
1.7 1.8
1.5
2.0
1.31.5 1.5
1.8
1.3 1.4 1.3
1.61.4
1.8 1.7
2.0
1.71.8
2012
**
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
0.5 0.4 0.4 0.5 0.3 0.3 0.4 0.5 0.2 0.2 0.3 0.4 0.4 0.5 0.6 0.8 0.6 0.7
1.7 1.81.5
2.0
1.31.5 1.5
1.8
1.3 1.4 1.3
1.61.4
1.8 1.7
2.0
1.71.8
1.6 1.51.5
1.3
0.80.8
0.9
1.1
1.1 1.0 1.0
1.0 1.1
1.4
1.8
1.9
1.7
1.9
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Minha Casa Minha Vida Housing Program (R$ million)
Data: R$ million
Source:STN/Ministry o Finance
Produced by:Ministry o Finance
Booming Federal investments
For 2011-2014, it is expected massive investment on government programs, specially or Minha Casa
Minha Vida housing program (R$ 2.4 billion by 2014). One million o homes have been delivered and 2million have been contracted up to October.
0
50
100
150
200
250
300
350
400
2012*201120102009
76.960275.138 289.642 359.399
Minha Casa Minha Vida1
Housing Program
Minha Casa Minha Vida 2
Housing Program
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PAC Spending: 2011-2012 (R$ billion)
2011
2012
Data: R$ billion
* YTD: year-to-date
Source:STN/Ministry o Finance
Produced by:Ministry o Finance
PAC speeds up investments
PAC 2 investments have moved consistently upwards in 2012 compared to last year. For example, amounts
paid up to October 2012 (R$ 26.6 billion) are larger 27.7% than in 2011 (R$ 20.8 billion). As a result, therewill be increasing economic activity and higher countrys productive capacity.
0
5
10
15
20
25
30
5.6%19.1%
46.9%
50.0%
44.8%
52.6%36.3%
33.5% 35.1%
27.7%
3
.1
4.1
8.0
11.3
14.2
18.6
20.3
22.3
24.3
26.6
2.9
3.5
5.5
7.6
9.8
12.2
14.9
16.7
18.0
20.8
OctSepAugJulJunMayAprMarFebJan
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Petrobras Business Plan (US$ billion)
Data: US$ billion
* Released on June 14, 2012
Source:Petrobras
Produced by:Ministry o Finance
Petrobras: top 2 global energy investor
According to the International Energy Agency (IEA), Petrobras will invest US$ 47.3 billion in new projects
in 2012, just below Petrochina (US$ 48 billion). Also, Petrobras will remain as a major worldwideinvestor over the next our years, based on the companys business plan, which states a US$ 236.5billion investment or 2012-2016.
Business Plan - Petrobras*,
2012 to 2016 (US$ billion)Exploration and Production 141.8
65.5
Gas and Energy 13.8
Petrochemical 5.0
Distribution 3.6
Biofuel 3.8Corporate 3.0
Total 236.5
Rening, Transportation and trading
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Public Service Concession
Source:Secretariat o Civil Aviation
Produced by:Ministry o Finance
Concession Program will leverage investments in inrastructure
Inrastructure investments in Brazil will count on the private sectors active involvement. The airport
sector total investment will be approximately R$ 16 billion in the coming years, considering only airportconcessions in Brasilia, Guarulhos and Viracopos. Also, the Logistics Investment Program considers R$ 133billion or renovation and construction o ederal highways and railways. Around 60% (R$ 79.5 billion) willbe invested within 5 years.
Total Investment: R$ 133 billion (R$ 79.5 billionin 5 years and R$ 53.5 billion from 20 to 25 years
Airport Concession: Planned Investment R$ 16.2 billion
Investment on Highways R$ 42 billion(7.500 km)
(R$ 23.5 bi in 5 years and R$ 18.5 bi in 20 years)
Investment in Railways R$ 91 billion(10,000 km)
(R$ 56 bi in 5 years and R$ 35 bi in 25 years)
Guarulhos
Totalin 25 years
R$ 2.85 bi
Totalin 30 years
R$ 8.70 bi
ViracoposBraslia
Totalin 20 years
R$ 4.70 bi
Planned Investment = 16.2 bi
Mi i
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Energy Cost Reduction
* From January 2013
Source:Ministry o Mining and Energy
Produced by:Ministry o Finance
Government has adopted incentives to improve competitiveness
Among the measures aimed at increasing domestic rms competitiveness, the 20.2% average reduction
in energy prices is directed to the industrial sector. The measure will also benet consumers, reducingtheir energy bill.
Average reduction in eletricity prices*
Group Tari Voltage level Deduction (%)
High Voltage A
A1 230 kV or more 28.0
A2 88 to 138 kV 24.7
A3 69 kV 21.5
A3a 30 to 44 kV 20.0
A4 2,3 to 25 kV 19.4
AS Underground 19.7
Low Voltage B B lower than 2,3 kV 16.2
Average 20.2
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Payroll Tax Exemption: 40 Sectors (R$ billion)
Data: R$ billion
* Without R$ 970 million in cash
ow relie
Source:Ministrio da Fazenda
Produced by:Ministry o Finance
Tax benets also stimulate competitiveness
The payroll tax relie or 40 sectors is another government measure to strengthen domestic rms
competitiveness and encourage ormal employment. Also, the construction sector has been included inthis tax benet increasing the tax exemption in more R$ 2.85 billion in 2013.
Estimates for 2013 (R$ billion)
Sectors
AFTER:
Payroll Tax
Relief*
40 Sectors 21.60 8.70 12.8
Civil construction 6.28 3.43 2.85
Total 27.88 12.13 15.65
BEFORE:
Social Security
Payroll Contribution
Social Security
Contribution on
Gross Revenues
(1% to 2%)
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Brazilian Economy
OUTLOOK
Ministry ofFinance
B R A Z I L I A N G O V E R N M E N T
Employmentand Income
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EmploymentandIncome
The labor market remains a key element in the process o upward social mobility. In this context, the unemploymentrate reached 5.3% in October 2012 and approximately 1.7 million ormal jobs were created in the year. Thus, it isexpected that the increasing ormalization and the expansion o policies related to guarantee o basic income, accessto public services and productive inclusion continue driving the socioeconomic inclusion o the poorest.
The prospect is that the Brazilian economy will be even stronger with the increase o the middle class, or C class.According to the IPEA, the C class will incorporate 15 million people by 2014, reaching 59% o the population.This means an enormous consumption potential, which is undamental to stimulate an increase in the productivecapacity in Brazil.
It is also important to emphasize that the strengthening o the social saety net increases not only household
consumption, but also the quality o the workorce that enters the labor market. The pro-equity social policies havecontributed substantially towards the rise in labor productivity. In this sense, the share o the employed populationwith 11 years or more o schooling has increased rom 33.6% to 46.3% between 2004 and 2011. This is anotherstimulus towards new investment.
Inclusive growth driven by increased schooling
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EmploymentandIncome
Unemployment Rate* (%, nsa)
Data: % share o economicallyactive population, not
seasonally adjuste
Source:IBGE/PME
Produced by:Ministry o Finance
Lower unemployment rate at the lowest level
The job market has shown strong dynamism in 2012, expressed by the 5.3% unemployment rate in October2012, the lowest rate ever or the month.
3
6
9
12
15
5.30
Oct
201
2
Apr2
012
Oct
201
1
Apr2
011
Oct
201
0
Apr2
010
Oct
200
9
Apr2
009
Oct
200
8
Apr2
008
Oct
200
7
Apr2
007
Oct
200
6
Apr2
006
Oct
200
5
Apr2
005
Oct
200
4
Apr2
004
Oct
200
3
Ministry
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Employment
andIncome
Formal Employment: New Jobs** (thousands o jobs)
Data: thousands o jobs
* On a 12-month basis up to
October 2012
Source:MTE/CAGED and RAIS
Produced by:Ministry o Finance
Solid labor market in Brazil
Even with the downturn in economic activity, there was an increase o 1,689 million jobs year-to-date. FromJanuary 2003 to October 2012, more than 19.3 million jobs were created in Brazil. The constant creation oormal jobs shows that the Brazilian economy is ready to return to the growth path.
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2012*201120102009200820072006200520042003
861
1,8
6
3
1,8
3
1
1,9
1
7
2,4
5
2
1,8
3
4
1,7
6
6
2,8
6
1
2,2
4
2
1,6
8
9
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f Fi
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of Finance
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Employment
andIncome
Rate o Formalization and Contributors to Social Security (% o employed population)
Employed population witha ormal contract
Contributors to Social Security
Data: % share oemployed population
* Until 2003: except thepopulation o the rural areao Rondonia, Acre, Amazonas,
Roraima, Para, and Amapa States
Source:IBGE/PME
Produced by:Ministry o Finance
Greater social protection or workers
The quality o jobs in Brazil can be noticed by the level o ormalization. According to the MonthlyEmployment Survey, the proportion o ormally employed workers reached 53.7% on a 12-month basisup to October. Likewise, the share o contributors to social security reached 72.6% o the total employedpopulation in the same period.
20
35
50
65
80
2012*2011201020092008200720062005200420032002
63.0
60.1
60.1
62.8
63.2
64.8
66.4
66.1
69.2
71.9
72.6
45.5
43.5
43.8
45.5
46.1
47.6
49.2
49.3
51.6
53.6
53.7
Ministry
of Finance
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of Finance
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40
Employment
andIncome
Nominal Minimum Wage Evolution (R$)
Data: R$
* PLOA 2013 orecast
Source:Central Bank o Brazil
Produced by:Ministry o Finance
Minimum wage policy insures real gain
The growth acceleration in recent years has caused a signicant expansion o per capita income in Brazil.As a result o governmental policies, minimum wage will increase 72% in real terms rom 2003 to 2013.
0
100
200
300
400
500
600
700
Jan20
13*
Jan2
012
Mar
2011
Jan2
011
Jan2
010
Feb20
09
Mar
2008
Apr2
007
Apr2
006
May
2005
May
2004
Apr2
003
Apr2
002
72%
20
0
24
0
26
0
30
0
35
0
38
0
41
5
46
5
51
0
54
0
54
5
62
2
67
1
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of Finance
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Employment
andIncome
Minimum wage purchasing power or Washing Machine: 1994-2012 (R$)
Minimum Wage (R$)
Nominal Price o WashingMachine (R$)
Washing Machine/MinimumWage Ratio
Data: R$
Source:IBGE, GK and LCA
Produced by:Ministry o Finance
Restoring the purchasing power o the minimum wage
0
200
400
600
800
1,000
1,200
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
0
1
2
3
4
5
6
7
8
9
1.5
622
930
(R$)
1994: a worker would spend 8 months worth o minimum wage to be able to aord a Washing Machine.
2012: he/she would spend only 1.5 months worth o minimum wage.
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Employment
andIncome
Minimum wage purchasing power or stoves: 1994-2012 (R$)
Minimum Wage (R$)
Nominal Price o Stove (R$)
Stove/Minimum Wage Ratio
Data: R$
Source:IBGE, GK and LCA
Produced by:Ministry o Finance
Restoring the purchasing power o the minimum wage
0
100
200
300
400
500
600
700
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
0.5
622
330
(R$)
1994: a worker would spend 1.9 months worth o minimum wage to be able to aord a stove.
2012: he/she would spend only 0.5 months worth o minimum wage.
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43
Employment
andIncome
Bolsa Familia: Income Transer Program (R$ billion, millions o households and % o GDP)
R$ billions
Millions o households
% o GDP
Data: R$ billion, millions ohouseholds and % o GDP
* On a 12-month basis up to
October 2012
Source:MDS
Produced by:Ministry o Finance
Bolsa Famlia Program helps to reduce poverty
Bolsa Familia Program is recognized as one o the most efcient programs in reducing inequality due to itsocus on the poorest population. Besides being cost efcient, it reaches more than 13.7 million households.
0
5
10
15
20
25
0.0
0.1
0.2
0.3
0.4
0.5
2012*20112010200920082007200620052004
20.41
13.76
0.2 0.3 0.3 0.3 0.3 0.4 0.4 0.4 0.5
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of Finance
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Employment
andIncome
People with No Specic Social Need (% o population)
2001*
2011
Data: % share o population
* Except the rural populationo Rondonia, Acre, Amazonas,
Roraima, Para and Amapa States
Source:IBGE/PNAD
Produced by:Ministry o Finance
Reduction o social needs
The social saety net has impacted the promotion o rights signicantly. It has enabled people to haveaccess to education, social security, housing and basic ser vices. Under the human rights perspective, it hasbeen possible to ensure the wellbeing o the most vulnerable.
50
60
70
80
90
100
Access to Basic ServicesQuality HomesAccess to Social SecurityNo Educational Delay
68.8 78.7 96.0 67.860.7 63.6 95.1 59.1
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of Finance
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Employment
andIncome
Real Income Growth in Income Groups: 2004-2011* (%)
Data: % o simple classes,average monthly income romall jobs
* Except inormation rom
people with no declarationo income rom all jobs.Deated by INPC index.
Source:IBGE/PNAD
Produced by:Ministry o Finance
Income growth especially or the poorest
The real income growth was signicant or the period rom 2004 to 2011. Even more relevant than the29.8% total expansion was the income growth or the 20% poorest o the population, which amounted toaround 75%.
0
10
20
30
40
50
60
70
80
Morethan
90to
100
Morethan
80to
90
Morethan
70to
80
Morethan
60to
70
Morethan
50to
60
Morethan
40to
50
Morethan
30to
40
Morethan
20to
30
Morethan
10to
20
Upto
10
Total
29.8 73.8 75.3 48.5 49.9 43.8 38.4 36.5 30.3 24.8 20.8
20%poorest
20%richest
Income deciles
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Employment
andIncome
Gini Index: Average Real Earnings** (index)
Data: Measurement rangesrom zero (perect equality) to 1(maximum inequality)
* Excludes the rural population othe ollowing states: Rondnia,Acre, Amazonas, Roraima, Parand Amap
** People over 10 years o age.Based upon the per capita Income
Source:IBGE/PNAD
Produced by:Ministry o Finance
Declining income inequality in Brazil
The Gini Index, used to measure income inequality, has allen steadily, rom 0.559, in 2004, to 0.508, in2011. The decrease comes rom more years o schooling o the poorest population, alongside with theexpansion o conditional income transer programs and more social inclusion opportunities.
0.50
0.55
0.60
0.6
0.6
0.6
0.6
0.6
0.5
2011
2009
2008
2007
2006
2005
2004
2001
*
1990
*
1981
*
0.564
0.602
0.5520.548
0.5340.530
0.524
0.508
0.572
0.559
0.65
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of Finance
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47
Employment
andIncome
Recent-Progress SEDA Score (index)
Brazil
Average BRIC
Data: index
* SEDA assesses the perormanceo 150 nations around the worldacross a series o dimensionsincluding governance, education,inrastructure and economicstability with the aim o seeingwhich countries are perorming
best in improving well-beingand economic opportunitiesor their citizens.
Source:Boston Consulting Group
Produced by:Ministry o Finance
Brazil stands out in the SEDA score
For most o the 10 categories o New Sustainable Economic Development Assessment (SEDA) launchedby the Boston Consulting GroupBoston Consulting Group index, Brazil has scored better than the BRICS
average. Brazil, Poland, Indonesia and New Zealand are improving aster than GDP growth would suggest.When it comes to translating wealth into citizen well-being the report reveals a strong correlation betweenthe best perorming nations and good governance.
0
20
40
60
80
100
Infrastructure
Environment
Health
Education
Governance
CivilSociety
Income
Equality
Employment
Economic
Stability
Income
29
2027
21
58
Brazil
AverageBRIC
Ministry
of Finance
15 million additional Brazilian people can be included in the new
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Employment
andIncome
Social Classes (million o people)
Data: million o people
* Forecasts. Baseline: 6,5% YoYincome growth rate
Source:IBGE and IPEA
Produced by:Ministry o Finance
15 million additional Brazilian people can be included in the newmiddle class
The growth o ABC classes and consequent reduction o DE classes have been translated into povertyreduction and better income distribution, both playing a key role to the expansion o the domestic market.
According to IPEA orecasts, C class should correspond to 59% o population by 2014.
A Class
B Class
C Class
D and EClasses
Total: 175 million Total: 188 million Total: 192 million Total: 196 million
2003 2009 2011 2014*
6.3
7.0
65.9
96.2
9.6
10.4
73.3
94.9
12.6
14.5
115.2
53.8
10.5
11.2
100.3
69.6
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of Finance
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49
Employment
andIncome
Household Consumption and Broadly Dened Payroll* (% Q/Q)
Household consumption
Broadly dened payroll
Data: % change same quarterprevious year, annualized
* Including lwages, dividends,saaries, social security benets,Bolsa Familiaand others. YTDOctober.
Source:IBGE, MDS, FGTS and STN
Produced by:Ministry o Finance
Impact o social inclusion on demand
The 8.3% interannual increase o broadly dened payroll in the third quarter o 2012 boosted householdconsumption, sustaining the domestic market strength.
-6-4
-2
0
2
4
6
8
10
12
14
Sep20
12
Jun20
12
Sep20
11
Dec201
0
Mar
2010
Jun20
09
Sep20
08
Dec200
7
Mar
2007
Jun20
06
Sep20
05
Dec200
4
Mar
2004
Jun20
03
Sep20
02
Dec200
1
Mar
2001
Jun20
00
8.3
3.4
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50
Employment
andIncome
People Employed with more than 11 Years o Schooling (% o total)
Data: % o total
Source:IBGE/PNAD
Produced by:Ministry o Finance
More qualied workers
One o the main elements or reducing income inequality and improving productivity is the educationallevel. Between 2004 and 2011, occupied population with more than 11 years o schooling went rom 33.6%
to 46.4%, respectively.
20
26
32
38
44
50
2011200920082007200620052004200320022001
28.8 30.7 32.5 33.6 35.2 37.4 39.0 41.2 43.2 46.4
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Employment
andIncome
Qualied Beginning Employees** and First Job Admissions (% and millions)
Share o Qualied BeginningEmployees
First Job Admissions (millions)
Data: % share and millions
* On a 12-month basis upto October 2012
** At least completed
High School
Source:MTE/CAGED
Produced by:Ministry o Finance
Growing opportunities in the youth labor market
The growth o the Brazilian economy increased the number o job opportunities or young people, whichhas been accompanied by an improvement in their level o education. According to CAGED, in 1996, 1.7
million new workers were hired, while 17.2% had at least completed high school. On a 12-month basis upto October 2012, the gures were 2.8 million and 54.9%, respectively.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
10
20
30
40
50
60
2012
*
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
2.83.13.02.52.82.52.32.32.11.81.91.91.91.61.81.7 1.7
54.953.953.3
51.348.8
47.246.0
43.3
39.6
36.4
33.6
31.5
28.7
25.7
22.0
19.417.2
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Brazilian Economy
OUTLOOK
Ministry ofFinance
B R A Z I L I A N G O V E R N M E N T
Infation
Ministry
of Finance
I ti t d t l
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Infation
Consumer price ination rates increased in the third quarter o 2012, driven mainly by the impact o extreme weatherconditions on agricultural production. The combination o higher than usual pressures in some resh ood prices in the
Brazilian domestic market, and in important agricultural commodities in the international market, due to the droughtin the US, caused an acceleration o ination in mid-2012, which peaked in October.
Since then, ination pressures have begun to ease, as producer prices related to important items such as soybeans,corn and wheat are clearly pointing to a retreat to lower levels. As well as that, several resh ood items are showingmonthly deation rates. This scenario shows that more relie should arrive in coming months, helping bring downconsumer price ination and also helping to drive the yearly IPCA to the center o the target set by the NationalMonetary Council.
Ination rate under control
Ministry
of Finance
I
Ination ithin the target range
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Infation
CPI Ination - IPCA Index (% YoY)
Ination Target
Upper and Lower Bounds
IPCA
Data: % change rompreceding year
* According to the Central Banko Brazils Ination Report(September 2012)
Source:IBGE and Central Bank o Brazil
Produced by:Ministry o Finance
Ination within the target range
In the rst hal o 2012, the reduction o monthly ination was signaling that the 12-month ination ratewould move around the ination central target in Brazil. In the second hal, however, signicant increases
in some agricultural commodities, primarily related to the eects o the U.S. drought, pressured consumerprices, driving IPCA ination to a level slightly above the central target, but within the tolerance bounds.
0
2
4
6
8
10
12
14
2012
*
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
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 5.2
Ministry
of Finance
I
Agricultural shocks afected CPI ination
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nfation
Agricultural Prices and IPCA Index (% 3-mth ma)
IPCA
IPA-DI Agricultural Index
Data: % change on a3-month moving average
Source:IBGE
Produced by:Ministry o Finance
Agricultural shocks afected CPI ination
The CPI-Food ination represents 25% o the total Brazilian IPCA and responds with lags to changes inproducer ood prices. It means that the current slowdown in PPI-Food ination, measured by the IPA-
Agricultural index will ease IPCA ination in the coming months.
-1.5
-0.5
0.5
1.5
2.5
3.5
4.5
Oct2012
Aug2012
May
2012
Feb2012
Nov2
011
Aug2011
May
2011
Feb2011
Nov2
010
Aug2010
May
2010
-5
0
5
10
15
20
Ministry
of Finance
IAter reaching its peak in October ination starts to decline
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nfation
CPI Ination - Chained IPCA and IPCA-15 Indexes (% MoM)
Data: % change rompreceding month
Source:IBGE
Produced by:Ministry o Finance
Ater reaching its peak in October, ination starts to decline
Consumer prices in Brazil rose at their astest pace in October 2012, mainly due to the eects o the droughtin the US. Since then, IPCA ination has started to decline, which is a trend that is expected to continue in
the coming months.
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
IPCA-15
IPCA
IPCA-15
IPCA
IPCA-15
IPCA
IPCA-15
IPCA
IPCA-15
IPCA
IPCA-15
IPCA
IPCA-15
IPCA
IPCA-15
IPCA
IPCA-15
IPCA
IPCA-15
IPCA
IPCA-15
IPCA
IPCA-15
IPCA
IPCA-15
IPCA
IPCA-15
IPCA
IPCA-15
Nov2012
Oct2012
Sep2012
Aug2012
Jul2012
Jun2012
May2012
Apr2012
Mar2012
Feb2012
Jan2012
Dec2011
Nov2011
Oct2011
Sep2011
0.5
3
0.5
3
0.4
2
0.4
3
0.4
6
0.5
2
0.5
6
0.5
0
0.6
5
0.5
6
0.5
3
0.4
5
0.2
5
0.2
1
0.4
3
0.6
4
0.5
1
0.3
6
0.1
80.0
8
0.3
3
0.4
3
0.3
9
0.4
1
0.4
8
0.5
7
0.6
5
0.5
9
0.5
4
Ministry
of Finance
InGeneral Price Index already decelerating
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nfation
Ination: IGP-M and Main Components (% YoY)
IGP-M
IPA-M
INCC-M
IPC-M
Data: % change rom precedingyear on a 12-month basis
Source:FGV
Produced by:Ministry o Finance
General Price Index already decelerating
Ater two consecutive quarters o acceleration, the 12-month General Price Index (IGP-M) ination started adecreasing trend, reaching a percentage below 7.0% in November 2012. Lower producer prices (measured
by the IPA index) in the past two months have played an important role in easing the pressure on theBrazilian IGP ination.
-6
-3
0
3
6
9
12
15
Nov2
012
Sep20
12
Jul2
012
May
2012
Mar
2012
Jan20
12
Nov2
011
Sep20
11
Jul2
011
May
2011
Mar
2011
Jan20
11
Nov2
010
Sep20
10
Jul2
010
May
2010
Mar
2010
Jan20
10
Nov2
009
7.33
6.96
7.30
5.77
Ministry
of Finance
InDeationary trend in producer prices
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59
nfation
General Price Indexes (chained) (% MoM)
Data: % change rompreceding month
Source:FGV
Produced by:Ministry o Finance
Deationary trend in producer prices
As prices o agricultural commodities began to decline, producer prices in Brazil also star ted to cool down,and the latest IPA measurements have been showing deation since October 2012. Raw materials, or
instance, decreased by 1.86% in the October IGP-DI. The trend is likely to aect other prices along thesupply chain.
October 2012 November 2012
IGP-10 IGP-M IGP-DI IGP-10 IGP-M
IGP 0.42 0.02 -0.31 -0.28 -0.03
IPA 0.40 -0.20 -0.68 -0.57 -0.19
Production stage
Final goods 0.60 0.07 -0.44 -0.70 -0.5
Intermediate goods 0.67 0.41 0.07 0.09 0.25
Basic goods -0.16 -1.24 -1.86 -1.24 -0.41
Origin
Agriculture 0.53 -0.57 -1.34 -1.10 -0.41
Industrial 0.34 -0.05 -0.42 -0.35 -0.1IPC 0.57 0.58 0.48 0.36 0.33
INCC 0.24 0.24 0.21 0.22 0.23
Construction ser vices and materials 0.50 0.49 0.42 0.35 0.22
Labor 0.00 0.01 0.01 0.09 0.24
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Brazilian Economy
OUTLOOK
Ministry ofFinance
B R A Z I L I A N G O V E R N M E N T
Interest Ratesand Credit
Ministry
of Finance
IntInterest rate at its lowest level ever
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terestRates
and
Credit
From August 2011 up to October 2012, the Central Bank o Brazil lowered the policy rate by 525 basis-points, bringingboth nominal and real rates to their lowest levels in the recent Brazilian monetary history. In act, spreads and lending
rates in the nancial system have also allen to record lows, although still at high levels.
Brazil is now even more ocused on encouraging the development o the capital and long-term private credit markets.The countrys nancial system is sound, operating in accordance with Basel principles, and it is actively participatingin the development o important nancial instruments, such as nancial bills, FDICs, debentures, and other long-termcorporate bonds.
As a matter o act, this new environment o lower interest rates and investment opportunities has already begun toinuence the decision-making process o economic agents. It will positively impact investment and production even
urther, as investors leave behind the time when the Brazilian economy was used to high short-term interest rate.
Interest rate at its lowest level ever
Ministry
of Finance
Int
Real interest rate at its lowest level due to sound macroeconomicundamentals
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terestRates
and
Credit
Brazil: Real Ex-Ante Interest Rates* (% pa)
Data: % per annum
* 360-day swap deated byination expectations or the 12months ahead; 2012: November30; 2001-2011: December 31
Source:Central Bank o Brazil
Produced by:Ministry o Finance
undamentals
Short-term real interest rates in Brazil have been showing a signicant decrease or the past ten years, rom14.0% in December 2002 to 1.8% in November 2012. For the last 10 years, it has been a result o credible
and sound monetary and scal policy coordination.
0
4
8
12
16
2012**2011201020092008200720062005200420032002
Average
2002-2005 = 11.5
Average
2006-2010 = 6.9
Average
2011-2012 = 3.2
14.0 9.4 11.2 11.4 7.9 7.7 6.9 5.8 6.2 4.5 1.8
Ministry
of Finance
IntSelic benchmark interest rate at its lowest level ever
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terestRatesand
Credit
Real and Nominal Interest Rates* (% pa)
SELIC interest rate target
Real ex-ante interest rate*
Data: % per annum
* 360-day swap deated byination expectations or the12 months ahead
Source:Central Bank o Brazil
Produced by:Ministry o Finance
Central Bank o Brazil has reduced its benchmark interest rate (Selic) since August 2011. The latest reductionin October 2012, rom 7.50% to 7.25%, implied the lowest rate ever. The real interest rate reached 1.80%
on November 30, 2012.
1.80
7.25
0
5
10
15
20
25
30
Nov20
12
Oct2
012
Apr2
012
Oct2
011
Apr2
011
Oct2
010
Apr2
010
Oct2
009
Apr2
009
Oct2
008
Apr2
008
Oct2
007
Apr2
007
Oct2
006
Apr2
006
Oct2
005
Apr2
005
Oct2
004
Apr2
004
Nov20
03
Ministry
of Finance
IntLong-term interest rates declining in Brazil
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terestRatesand
Credit
Interest Rates: DI Contracts* (% pa)
Jan 2013
Jan 2014
Jan 2015
Data: % per annum
* DI: one-day interbank depositsSource:Central Bank o Brazil
Produced by:Ministry o Finance
g g
Ater a widespread decline throughout the last 12 months, the long-term rates traded in the utures DIstabilized at a level close to the current Selic rate. The dierence between the curves expresses the risk
associated with the exposure duration.
7.2
7.8
7.17
8
9
10
11
12
13
Nov20
12
Oct2
012
Jul2
012
Apr2
012
Jan20
12
Oct2
011
Jul2
011
Apr2
011
Jan20
11
Oct2
010
Jul2
010
Apr2
010
Jan20
10
Ministry
of Finance
Inte
Lower Selic rate and banking spreads benet borrowers
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66
erestRatesand
Credit
Interest Rates and Average Maturity (% pa and days)
Average maturity (days)
Interest rates (% YoY)
Data: % per annumand number o days
Source:Central Bank o BrazilProduced by:Ministry o Finance
Lower interest rates and banking spreads have been benetting nal borrowers. Interest rates on loansto individuals reached 35.4 percent, whereas rates on loans to corporations reached 22.1 percent. These
percentages are well below the 2011 average and show sharp decline throughout 2012, with reductionso 9.7 p.p. and 6.6 p.p. or individuals and corporations, respectively. In the opposite direction, averagematurity signaled slight increase in the period.
300
350
400
450
500
550
600
650
40
45
50
55
60
Oct2
012
Jun2
012
Dec2011
Jun2
011
Dec2010
Jun2
010
Dec2009
Jun2
009
Dec2008
May
2008
200
250
300
350
400
450
20
24
26
28
30
32
34
Oct2
012
Jun2
012
Dec2011
Jun2
011
Dec2010
Jun2
010
Dec2009
Jun2
009
Dec2008
May
2008
Individuals Corporations
620.5
35.4
431.8
22.1
Ministry
of Finance
Inte
Credit becomes easier and cheaper
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67
erestRatesand
Credit
Average Interest Rate on Lending or Individuals and Corporations (% YoY)
Jan 2012
Oct 2012
Data: % change rom
the preceding year
Source:Central Bank o Brazil
Produced by:Ministry o Finance
Credit has become easier and cheaper to individuals and corporations in Brazil. The average interest rateon lending to individuals dropped 9.7 percentage points year-to-date up until October 2012, rom 45.1%
to 35.4%. As or the average rate on lending to corporations, it ell by 6.6 percentage points over the sameperiod, rom 28.7% to 22.1%.
0
10
20
30
40
50
CorporationsIndividuals
35.4 22.145.1 28.7
Ministry
of Finance
Inte
Lower banking spread to individuals and corporations
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68
erestRatesand
Credit
Banking Spread to Individuals and Corporations (pp)
Jan 2012
Oct 2012
Data: percentage point
* Spread = Lending Rate -Funding Rate
Source:Central Bank o Brazil
Produced by:Ministry o Finance
Although still high in comparison with other economies, spreads on loans to individuals and corporationshave been declining in Brazil lately. The ormer went rom 34.9 p.p. in January 2012 to 27.8 p.p. in October
2012, while the latter went rom 18.5 p.p. to 15.0 p.p. in the same period.
0
5
10
15
20
25
30
35
40
45
50
CorporationsIndividuals
27.8 15.034.9 18.5
Ministry
of Finance
Inte
Housing credit stands out
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69
erestRatesand
Credit
Individuals: Credit Transactions (R$ billion)
Real Estate Loans
Car Loans
Payroll Loans
Data: R$ billion
Source:Central Bank o BrazilProduced by:Ministry o Finance
Housing credit has showed an outstanding perormance in recent years, encouraging investment, growthand employment in the construction sector and other segments o the economy. Over the past 12 months,
total housing credit grew by 39%, reaching R$ 263 billion in October 2012, proving ar superior perormancethan other segments.
0
50
100
150
200
250
300
350
Oct
201
2
Jan20
12
Jan20
11
Jan20
10
Jan20
09
Jan20
08
263.0
319.0
184.3
Ministry
of Finance
Inte
Families keeping debt under control
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70
restRatesa
nd
Credit
Families who cannot Aord to Pay their Debts (% o total)
Data: % o total
Source:CNC
Produced by:Ministry o Finance
The percentage o amilies unable to pay their overdue bills keeps alling, standing at a level below thesame period in 2010 and 2011.
5
6
7
8
9
10
11
Oct2
012
Sep20
12
Aug2
012
Jul2
012
Jun2
012
May
2012
Apr2
012
Mar
2012
Feb20
12
Jan2
012
Dec201
1
Nov2
011
Oct2
011
Sep20
11
Aug2
011
Jul2
011
Jun2
011
May
2011
Apr2
011
Mar
2011
Feb20
11
Jan2
011
Dec201
0
Nov2
010
Oct2
010
9.5
9.0
8.3
7.9
7.7
8.4
7.8
8.6
8.4
8.1
8.2
8.0
8.2
7.3
7.2
6.9
7.3
6.7
6.9
7.8
7.5
7.3
7.1
7.1
7.0
Ministry
of Finance
Inter
Earmarked credit at the oreront o credit expansion
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71
restRatesa
nd
Credit
Outstanding Credit: Earmarked and Non-Earmarked Resources (R$ Billion and % o GDP)
% o GDP
Earmarked resources
Non-earmarked resources
Data: R$ Billion and % o GDP
Source:Central Bank o Brazil
Produced by:Ministry o Finance
In October 2012, the total credit volume in Brazil reached the amount o R$ 2.27 trillion, correspondingto 51.9% o GDP. Total non-earmarked resources recorded R$ 1.44 trillion, with annual increase o
14.2%, whereas total earmarked credit summed R$ 830 billion, a rise o 20.9% as compared to thesame period last year.
0
500
1,000
1,500
2,000
2,500
Oct
201
2
Oct
201
1
Oct
201
0
Oct
200
9
Oct
200
8
Oct
200
7
Oct
200
6
Oct
200
5
Oct
200
4
Oct
200
3
44.1%
44.5%
47.5%
51.9%
39.6%
33.6%
30.0%27.3%
25.7%24.3%
155 177190
222
262
337
435
565
687
830
248 310386
476619
848932
1,079
1,260
1,439
Ministry
of Finance
Inter
CAIXA contributes heavily to the expansion o housing credit
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72
restRatesa
nd
Credit
CAIXA Housing Credit (R$ billion)
Disbursed
Contracted
Data: R$ billion
Source:Caixa Economica Federal
Produced by:Ministry o Finance
Since 2008, CAIXA housing credit has grown on a 40% yoy pace. The expected volume or 2012 representsan amount to around R$ 100 billion (2.4% o GDP).
0
20
40
60
80
100
2012*201120102009200820072006200520042003
4.1
5
.9 8.8
13.9
20
.7
22
.7
47
.1
75
.9
80
.1
10
0.0
4.2
4.4
7.1
10
.6
11
.7
18
.1
31
.4
55
.6
69
.6
92
.1
Ministry
of Finance
Inter
Sustained rates o credit growth in Brazil
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73
restRatesa
nd
Credit
Credit Operations in Brazil (% o GDP)
Earmarked resources*
Non-Earmarked Resources
Data: % o GDP
* YTD October 2012Source:Central Bank o Brazil
Produced by:Ministry o Finance
Credit operations as a share o GDP have been growing in a sustained pace in Brazil. In October 2012,lending with non-earmarked unds represented 32.9% o GDP, while earmarked credit stood at 19.0% o
GDP. Mortgage has expanded at a rate o approximately 40% per annum, and now represents 6.0% o GDP.
0
10
20
30
40
50
60
2012
*
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
19.013.012.211.59.88.78.48.28.08.28.27.2
32.9
31.529.629.528.724.821.018.816.415.016.317.0
Ministry
of Finance
Intere
Growing capital market issuances
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estRatesa
nd
Credit
Capital Market Issuance (R$ billion)
Other
CRIFIDC
Promissory Notes
FIP
Stocks + CDA
Debentures
Data: R$ billion
* YTD September o each year
Source:CVM
Produced by:Ministry o Finance
The volume o nancial instruments issued by corporations in the Brazilian capital market has beengrowing gradually, amounting to R$ 130 billion in September 2012. Excluding Petrobras issuance in
2010 (R$ 120.25 billion), there has been a gradual growth in the last our years, and it is already 86%higher than September 2009 level.
0
50
100
150
200
250
0.4
1.91.1
0.2
0.5
4.85.7
0.8
0.93.7
2.5
9.2
7.95.4
8.6
7.511.1
2.3
3.8
7.84.7
3.7
8.2 16.0
21.6
29.4
12.716.3
5.7
16.8 17.6
7.3
9.67.6
22.7
46.4 34.421.6
10.4
Sep20
12
Sep20
11
Sep20
10
Sep20
09
Sep20
08
Sep20
07
Sep20
06
Sep20
05
Sep20
04
Sep20
03
Sep20
02
Sep20
01
Sep20
00
Sep19
99
Sep19
98
Sep19
97
Sep19
96
Sep19
95
Ministry
of Finance
Intere
Signicant increase in Real Estate Credit
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estRatesa
nd
Credit
Real Estate Investment - Public Oers - FIDC, CRI and FII (R$ billion*)
FIDC
CRI
FIIData: R$ billion
* Current values
Source:CVM
Produced by:Ministry o Finance
0
5
10
15
20
25
30
3.8
7.8
4.7
4.1
13.1
7.10.2 0.2 0.2 0.2 0.6 0.8 0.9 3.7 2.5 5.4
7.99.2
0.1 0.3
0.7
0.20.4
0.61.0
4.1 13.1
7.1
Sep20
12
Sep20
11
Sep20
10
Sep20
09
Sep20
08
Sep20
07
Sep20
06
Sep20
05
Sep20
04
Sep20
03
Sep20
02
Sep20
01
Sep20
00
0.3 0.3
1.0
2.6
5.0
8.67.5
11.1
2.3
3.8
7.8
4.7
Ministry
of Finance
Intere
Signicant increase in Real Estate Credit
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estRatesa
nd
Credit
Real Estate Investment - Public Oers - LCI (R$ billion*)
Data: R$ billion
* Current values
Source:CVM
Produced by:Ministry o Finance-4
-2
0
2
4
6
8
10
12
14
16
12month
s
2011
2010
2009
2008
2007
Ministry
of Finance
Intere
Long term bank unding
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estRatesa
nd
Credit
Financial Bills (R$ billion)
Data: R$ billion
* November 30, 2012Source:Cetip
Produced by:Ministry o Finance
Created in 2010, Financial Bills (FB) are securities issued by nancial institutions (IFs), representingimportant long-term bank unding. As minimum maturity is 24 months, FB have been allowing the
lengthening o credit operations (or both individuals and corporations). Also, FB are the most appropriateinstrument or matching maturities o assets and liabilities o IFs.
0
50
100
150
200
250
2012*20112010
31.0 148.5 235.0
Ministry
of Finance
Intere
Resilience in the Brazilian nancial market
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2
78
stRatesa
nd
Credit
Basel index (% risk-adjusted assets)
Basel index in Brazil
Lower bound by BACEN
Basel index
Data: % risk-adjusted assets
Source:Central Bank o Brazil
Produced by:Ministry o Finance
The main Brazilian banks demonstrate comortable situation according to Basel Index. Strong regulationconsolidates the resilience o the Brazilian nancial system when acing systemic nancial crisis such as
those that occurred in the major world economies over the past our years.
0
4
8
12
16
20
Jun20
12
Dec
201
1
Dec
201
0
Dec
200
9
Dec
200
8
Dec
200
7
Dec
200
6
Dec
200
5
Dec
200
4
Dec
200
3
Dec
200
2
16.7 19.0 18.5 17.4 17.8 17.3 17.7 18.8 16.9 16.3 16.4
Ministry
of Finance
Interes
Measures or the development o the capital market
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2
79
stRatesa
nd
Credit
Produced by:Ministry o Finance
The Development of Capital Markets
Financial Products Objective / Expected Result
Financial Bills-
tutions (Law 12,249/2010)
Expand credit by increasing long-term
Reducing the cost and simplifying the process of issuing
476/2009)
Increase credit to non-nancial rms
Receivables - CRI
Extension of investment and infrastructure debenturesIncrease the range of instruments avai-
--term investment in infrastructure
Reduction to 0% the income tax (Law 11,033/2004)
Reduce the cost and increase the
amount of resources available for real
estate companies
Real Estate Credit Line Reduction to 0% the in come tax (Law 11,033/2004)Reduce the cost and increase the fun-
ding to mortgages
Ministry
of Finance
Interes
Measures or the development o the capital market
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2
80
stRatesa
nd
Credit
Produced by:Ministry o Finance
The Development of Capital Markets
Financial Products
Objective / Expected
Result
Investment Debentures
Decrease to 0 percent the rates of Financial
Transaction Tax and Income Tax to foreign in-
vestors (Law 12.431/11)
Encourage long-term Capital
Markets as a way to broaden
the sources of funding for
investments
Infrastructure Debentures
Decrease to 0 percent the rates of Financial
Transaction Tax and Income Tax to foreign in-vestors, to 0 percent of income tax to individual
domestic investors and decrease of 10 p.p. of
-
panies (Law 12.431/11)
Develop long-term CapitalMarkets as a way to broaden
the sources of funding for
investments
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Brazilian Economy
OUTLOOK
Ministry ofFinance
B R A Z I L I A N G O V E R N M E N T
FiscalPolicy
Ministry
of Finance
FiscalP
Fiscal consolidation avors investment
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2
82
PolicyIn 2012 Federal Government used scal policy instruments in order to avoid downturns on domestic economy due to
the international crisis. The strategy also means to maintain scal undamentals in a sound situation.
The strong scal results allows the Public Sector Net Debt at 35.2 percent o GDP close to the lowest series values.Also, the continuous improvement in Federal Public Debt prole, both in terms o composition and maturity, has beenreected on the declining rates o external issuances. The issuance o Global 2023 bond, in September, resulted on thelowest rate o all t imes or a Brazilian external public debt bond.
Moreover, consistent scal situation has still placed Brazil in a privileged position when compared to other G20countries. It is expected the country should perorm one o the greatest primary surpluses in the group, and one othe lowest nominal decits.
Ministry
of Finance
FiscalPo
Economic growth with scal consolidation
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83
olicy
Public Sector Fiscal Result (% o GDP)
Public Sector Primary Result
Central GovernmentPrimary Result
Subnational EntitiesPrimary Result (Statesand Municipalities)
State-owned CompaniesPrimary Result
Public Sector Nominal Result
Data: % o GDP
* On a 12-month basis up toOctober 2012
Source:Central Bank o Brazil
Produced by:Ministry o Finance
The public sector continues to pursue the scal target in line with scal responsibility principles, one othe pillars o Brazilian economic policy. In act, the scal and monetary policy coordination has sought tomitigate the eects o international crisis on domestic activity. Also, the projected targets will reduce evenmore both nominal decit and public debt.
-6
-5
-4
-3
-2
-1
0
12
3
4
0.
0
2
.6
2.
2
2012*2011201020092008200720062005200420032002
3.23.3
3.73.8
3.23.3
3.4
2.0
2.7
3.1
2.2
-4.4
-5.2
-2.9
-3.6 -3.6
-2.8
-2.0
-3.3
-2.5-2.6
-2.7
3.2 3.33.7 3.8
3.2 3.33.4
2.0
2.73.1
2.2
-4.4
-5.2
-2.9-3.6 -3.6
-2.8
-2.0
-3.3
-2.5 -2.6 -2.7
0.
1
0.
00.
8
0.6
0.
0
0.
10.
6
0.5
1.3
2.1
2.2
0.
1
0.
2
-0.
0
0.
1
0.9
1.0
0.
8
1.1
1.0
0.3
0.
20.7
0.8
2.2
2.3
2.7
2.6
2.2
2.2
2.4
0.
2
1.6
Ministry
of Finance
FiscalPo
Brazil stands out in the international scal scenario
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2
84
olicy
Primary and Nominal Results (% o GDP)
Primary Result
Nominal Result
Data: % o GDP
* IMF orecasts - Fiscal MonitorOctober 2012. For Brazil, FocusMarket Report - Central Bank oBrazil (November 30, 2012)
Source:Central Bank o Brazil and IMFProduced by:Ministry o Finance
Brazilian sound scal results stand out in comparison advanced and other emerging countries. For 2012,Brazil has one o the strongest levels o nominal and primary results, both as a share o GDP.
-10 -8 -6 -4 -2 0 2Japan
India
USA
UK
France
Canada
Italy
Mexico
Brazil
China
Germany
Russia
-10 -8 -6 -4 -2 0 2 4Japan
USA
UK
India
Canada
France
China
Mexico
Russia
Germany
Brazil
Italy
-0.6
-2.2
-3.2
-5.2
-5.6
-6.5
-9.0
2.6
2.6
1.4
1.1
0.2
0.5
-0.4
-1.3
-2.3
-2.4
-2.7
-3.8
-4.7
-8.2
-8.7
-9.5
-10.0
Ministry
of Finance
FiscalPo
Brazilian public debt alls in adverse international scenario
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Net Public Debt (% o GDP)
Mexico
Italy
USA
France
Germany
Brazil
Data: % o GDP
* IMF orecasts - Fiscal MonitorOctober 2012
Source:IMF
Produced by:Ministry o Finance
Even with the adverse international scenario, the countrys net debt as a percentage o GDP keeps on adeclining perspective, which helps to dierentiate the scal situation o Brazil in relation to many advancedand emerging economies.
20
30
40
50
60
70
80
90
100
110
2017
*
2016
*
2015
*
2014
*
2013
*
2012
*
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
56.23
39.58
26.56
80.23
89.44
98.68
Italy
France
Germany
MexicoBrazil
USA
Ministry
of Finance
FiscalPo
Brazil is improving its public expenditure prole
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Central Government Primary Fiscal Result - Above the Line (% o GDP)
Data: % o GDP
* On a 12-month basis up toOctober 2012
** Including social securitybenets, allowance andunemployment insurance,
assistential benets (LOASand RMV) and BolsaFamlia Program
*** Including only investmentsclassied as GND 4
**** Including the SovereignWealth Fund constitution (2008)and the capitalization operationo Petrobras (2010)
Source:National Treasury Secretariat/Ministry o Finance/Senate
Produced by:Ministry o Finance
The Central Government scal results have gone through signicant changes since 2002, due to the positiveimpact o job ormalization on the economy, as well as the ocus on reducing inequalities. The growth in netrevenues has been directed to income transers to households and to public investments.
% GDP2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012*
Gross revenue 21.7 21.0 21.6 22.7 22.9 23.3 23.6 22.8 22.4 23.9 23.9
Transfers to states and municipalities 3.8 3.5 3.5 3.9 3.9 4.0 4.4 3.9 3.7 4.2 4.1Net revenue 17.9 17.4 18.1 18.8 19.0 19.3 19.2 18.9 18.7 19.7 19.8
Primary expenditure 15.7 15.1 15.6 16.4 17.0 17.1 16.4 17.7 17.4 17.5 18.2
- Payroll 4.8 4.5 4.3 4.3 4.5 4.4 4.3 4.7 4.4 4.3 4.2
- Income transfers to households** 6.8 7.2 7.6 8.1 8.4 8.5 8.1 8.7 8.5 8.6 9.1
- Investments*** 0.8 0.3 0.5 0.5 0.6 0.7 0.9 1.0 1.2 1.0 1.1
1.7 1.6 1.7 1.8 1.7 1.8 1.7 1.9 2.0 2.0 2.1
1.6 1.6 1.5 1.8 1.8 1.8 1.4 1.4 1.4 1.5 1.7
2.1 2.3 2.5 2.5 2.1 2.2 2.8 1.2 1.2 2.3 1.6
0.0 0.0 0.0 0.0 0.0 0.0 -0.5 0.0 0.8 0.0 0.0
Final primary results (above the line) 2.1 2.3 2.5 2.5 2.1 2.2 2.4 1.2 2.1 2.3 1.6
11.1 10.3 10.5 10.8 10.6 10.8 11.1 10.2 10.2 11.1 10.7Net revenue minus transfers
- Health and education
- Other expenses
Primary result without sovereing
wealth fund and onerous assignment
Impact of socereing wealth fund and
onerous assignment****
Ministry
of Finance
FiscalPo
Stability o the payroll expenditure and increase in transers
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Selected Public Expenditures (% o GDP)
Transers to amilies
Payroll Expenses and Changes
Data: % o GDP
* On a 12-month basis up toOctober 2012
Source:National Treasury Secretariat/
Ministry o Finance and Federal Senate