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Brazil 2004: Economic Outlook

Brazil 2004: Economic Outlook. The stability re-conquered: Defeating inflation through monetary policy Adjustment in the external sector Further effort needed on the fiscal front From stability to growth Slow growth of employment The challenge of reducing poverty Investment and growth

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Brazil 2004: Economic Outlook

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  1. Brazil 2004: Economic Outlook

  2. The stability re-conquered: • Defeating inflation through monetary policy • Adjustment in the external sector • Further effort needed on the fiscal front From stability to growth • Slow growth of employment • The challenge of reducing poverty • Investment and growth • Initiatives to promote growth Scenarios

  3. The stability re-conquered

  4. Monetary Policy and Inflation 45 40 35 30 25 20 15 10 7.6 5 4.9 0 -5 Jul-03 Jul-02 Jun-03 Jun-02 Jan-04 Jan-03 Apr-03 Jan-02 Apr-02 Aug-03 Aug-02 Mar-04 Oct-02 Mar-03 Mar-02 Oct-03 Feb-04 Feb-03 Feb-02 Sep-02 Sep-03 May-03 May-02 Dec-02 Dec-03 Nov-02 Nov-03 CPI inflation Core inflation - trimmed mean CPI and core inflation Annualized monthly rates (%) Source: IBGE

  5. 28 26.5 26 24 22 20 18 18.0 16.25 16 Jul-02 Jul-03 Sep-01 Sep-02 Sep-03 Jan-02 Jan-03 Jan-04 Mar-04 Mar-02 Mar-03 May-02 May-03 Nov-01 Nov-02 Nov-03 Monetary Policy and Inflation Short-term interbank rates (Selic rates - % p.y.) Source: Banco Central do Brasil

  6. 75 30 Exports Imports Surplus 70 25 65 20 60 15 55 10 50 5 45 0 40 -5 jul/01 jul/02 jul/03 jan/01 feb/01 jun/01 jan/02 feb/02 jun/02 jan/03 feb/03 jun/03 jan/04 feb/04 out/01 abr/02 out/02 abr/03 out/03 sep/01 sep/02 sep/03 apr/01 dez/01 dez/02 dez/03 ago/01 ago/02 ago/03 may/01 nov/01 may/02 nov/02 may/03 nov/03 mar/02 mar/03 may/01 Sucess of the external sector(US$ billion) Exports and Imports - (in twelve months) Source: MDIC

  7. 40.0 2002-2003 2004 1996-1999 1999-2001 35.0 30.0 25.0 feb/04: US$ 10.5 bi 20.0 US$ billions 15.0 10.0 5.0 Foreign Direct Investment 0.0 Current Account Deficit -5.0 feb/04: US$ 5.1 bi -10.0 jan/96 jan/97 jan/98 jan/99 jan/00 jan/01 jan/02 jan/03 jan/04 sep/98 sep/99 sep/00 sep/01 sep/03 sep/96 sep/97 sep/02 may/98 may/99 may/00 may/01 may/02 may/96 may/97 may/03 Source: Brasilian Central Bank Success in the external sector Current account deficit and Foreign Direct Investment

  8. Embi+ Brazil and Embi+ excl. Brazil and Argentina bps

  9. Sucess in the external sector Central Bank Reserves (including purchases from Treasury) (in US$ millions) Net Reserves Gross Including Date According Excluding Reserves Treasury IMF FMI purchases 02-jan-04 49,145 17,218 20,374 26,000 30-jan-04 53,261 21,502 25,124 30,630 27-feb-04 52,960 21,212 24,818 30,193 24-mar-04 51,600 20,852 24,458 29,751 Source: Banco Central do Brasil and Itau Bank

  10. Sucess of the external sector Real Exchange Rate (Trade weighted currency basket) 3.07 Source: Itau Bank

  11. Primary Surplus Accumulated in 12 months - % of GDP Source: Central Bank (-) deficit; (+) superavit

  12. Nominal interest payment Accumulated in 12 months - % of GDP Source: Central Bank Projection: Banco Itaú

  13. Net Public Debt % of GDP Source: Central Bank

  14. From stability to growth

  15. Economic active population and employment have been growing National Annual Survey PNAD (Brazil) Monthly Survey ( 6 major cities ) Feb/03- Feb/02 Feb/03 Feb/04 2001 2002 Feb/04 change million inhabitants Labor force 16,4 20,6 21,0 83.2 86.1 0,4 75,5 78,2 Employed 14,3 18,2 18,5 0,3 22,2 22,9 Formal workers 6,6 8,3 8,1 -0,2 53,3 55,3 Informal workers 7,7 9,9 10,4 0,5 7,7 7,9 Unemployed 2,1 2,4 2,5 0,1 São Paulo, Rio de Janeiro, Belo Horizonte, Salvador, Recife and Porto Alegre. Source: IBGE

  16. Less people under poverty line but still the most demanding challenge Population living under poverty line (income less than US$ 1 per day) % of total population 64.6 million inhabitants 64.4 million 57.9 million Source: IPEA

  17. Higher rates of growth through higher savings of the public sector % of GDP 25 20 15 10 5 0 -5 00/02 47/52 53/65 66/74 75/84 85/93 94/99 gross savings public savings private savings external savings GDP Source: IBGE

  18. Sustainable growth requires higher investment % Investment/GDP GDP growth

  19. Initiatives to promote growth • Social security reform • New bankcrupcy law • New rules to promote mortgage loans • New regulatory framework for the electric power sector • Reform of the processual code on the judicial system

  20. Scenario

  21. CPI (IPCA % chg.) 9.3 6.1 4.9 Interest rate (Selic %p.y.) dec 16.5 14.75 12.25 R$/ US$ dec 2.92 3.01 3.16 Current account US$ billion 4.1 6.0 as % of GDP 0.8 1.0 Trade balance US$ billion 24.8 30.0 25.0 Exports 73.1 86.0 87.0 Imports 48.3 56.0 62.0 Scenario 2003 2004 2005 GDP (% change) -0.2 4.1 3.9 GDP (US$ billion) 550 528 571 5.0 0,9

  22. Further information: Economic Consulting Department Tel: 55 11 5029 2650 economia@itau.com.br

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