1

Economic Prospects in an Uncertain

External Environment

February 2009

Mário Mesquita

2

I. Global Economy and Asset Prices

3

Comparison among Financial Crises - Losses

Source: FMI

US

$ b

illi

on

0

400

800

1,200

1,600

2,000

2,400

savings and loans

crisis (US,

1986-95)

banking crisis

(Japan, 1990-99)

banking crisis

(Asia, 1998-99)

subprime crisis

(US, 2007-today)

Apr/08 Oct/08 Jan/09

4

Real Estate Prices – US and Japan

Sources: S&P, OFHEO and JREI

40

50

60

70

80

90

100-

6 y

ears

-5 y

ears

-4 y

ears

-3 y

ears

-2

ye

ars

-1 y

ea

r

pea

k

+ 1

year

+ 2

ye

ars

+ 3

years

+ 4

ye

ars

+ 5

ye

ars

+ 6

years

+ 7

years

+ 8

years

+ 9

ye

ars

+ 1

0 y

ears

+ 1

1 y

ears

+ 1

2 y

ears

+ 1

3 y

ears

+ 1

4 y

ears

+ 1

5 y

ea

rs

+ 1

6 y

ears

+ 1

7 y

ears

peak=

100

Case-Shiller OFHEO Japan Residential

Peaks:Case-Shiller -> Jun/06OFHEO -> Jun/07Japan -> Jun/91

57.7

95.0

79.7

5

Banking System:

Losses x Capitalization (Accumulated)

Source: Bloomberg

0100200300400500600700800900

1000110012001300

3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09

US

$ b

illi

on

losses capitalization

6

Accumulated Banking Sector Losses (% per

Region)

Source: Bloomberg

Americas

71%

Europe

26%

Asia

3%

7

Global Equity Markets Capitalization

Source: Bloomberg *up to Feb 9

loss from peak:

US$ 30 trillion25

30

35

40

45

50

55

60

65

Jan 07

Mar 07

Jun 07

Aug 07

Nov 07

Feb 08

Apr 08

Jul 08

Oct 08

Feb* 08

US

$ t

rill

ion

8

US and European Banking Sector:

5-year Credit Default Swaps

Source: Thomson Financial

basis

po

ints

recapitalization

programs

announced

US

Europe

Lehman Brothers

bankruptcyFannie Mae

Freddie Mac

bail out

Bear Stearns

is sold

intervention in

Northern Rock (R.U.)

Jun

07

Sep

07

Nov

07

Jan

08

Mar

08

May

08

Jul

08

Sep

08

Nov

08

Feb

09

0

100

200

300

400

500

600

9

Capital Repatriation – United States

-600

-400

-200

0

200

400

600

800

4Q

00

3Q

01

2Q

02

1Q

03

4Q

03

3Q

04

2Q

05

1Q

06

4Q

06

3Q

07

3Q

08

foreign-owned assets US private assets abroad

US

$ b

illi

on

financial assets-related flows

4-quarter moving average

Source: Bureau of Economic Analysis (BEA)

10

USA: Effort to Avoid Monetary ContractionM

1/m

on

eta

ry b

ase

% y

-o-y

monetary multiplier (lhs)

M1 (rhs)

M1 x monetary multiplier*

Source: Federal Reserve * monetary multiplier= M1/monetary base

-3

0

3

6

9

12

15

18

21

24

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

Jan

07

Mar

07

May

07

Jul

07

Sep

07

Oct

07

Dec

07

Feb

08

Apr

08

Jun

08

Aug

08

Oct

08

Nov

08

Jan

09

11

Fed (lhs)

Bank of England (rhs)

Central Banks Quantitative/Credit Easing

Sources: Federal Reserve and Bank of England

75

100

125

150

175

200

225

250

275

300

800

1,100

1,400

1,700

2,000

2,300

Jan

07

Mar

07

May

07

Aug

07

Oct

07

Dec

07

Feb

08

May

08

Jul

08

Sep

08

Dec

08

£ b

illi

on

US

$ b

ilio

n

Feb

09

12

Commodity Price Indices (Total, Food and Energy)

Source: IMF

1995=

100

50

150

250

350

450

550

650

750

Jan

92

Jul

93

Jan

95

Jul

96

Jan

98

Jul

99

Jan

01

Jul

02

Jan

04

Jul

05

Jan

07

Dec

08

total

energy

food

13

GDP Growth – WEO Update (Jan/09)

Source: IMF *WEO Oct/08

%

5.2

3.02.6 2.4

2.0

3.4

0.71.0

-0.3

1.1

3.0

-0.1

0.20.5

0.10.5

-2.8

-2.0

-2.6

-1.6

-3

-2

-1

0

1

2

3

4

5

6

World UK Euro Area Japan US

2007 2008 2009* 2009

14

World Air Traffic

Source: IATA

-25

-20

-15

-10

-5

0

5

10

Jan

07

Mar

07

May

07

Jul

07

Sep

07

Nov

07

Jan

08

Mar

08

May

08

Jul

08

Sep

08

Dec

08

cargo passengers

% g

row

th (

y-o

-y)

15

World Steel: Monthly Production 2008

Source: World Steel Association

80

85

90

95

100

105

110

115

120

125

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

mil

lio

n m

etr

ic t

on

s

16

sp

read

s -

basis

po

ints

Source: Merrill Lynch *up to Feb 9

US Corporates x Emerging Markets Indices

(Spread Evolution)

50

150

250

350

450

550

650

750

Jun 07

Jul 07

Sep 07

Oct 07

Nov 07

Jan 08

Feb 08

Mar 08

May 08

Jun 08

Jul 08

Sep 08

Oct 08

Nov 08

Feb*09

Corp. AAA Corp BBB EM BBB

17

basis

po

ints

CDS (5 year): Brazil and Selected Countries

Source: Bloomberg

spread change: 6/14/07 – 2/9/2009

238 265 287 319 337 413 445 462679

2,4022,531

3,170

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Chile

Turkey

Brazil

Korea

Mexico

S. Africa

Indonésia

Hungary

Rússia

Venezuela

Argentina

Ukraine

18

basis

po

ints

Source: Bloomberg

CDS (5 year): Brazil and Selected Countries

spread change: 9/15/08-2/9/2009

98 154 182 192 203 238 260 286

508

1,7421,801

2,752

0

500

1,000

1,500

2,000

2,500

3,000

Turkey

Brazil

Chile

Korea

Mexico

S. Africa

Indonesia

Hungary

Russia

Venezuela

Argentina

Ukraine

19

% c

han

ge s

ince 6

/14/2

007

Stock Exchanges:

Brazil and Selected Countries

6/14/07 – 2/9/2009

Source: Bloomberg

IndiaChina

France

Japan

UKSpain

Germany

EUA

Hong

Kong

Brazil-55

-45

-35

-25

-15

-5

5

NIKKEI CAC 40 Shanghai S&P DAX IBEX 35 Mumbai FTSE H. Seng IBOVESPA

20

9/15/08 – 2/9/2009

% c

han

ge

sin

ce 9

/15/2

008

India China

FranceJapan

UK

Spain

GermanyUSA

Hong

Kong

Brazil

Source: Bloomberg

Stock Exchanges:

Brazil and Selected Countries

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

NIKKEI Mumbay H. Seng S&P CAC 40 DAX IBEX 35 FTSE Ibovespa Shanghai

21

Currencies: Brazil and Selected Countries%

ch

an

ge s

ince 6

/14/2

007

Source: Bloomberg

6/14/07 – 2/9/2009

13.615.3 16.2 16.3

21.8

29.7 29.833.1

37.3

48.5

53.9

0

10

20

30

40

50

60

Argentina

Chile

Brazil

Hungary

Turkey

Indonesia

Mexico

S. Africa

Russia

Korea

Ukraine

22

9/15/08 - 2/9/2009

% c

han

ge s

ince 9

/15/2

008

Currencies: Brazil and Selected Countries

Source: Bloomberg

13.1 14.418.5

23.3 24.0 24.127.4

29.331.4

40.2

62.0

0

10

20

30

40

50

60

70

Argentina

Chile

S. Africa

Brazil

Korea

Indonesia

Turkey

Hungary

Mexico

Russia

Ukraine

23

Industrial Production and CPI Inflation in

Selected Countries

US EU Japan China Russia India Turkey South

Africa

Chile Colombia Mexico Peru Brazil

Sep 08 -6.3 -2.5 0.2 11.4 6.4 5.5 -4.2 4.7 3.6 -3.5 -2.2 ... 9.7

Oct 08 -4.2 -5.6 -7.1 8.2 1.7 -0.3 -8.5 -1.8 -0.8 -7.4 -2.3 ... 1.1

Nov 08 -5.9 -8.1 -16.6 5.4 -8.7 2.4 -13.9 -4.8 -5.7 -13.3 -5.4 ... -6.2

Dec 08 -7.8 ... -20.6 5.7 -10.2 ... ... ... -3.7 ... ... ... -14.5

US EU Japan China Russia India Turkey South

Africa

Chile Colombia Mexico Peru Brazil

Sep 08 4.9 3.6 2.1 4.6 15.0 11.0 11.1 13.1 9.2 7.6 5.5 6.2 6.3

Oct 08 3.7 3.2 1.7 4.0 14.2 11.1 12.0 12.1 9.9 7.9 5.8 6.5 6.4

Nov 08 1.1 2.1 1.0 2.4 13.8 11.1 10.8 11.8 8.9 7.7 6.2 6.8 6.4

Dec 08 0.1 1.6 0.4 1.2 13.3 11.1 10.1 9.5 7.1 7.7 6.5 6.7 5.9

Dec-Sep (p.p.) -4.8 -2.0 -1.7 -3.4 -1.7 0.2 -1.0 -3.6 -2.1 0.1 1.1 0.4 -0.4

Industrial production (% YoY)

CPI Inflation (% YoY)

24

II. Brazil: Impact of the International Financial Crisis

25

FX BCB Spot Interventions (from January 2004)U

S$ b

illi

on

Source: BCB

147.3

0

20

40

60

80

100

120

140

160

Jan 04

May 04

Sep 04

Jan 05

May 05

Sep 05

Jan 06

May 06

Sep 06

Jan 07

May 07

Sep 07

Jan 08

May 08

Dec08

26

FX ReservesU

S$ b

illi

on

Source: BCB

Jan

03

Jul

03

Jan

04

Jul

04

Jan

05

Jul

05

Jan

06

Jul

06

Jan

07

Jul

07

Jan

08

Dec

08

Jul

08

end-of-2004:

27.5

Apr 03:

15.9

Jan 30:

US$200.8 billion

0

30

60

90

120

150

180

210

27

External Debt / GDP%

Source: BCB

-5

0

5

10

15

20

25

30

35

40

45

90 92 94 96 98 00 02 04 06 08

total debt/GDP total net debt/GDP

28

Net External Debt vs. Sovereign Rating (S&P)U

S$ b

illi

on

Sources: BCB and Bloomberg

BBB-

BB+

BB

BB-

B+

BB-

-28.9

-40

0

40

80

120

160

200

1Q 02

3Q 02

1Q 03

3Q 03

1Q04

3Q 04

1Q 05

3Q 05

1Q 06

3Q 06

1Q 07

3Q 07

1Q 08

4Q08

29

Cumulative Reduction in FX-Linked Domestic

Debt as of Jan 2003

Source: BCB

47.7

-10

0

10

20

30

40

50

60

70

80

90

Jan

03

Jun

03

Nov

03

Apr

04

Sep

04

Feb

05

Jul

05

Dec

05

May

06

Oct

06

Mar

07

Aug

07

Jan

08

Jun

08

Dec

08

US

$ b

illi

on

30

Change in Debt/GDP Ratio to a 1% Depreciation

of the BRL

Source: BCB

basis

po

ints

-15

-10

-5

0

5

10

15

20

25

30

35

Jan

02

Jan

03

Jan

04

Jan

05

Jan

06

Jan

07

Jan

08

Dec

08

-13.9

31

EXTERNAL

SHOCK

DETERIORATION

OF CONFIDENCE

FX DEPRECIATION

FX PUBLIC DEBT

DOMESTIC

EXTERNAL

PRESSURE ON

PUBLIC DEBT/GDP RATIO

External Shock Feedback Loop: Before

32

External Shock Feedback Loop: Now

EXTERNAL

SHOCK

DETERIORATION

OF CONFIDENCE

FX DEPRECIATION

REDUCTION OF

PUBLIC DEBT/GDP RATIO

FX PUBLIC DEBTPUBLIC SECTOR IS LONG IN FX

33

Net Public Sector Debt/GDP

Source: BCB *estimate, considering US$=R$ 2.31

% o

f G

DP

35

38

41

44

47

50

53

56

Jan

02

Jan

03

Jan

04

Jan

05

Jan

06

Jan

07

Jan

08

Dec

08

Jan/09:

36.0%*

34

Consolidated Public Sector Primary Surplus%

of

GD

P

Dec 08

4.07%

avg. 1994-Jun/95

4.77%

avg. 1999-2002

2.91%

avg. 2003-Dec/08

4.13%

-2

-1

0

1

2

3

4

5

6

7

Jan

94

Jan

96

Jan

98

Jan

00

Jan

02

Jan

04

Jan

06

Jan

08

Source: BCB

avg. Jul/95-1998

-0.08%

35

Real Exchange Rate vs. Commodity PricesJu

n94=

100 (

RE

ER

), 2

005=

100 (

co

mm

)

Sources: BCB and IMF

REER

commodity price index ex-oil (IMF)

70

90

110

130

150

170

Jan

03

Jul

03

Jan

04

Jul

04

Jan

05

Jul

05

Jan

06

Jul

06

Jan

07

Jul

07

Jan

08

Dec

08

36

REER Ju

n 9

4=

100

basket of 15 currencies

99.4

Source: BCB

60

80

100

120

140

160

180

Jan

88

Jan

90

Jan

92

Jan

94

Jan

96

Jan

98

Jan

00

Jan

02

Jan

04

Jan

06

Dec

08

37

Commodities Boom and Bust: CRB Index and

Brazilian Terms of Trade

Sources: Funcex and Bloomberg

2006 =

100

terms of trade (lhs)

CRB (rhs)

200

250

300

350

400

450

500

90

95

100

105

110

115

Jan

03

Jul

03

Jan

04

Jul

04

Jan

05

Jul

05

Jan

06

Jul

06

Jan

07

Jul

07

Jan

08

Dec

08

38

Terms of Trade: The Income Effect%

-yo

y

2006 =

100

Sources: IBGE and Funcex

4Q

05

1Q

06

2Q

06

3Q

06

4Q

06

1Q

07

2Q

07

3Q

07

4Q

07

1Q

08

2Q

08

3Q

08

domestic demand (lhs)

terms of trade (rhs)

95.0

97.5

100.0

102.5

105.0

107.5

110.0

2

3

4

5

6

7

8

9

10

39

Commodity Prices and the Exchange Rate:

Partial OffsetsJan

2006 =

100

Source: Bloomberg * up to 2/9

60

70

80

90

100

110

120

130

140

Jan

06

Apr

06

Jun

06

Sep

06

Dec

06

Mar

07

May

07

Aug

07

Nov

07

Feb

08

May

08

Jul

08

Oct

08

Feb*

09

CRB/USD CRB/BRL

40

Wholesale Prices

Source: FGV

% %

2

4

6

8

10

12

14

16

0

10

20

30

40

Jan 07

Mar 07

May 07

Jul 07

Sep07

Nov 07

Jan 08

Mar 08

May 08

Jul 08

Sep 08

Nov 08

Jan 09

agriculture (lhs)

industrial (rhs)

12-month cumulative

41

Equity Prices and the BRL

Sources: BCB and Bovespa *Feb 6

tho

us

an

d p

oin

ts

R$/U

S$

1.50

1.75

2.00

2.25

2.50

25

35

45

55

65

75

Jun

07

Aug

07

Sep

07

Nov

07

Jan

08

Mar

08

Apr

08

Jun

08

Aug

08

Sep

08

Nov

08

Feb*

09

Bovespa Index (lhs)

exchange rate (rhs)

42

Foreign InvestmentU

S$ b

illi

on

Sources: BCB and CVM

0

30

60

90

120

150

180

210

240

270

Jan

07

Mar

07

May

07

Jul

07

Sep

07

Nov

07

Jan

08

Mar

08

May

08

Jul

08

Sep

08

Dec

08

equities

(Bovespa)

fixed

income

investment

international

reserves

43

Foreign Exchange Flows – Trade Finance (ACC)

Source: BCB

5-working day moving average

US

$ m

illi

on Lehman

Brothers

bankruptcy

credit

line

auctions

loans for

external

trade

50

100

150

200

250

300

350

400

9/5 9/19 10/3 10/17 10/31 11/14 11/28 12/12 12/26 1/9 1/30

44

Brazil: a (very) Closed Economy

(exports of goods+imports of goods)/GDP - 2007

%

Sources: IMF and WTO

0

10

20

30

40

50

60

70

80

90

100

Bra

zil

US

A

Jap

an

Ind

iaA

ustr

ali

a

Co

lom

bia

UK

Arg

en

tin

aTu

rkey

Sp

ain

Uru

gu

ay

Peru

Ru

ssia

Fra

nce

Ita

lyV

en

ezu

ela

Can

ad

aP

ort

ug

al

Bo

livia

Ecu

ad

or

Mexic

o

Ch

ina

Ch

ile

Ge

rman

yP

hil

ipp

ines

Ko

rea

Sw

itze

rlan

dP

ara

gu

ay

45

Brazil: …with Fairly Diversified Trading Relations

Exports - 2008

Source: MDIC

Latin Americaand the Caribbean

25.9%

European

Union23.4%

Asia (exc Middle East)18.9%

USA, includingPuerto Rico

14.0%

others17.8%

46

Brazil: Export/Import Composition - 2008

Exports

Source: MDIC

basic

products

37.9%

manufactured

48.1%

semi-manufactured

14.0%

raw material

and

intermediate

goods,

48.1%

capital

goods,

20.7%

fuel and

lubricants,

18.2%

non-durable

consumer

goods, 5.7%durable

consumer

goods, 7.3%

Imports

47

Brazilian Exports in 2008 – Main Destinations%

Sources: BCB and MDIC

Naft

a

Eu

rop

ean

Un

ion

Ala

di

Ea

ste

rn

Eu

rop

e

Mid

dle

East

Asia

Afr

ica

oth

er

reg

ion

s

share in the exports

growth rate in 2008

average growth rate

0

10

20

30

40

50

60

48

Reserves/Short-Term Debt%

Source: BCB

50

100

150

200

250

300

350

4Q

00

2Q

01

4Q

01

2Q

02

4Q

02

2Q

03

4Q

03

2Q

04

4Q

04

2Q

05

4Q

05

2Q

06

4Q

06

2Q

07

4Q

07

2Q

08

4Q

08

49

% o

f G

DP

Credit/GDP: Brazil vs. Mature Economies - 2007

Source: World Bank *Dec 08

0

20

40

60

80

100

120

140

160

180

200

220

Brazil*Australia

SwedenCanada

SpainUK

US

41.3

50

Brazilian Banks: Capital Adequacy Ratio

Source: BCB

% regulatory

minimum capital

ratio (11%)

6

8

10

12

14

16

18

20

2000 2001 2002 2003 2004 2005 2006 2007 Sep

2008

16.2%

Basel minimum

capital ratio

(8%)

51

III. Crisis Management

52Source: BCB

Recent Actions in the Crisis:

Liquidity in Foreign Currencyaccumulated through Feb 3

swaps

repos

trade financing

spot sales

US

$ b

illi

on

14.5

8.6

9.7

32.7

53

Domestic Liquidity: Reserve Requirements

Reduction

Source: BCB

Total

release:

R$ 99.3 bn

54

IV. Domestic Economic Conditions

55

Overnight and Term Interest Rates

Source: BCB *Feb 6

%

Selic

180-day swap

360-day swap

8

12

16

20

24

28

32

Jan

00

Jan

01

Jan

02

Jan

03

Jan

04

Jan

05

Jan

06

Jan

07

Jan

08

Feb*

09

56

Real Interest Rates (360-Day Swap)

Source: BCB *Feb 6

5

10

15

20

25

30

35

40

Jan96

Jan97

Jan98

Jan99

Jan00

Jan01

Jan02

Jan03

Jan04

Jan05

Jan06

Jan07

Jan08

Feb*09

avg. 96/99:

18.4%

6.0

avg. 00/03:

15.0%

avg. 04/05:

11.5%

avg. 06/08:

8.4%

57

Credit Growth Jan

2004=

100

Source: BCB

100

130

160

190

220

250

280

310

340

370

400

Jan

04

Jul

04

Jan

05

Jul

05

Jan

06

Jul

06

Jan

07

Jul

07

Jan

08

Dec

08

households

corporates

Dec 08/Dec 07:

+24.3%

Dec 08/Dec 07:

+39.1%

58

Capacity Utilizationseaso

nall

y a

dju

ste

d, %

Sources: FGV, CNI and Fiesp

78

80

82

84

86

88

1Q 04

3Q 04

1Q 05

3Q 05

1Q 06

3Q 06

1Q 07

3Q 07

1Q 08

3Q 08

1Q 09

CNI

FGV

Fiesp

59

Employment in the Formal Sector

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

Jan

95

Jan

96

Jan

97

Jan

98

Jan

99

Jan

00

Jan

01

Jan

02

Jan

03

Jan

04

Jan

05

Jan

06

Jan

07

Jan

08

mil

lio

n o

f jo

bs 2003: 645 thousand

avg.1995-2002: 49 thousand

avg. 2004-2008: 1,415 thousand

Dec

08

Source: MTE

60

Retail Sales

90

100

110

120

130

140

150

Jan

00

Jan

01

Jan

02

Jan

03

Jan

04

Jan

05

Jan

06

Jan

07

Jan

08

Nov

08

s.a

., 2

003=

100

3-month moving average

Sources: IBGE and BCB

61

Retail Sales by Sector

Sources: IBGE and BCB

Nov 08/ Nov 07: -20.2%

90

100

110

120

130

140

150

160

170

180

190

200

Jan 01

Aug 01

Mar 02

Oct 02

May 03

Dec 03

Jul 04

Feb 05

Sep 05

Apr 06

Nov 06

Jun 07

Jan 08

Aug 08

90

110

130

150

170

190

210

230

Jan 01

Aug 01

Mar 02

Oct 02

May 03

Dec 03

Jul 04

Feb 05

Sep 05

Apr 06

Nov 06

Jun 07

Jan 08

Aug 08

98

103

108

113

118

123

128

133

138

Jan 01

Aug 01

Mar 02

Oct 02

May 03

Dec 03

Jul 04

Feb 05

Sep 05

Apr 06

Nov 06

Jun 07

Jan 08

Aug 08

94

98

102

106

110

114

118

122

126

130

134

138

Jan 01

Aug 01

Mar 02

Oct 02

May 03

Dec 03

Jul 04

Feb 05

Sep 05

Apr 06

Nov 06

Jun 07

Jan 08

Aug 08

Nov08

Nov08

Nov08

Nov08

Nov 08/ Nov 07: 6.0%

Nov 08/ Nov 07: 4.5%

Nov 08/ Nov 07: -8.7%

vehicles and motorcycles furniture and appliances

fabric, clothing and shoessupermarkets

3-m

on

th m

ovin

g a

ve

rag

e,

s.a

., 2

003=

100

62

ICC – Consumer Confidence Index

90

95

100

105

110

115

120

125

Jan

06

Jul

06

Jan

07

Jul

07

Jan

08

Jul

08

Jan

09

consumer confidence indexcurrent situationexpectations index

Sep

2005=

100

Source: FGV

63

ICC – Consumer Confidence Index

Source: FGV

- 20

- 17

- 14

- 11

- 8

- 5

- 2

1

4

7

10

13

Oct

07

Jan

08

Apr

08

Jul

08

Oct

08

Jan

09

%,

m/m

-12

64

Business Expectations Index

Source: Fecap

110

115

120

125

130

135

Feb

04

Oct

04

Jun

05

Feb

06

Oct

06

Jun

07

Feb

08

Jan

09

65

Industrial Productionseaso

nally a

dju

ste

d, 2002 =

100

Source: IBGE

90

95

100

105

110

115

120

125

130

135

Jan 01

Jul 01

Jan 02

Jul 02

Jan 03

Jul 03

Jan 04

Jul 04

Jan 05

Jul 05

Jan 06

Jul 06

Jan 07

Jul 07

Jan 08

Dec08

66

Industrial Production by Sector

95

115

135

155

175

195

Jan

01

Jan

02

Jan

03

Jan

04

Jan

05

Jan

06

Jan

07

Jan

08

capital goods

90

100

110

120

130

Jan

01

Jan

02

Jan

03

Jan

04

Jan

05

Jan

06

Jan

07

Jan

08

intermediate goods

80

90

100

110

120

130

140

150

160

170

180

190

durable consumer goods

90

95

100

105

110

115

Jan

01

Jan

02

Jan

03

Jan

04

Jan

05

Jan

06

Jan

07

Jan

08

semi and non-durable goods

Jan

01

Jan

02

Jan

03

Jan

04

Jan

05

Jan

06

Jan

07

Jan

08

3-m

on

th m

ovin

g a

ve

rag

e,

s.a

., 2

002=

100 Dec 08/ Dec 07: -13.1%

Dec 08/ Dec 07: -42.2%

Dec 08/ Dec 07: -18.2%

Dec 08/ Dec 07: -1.7%

Dec

08

Dec

08

Dec

08

Dec

08

Source: IBGE

67

ICI – Business Confidence Index

Source: FGV

70

75

80

85

90

95

100

105

110

115

120

125

Jan

06

Jul

06

Jan

07

Jul

07

Jan

08

Jul

08

Jan

09

Ju

l 2005=

100

68

IPCA (12m Change)

Sources: IBGE and BCB *Feb 6

IPCA (accumulated in 12 months)

market

expectations*

Jan 09

5.84%

2009:

4.73%*

0

2

4

6

8

10

12

14

16

18

Jan 03

Jul 03

Jan 04

Jul 04

Jan 05

Jul 05

Jan 06

Jul 06

Jan 07

Jul 07

Jan 08

Jul 08

Jan 09

Jul 09

Jan 10

% p

.y.

69

Core IPCA Inflation

Source: BCB

%

12-month cumulative

2

4

6

8

10

12

14

Dec

01

Jun

02

Dec

02

Jun

03

Dec

03

Jun

04

Dec

04

Jun

05

Dec

05

Jun

06

Dec

06

Jun

07

Dec

07

Jun

08

Jan

09

smoothed

non-smoothed

by exclusion

70

IPCA: Services x Non-Tradables% %

Source: IBGE

4.5

5.0

5.5

6.0

6.5

7.0

3.5

4.5

5.5

6.5

7.5

8.5

9.5

Jan

07

Apr

07

Jul

07

Oct

07

Jan

08

Apr

08

Jul

08

Oct

08

Jan

09

non-tradables (lhs)

services (rhs)

71

IPCA Inflation Expectations

12-month

ahead

%

Source: BCB

2008

2009

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Jan

07

Mar

07

May

07

Jul

07

Aug

07

Nov

07

Jan

08

Mar

08

May

08

Jul

08

Sep

08

Nov

08

Feb

09

72

Frequency Distribution of 2009 Inflation

Expectationsre

lati

ve f

req

uen

cy (

%)

Source: BCB

0

5

10

15

20

25

30

<3,8

<4,0

<4,2

<4,4

<4,6

<4,8

<5,0

<5,2

<5,4

<5,6

<5,8

<6,0

<6,2

<6,4

<6,6

<6,8

Nov 28

Dec 31

Jan 30

73

Economic Prospects in an Uncertain

External Environment

February 2009

Mário Mesquita