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February 07

Brazil economic outlook. February 07. Higher global growth leading to higher commodity prices. China’s leading role on current commodity cycle. Log (CRB metals).

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February 07

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  1. Brazileconomic outlook February 07

  2. Higher global growth leading to higher commodity prices

  3. China’s leading role on current commodity cycle Log (CRB metals)

  4. Benefiting from this benign scenario

  5. How Brazil has used these larger funds? Source: Central Bank

  6. How Brazil has used these larger funds? Source: Central Bank

  7. How Brazil has used these larger funds? Source: Central Bank

  8. Result: low risk & strong currency Sources: Central Bank, Bloomberg & Banco Itaú

  9. Inflation convergence Headline and core CPI (% y-o-y) Source: IBGE

  10. Falling but still high real rates

  11. Growth has been disappointing Sources: IMF & IBGE

  12. Public accounts tell us good stories Source: Central Bank

  13. Fiscal accounts Primary surplus reduction due to public investment increase (0.5% of GDP) Payroll expenditure control: inflation plus 1,5% Minimum wage increase for the next 5 years : negative impact on social security accounts Small tax exemptions Social security reform – Unlikely in this administration PAC: Acceleration Growth Program

  14. Increase of regional government borrowing limits to housing, water & sewage investments Better regulatory environment Natural gas Regulatory agencies Environment PAC: Acceleration Growth Program

  15. Congressional autonomy Judiciary independence Rule of law Institutional Framework

  16. Investment grade: how far is it?

  17. Baseline scenario

  18. Baseline scenario

  19. For further information: Sérgio Ribeiro da Costa Werlang sergio.werlang@itau.com.br Tomás Málaga tomas.malaga@itau.com.br

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