Brazilian Economy Overview

Brazilian Economy Overview DEREX Department of Trade and Foreign Affairs Mr.Antonio Fernando G.Bessa Deputy Director

1. Institutional. 2. Economic Highlights 3. Foreign Trade 4. Investments

Industry FIESP Federation of Industries of State of Sao Paulo Represents 131 sector business associations which stands for about 150,000 state and national firms CIESP Center of Industries of State of Sao Paulo 43 regional offices throughout the state which represents about 10,000 associated firms IRS Roberto Simonsen Institute Think tank specialized in industrial issues. It s also responsible for the coordination of Superior Council These entities work together in defense of the industry, providing services and support to their associated institutions and firms.

Education SESI Industrial Social Service SENAI Industrial Technical Schools Provides industrial employee s families with social services, mainly education, culture, sports and health Promotes professional education through technical schools providing qualified workforce to the industry 220 basic schools and more than 273,000 children, youth, adults and elderly people 157 technical schools and more than 1 million students registrations per year

FIESP Structure PRESIDENCY DEPARTMENTS SUPERIOR COUNCILS Guidelines for departments Agribusiness Competitiveness and Technology Construction Industry Defense Industry Environment Infrastructure and Energy Legal Division Regional Action Research and Economic Studies Small and Medium Companies Trade and Foreign Affairs Union and Labor Issues

Sao Paulo State and FIESP s representativeness in the Brazilian Economy Industrial GDP (US$ Billions) Main Industrial Sectors Represented by FIESP 1.015 Aircraft Food Fuels Machinery Metallurgy Paper and Cellulose 700 Oil Refinery Electric Energy Chemical Products Oil and Gas Ethanol Textiles and Apparel 379 Fertilizer and Animal Food Vehicles and auto parts 100% 37% 69% SP State Share in Brazil s GDP and Exports 33% of Total GDP (*) US$ 709 bi Brazil São Paulo State Fiesp 24% of Total Exports (**) US$ 59.9 bi 57% of Brazil s Industrialized Exports (**) US$ 53.3 bi (*)2010, latest effective figure available (**)2012

Sao Paulo State and FIESP s representativeness in Brazilian Economy 2. Economic Highlights 3. Foreign Trade 4. Investments

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* 2014* 2015* -0.3 5.7 3.2 4.0 6.1 5.2 7.5 2.7 3.0 3.5 3.5 0.9 DEREX Department of Trade and Foreign Affairs Brazil s GDP Growth for the next 3 years is projected to be around 3,6%. 10.0 GDP average growth (%YoY) 8.0 6.0 4.0 Average 4.0% Average 3.5% 2.0 0.0-2.0 Note: (*) Forecast: BCB/Focus, Apr, 12 th, 2013 Source: IBGE

feb-07 jun-07 oct-07 feb-08 jun-08 oct-08 feb-09 jun-09 oct-09 feb-10 jun-10 oct-10 feb-11 jun-11 oct-11 feb-12 jun-12 oct-12 feb-13 DEREX Department of Trade and Foreign Affairs Despite the incentives adopted by the Government, the industrial production fell 2,7% in 2012 118.1 Industrial Production Index (02=100) seasonally adjusted 131.0 124.3 131.1 128.8 125.5 103.8 Source: IBGE

In 2012, vehicle production fell 1.8%. Production of cars grew with IPI reduction, but the truck s production decreased 4,000 Production of vehicles Vehicles (1000 units) % YoY 16% 3,000 2,000 1,000 12% 8% 4% 0% 0 2006 2007 2008 2009 2010 2011 2012 Source: ANFAVEA -4%

The new light vehicle sales had been boosted by incentives granted by the Government in 2012 4,000 Production of vehicles by category Vehicles production Light vehicles Trucks Buses 1,000 units % YoY 3,500 40% 3,000 2,500 20% 2,000 0% 1,500-20% 1,000 500-40% 0-60% 2006 2007 2008 2009 2010 2011 2012 60% Source: ANFAVEA

feb-07 jun-07 oct-07 feb-08 jun-08 oct-08 feb-09 jun-09 oct-09 feb-10 jun-10 oct-10 feb-11 jun-11 oct-11 feb-12 jun-12 oct-12 feb-13 DEREX Department of Trade and Foreign Affairs Retail sales growth remains strong with an increase of 8.4% in 2012 Retail Sales Index (11=100) seasonally adjusted 92.4 98.7 106.1 110.2 72.5 76.6 82.2 Source: BCB

feb-07 jun-07 oct-07 feb-08 jun-08 oct-08 feb-09 jun-09 oct-09 feb-10 jun-10 oct-10 feb-11 jun-11 oct-11 feb-12 jun-12 oct-12 feb-13 DEREX Department of Trade and Foreign Affairs Strong demand versus flat supply... 160.00 140.00 Industrial Production versus Retail Sales (jan/07=100)¹ Industrial Production Retail Sales Retail sales increased 8.4% in 2012 120.00 100.00 80.00 Industrial production fell 2.7% in 2012 Note: (¹) Index number, seasonally adjusted Source: IBGE, Macrodados

...consistent credit expansion in Brazil, but... 2.500 Credit Expansion USD bn % Loans Loans % GDP 55,0 2.000 1.500 1.000 500 50,0 45,0 40,0 0 2008 2009 2010 2011 2012* 35,0 Note: (*) Preliminary data Source: BCB

206% 194% 187% 173% 135% 122% 116% 71% 65% 26% 17% 61% 55% 55% 51% DEREX Department of Trade and Foreign Affairs credit over GDP is still low compared to other economies Credit (% of GDP) - Selected Economies Source: World Bank

Tax burden (% of GDP) DEREX Department of Trade and Foreign Affairs The Brazilian tax burden is very high. Partners with similar ratio have a per capita GDP more than three times higher Tax burden x per capita GDP Per capita GDP (PPP) Source: IBGE, IMF, IMD, RFB Compilation: DECOMTEC/FIESP

In April 2012 public banks started to reduce lending rate boosting competition. This brought pressure on lending spreads, which began a declining trend. 40 35 30 25 20 15 10 Financial System Spread Total Individuals Companies Public banks lending rate reduction 5 feb-11 may-11 aug-11 nov-11 feb-12 may-12 aug-12 nov-12 feb-13 Source: BCB

4.9% 5.2% 5.2% 5.5% 5.8% 6.2% 6.3% 6.59% DEREX Department of Trade and Foreign Affairs Brazilian Monetary Authority promoted an aggressive monetary expansion Monetary Policy Consumer prices (IPCA): YoY Policy Rate (SELIC) 7.0% 6.5% 6.0% 10.50% 11% 10% 5.5% 9% 5.0% 4.5% 4.0% jan-12 mar-12 may-12 jul-12 sep-12 nov-12 jan-13 mar-13 8% 7.25% 7% Note: The Brazilian Central Bank increased the SELIC rate to 7.50% on April, 18 th, 2013 Source: BCB, IBGE

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 8.6% 5.8% 7.4% 11.9% 9.0% 7.4% 5.6% 3.1% 4.4% 5.8% 4.2% 5.8% 6.3% 5.7% DEREX Department of Trade and Foreign Affairs Inflation remains within the bounds set by the government Inflation (IPCA YoY) IPCA inflation Target Upper/lower bounds Source: Brazilian Central Bank and the IMF Compilation: FIESP

several stimulus policies are in progress in response to the ongoing international crisis environment. Stimulus policy 1) Expansive monetary policy 2) Tax exemption for dynamic sectors (IPI) Automobile White line Building material 3) Fiscal and credit stimulus for Industry Brasil Maior 4) PAC equipamentos : anticipation of government purchases 5) Reduction in energy costs For consumers of medium and large (in the case of industries), the value can reach 32%.

Unemployment down in Brazil... Unemployment Rate - seasonally adjusted (% p.m) 7.0 6.0 5.5 6.2 5.9 5.4 5.4 5.4 5.0 4.0 jan-12 mar-12 may-12 jul-12 sep-12 nov-12 jan-13 4.6 Source: IBGE

Brazilian population is ageing. More than 47% is above 30 years old. Demographic composition (Million persons) Women Men 70-over 60-69 years old 5.34 6.10 3.89 5.26 50-59 years old 9.68 8.74 40-49 years old 12.83 12.01 30-39 years old 15.15 14.49 25-29 years old 20-24 years old 15-19 years old 10-14 years old 5-9 years old 0-4 years old 8.64 8.61 8.43 8.44 7.34 6.78 8.46 8.63 8.56 8.73 7.62 7.03 Source: IBGE Development: FIESP

Around 30 million people have entered the middle class from 2003 to 2009. 8% 13 37% Social Class Mobility (% of total population and millions of people) 66 11% 50% 20 95 16% 31 Class A/ B 56% 113 Class C Class A/B more than US$ 2,790; Class C between US$ 648 2,790; Class D: between US$ 467 648. 27% 47 24% 44 20% 40 Class D Class E: up to US$ 467; 28% 49 15% 29 8% 16 2003 2009 2014* Class E Note: monthly per capita income per households and class, in prices of 2009. Note: (*) Forecast: CPS/FGV. Last effective data: 2009 Source: CPS/FGV

3. Foreign Trade 4. Investments

Trade flow follows a positive trend. In 2011, exports and imports reached highest historical level. USD bn 300 250 Brazilian Trade Balance Exports Imports Balance USD bn 200 150 100 50 0 2006 2007 2008 2009 2010 2011 2012 2013* Forecast: FIESP Source: MDIC *YTD until march

Since 2008, commodities¹ represents the most part of Brazilian exports Brazilian exports composition (% of total) 80% 70% 60% 50% 40% 30% Commodities Non-Commodities 20% 2006 2007 2008 2009 2010 2011 2012 Note: (¹) Commodities represents primary products and semimanufactured goods Source: MDIC

Asia is Brazil s number 1 trade partner... Trade Balance: share by trade partner (2012) United States European Union Latin America Asia Others Source: MDIC

Top 5 destinations and origins of Brazilian exports and imports. Trade balance by destinations and origins (2012) Brazilian Exports USD bn % (2012 x 2011) Brazilian Imports USD mn % (2012 x 2011) 1º China 41,2-7,0% China 34,2 4,4% 2º USA 26,7 3,5% USA 32,4-4,7% 3º Argentina 18,0-20,7% Argentina 16,4-2,7% 4º Netherlands* 15,0 10,3% Germany 14,2-6,6% 5º Japan 8,0-16,0% South Korea 9,1-9,9% Note: (*) Main logistical hub of Europe Source: MDIC

Main primary products exports and imports... Main BASIC products (2012) Brazilian Exports Iron ores and concentrates USD mn 30.989 Brazilian Imports USD mn Petroleum, crude 20.306 Petroleum, crude 13.406 Soybeans, whether or not broken Chicken 6.732 17.455 Natural gas 3.336 Coal, whether or powder, unagglomerated 3.006 Soybean bran 6.595 Wheat grains 1.757 Rubber, in natura 662 Source: MDIC

...main manufactured products exports and imports. Main MANUFACTURED products (2012) Brazilian Exports USD mn Brazilian Imports USD mn Airplanes 4.747 Spare parts for vehicles 3.778 Spare parts for vehicles 6.771 Passenger car 3.725 Passenger car 9.567 Refined sugar 2.814 Fuel oils 6.712 Ethyl alcohol 2.186 Medicines 6.114 Electronic integrated circuits 4.249 Source: MDIC

4. Investments

Consistent expansion of Foreign Direct Investment and International Reserves. FDI increased 110% from 2009 to 2012 in Brazil... Investment Inflow (USD mn) International Reserves Foreign Direct Investiment 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Forecast* BCB/Focus US$ 60 bn 2008 2009 2010 2011 2012 2013 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Note: (*) Forecast: BCB/Focus, Apr, 12 th, 2013 Source: BCB

TOP 10 origins of direct investment in Brazil FDI in Brazil: share by country (2012) Country US$ Mil Share United States 12,310 20.3% Netherlands* 12,213 20.2% Luxembourg 5,965 9.9% Switzerland 4,333 7.2% Spain 2,523 4.2% France 2,155 3.6% Chile 2,013 3.3% United Kingdom 1,953 3.2% Canada 1,950 3.2% Japan 1,471 2.4% * Netherlands is an investment hub Source: BCB Development: FIESP

Production Exports DEREX Department of Trade and Foreign Affairs Brazil leads agribusiness production and exports globally for several products Brazil Leadership in World Ranking (2012/13) Orange Juice Sugar Broiler Coffee Beef Soy Complex Corn Pork 1st 1st 1st 1st 2nd 1st 2nd 4th 81% 45% 35% 28% 19% 31% 22% 9% 1st 1st 3rd 1st 2nd 2nd 3rd 4th 57% 22% 20% 37% 17% 24% 9% 3% Source: USDA (apr/2013) and DEAGRO FIESP

90/91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13* DEREX Department of Trade and Foreign Affairs Brazil Production of grains Area (million ha): Production (million tons): 37% 217% 184 58 38 52 1.5 Productivity (tons/ha): + 127% 3.5 Grains: cotton, peanuts, rice, oats, canola, rye, barley, beans, sunflower, castor beans, corn, soybeans, sorghum, wheat and triticale. Note: (*) Estimative Source: Conab (Apr/2013) and DEAGRO - FIESP.

Brazil stands out for the high share of renewable energy in its energy matrix than the BRICS and G7 countries... Renewable Energy Souces (% of energy supply) Brazil India Canada China South Africa Italy Germany France United States Japan United Kingdom Russia 45.8 26.1 16.9 11.9 10.0 9.7 8.7 7.7 5.4 3.3 3.2 2.8 0 5 10 15 20 25 30 35 40 45 50 Source: Brazilian Ministry of Finance, Apr 2012 Economic Outlook Report.

Fifteen biggest Projects in the World s Energy Sector* (USD bn) China Brazil Brazil USA China Brazil Brazil China Canada Canada China Brazil India Colombia Brazil Jiuquan Eolic Platform Belo Monte Hydroelectric (PA) São Luiz do Tapajós Hydroelectric (PA) Green Power Express Transmission Yangjiang Nuclear Station 10.2 Santo Antônio Hydroelectric (RO) 10.0 Jirau Hydroelectric (RO) 8.2 Xiluodu Hydroelectric 6.8 Pace River Hydroelectric 6.6 Romaine Hydroelectric 6.5 Xiangjiaba Hydroelectric 6.3 Angra 3 Nuclear Station 6.3 4.2 Mundra Thermoelectric 3.0 Pescadero Hydroelectric 2.5 Teles Pires Hydroelectric (MT-PA) 12.0 12.6 16.0 18.2 Note: (*) Final stage or in progress Source: Brazilian Ministry of Finance, Apr 2012 Economic Outlook Report.

Thank you! Antonio Fernando G. Bessa Deputy Director 55 (11) 3549 4532 cderex@fiesp.org.br