1. SCENARIOS OF THE BRAZILIAN ECONOMY Carlos Geraldo Langoni
C O F A C E
April / 2008

2. TESTS 1st - MULTIPOLAR WORLD Globalization / Super-Emerging Countries 2nd – THE POWER OF THE CENTRAL BANKS Managing Expectations 3rd – MACROECONOMIC CONSISTENCY The Fall of Vulnerabilities 4th – SUSTAINED GROWTH Macro Distortions Dualism Scenarios

3. MULTIPOLAR WORLD
Even with a recession in the USA, the world economy would hardly fall into stagnation . . .

4. MULTIPOLAR WORLD
Since 1978 the Chinese GDP has been growing at a yearly average of 10%. China’s contribution to the world growth is already greater than the USA . . .
The Economist.

5. MULTIPOLAR WORLD
The commodities boom is helping many emerging countries, particularly Latin America. A key question is whether prices will stay at a high level . . .

6. MULTIPOLAR WORLD
Since 2002 there has been a steady increase in oil prices. The impact upon the world economy so far has been modest due to the gradual nature of the process. The new Petrobras discovery (Tupi field), estimated in the range of 5 to 8 billion barrels, will transform Brazil in a mid-size exporter . . .

7. THE POWER OF THE CENTRAL BANKS
The Federal Reserve has taken a set of measures such as massive liquidity injection and interest cuts, bailing out institutions, trying to manage expectations and thus minimize the risk of a deep recession . . .

8. Latin America has benefited from the commodity boom . . .
MULTIPOLAR WORLD
Latin America has benefited from the commodity boom . . .
LATIN AMERICA AND THE WORLD ECONOMY
Region
2006
2007 *
2008 **
2009 **
WORLD
5.4
5.2
3.7
3.9
Advanced Economies
3.0
2.5
1.5
1.7
United States
2.9
2.2
1.0
European Union
2.8
1.8
Emerging Economies
7.3
7.5
7.1
China
11.1
11.5
10.0
9.0
Latin America
5.3
4.5
4.1
(*) Estimated / (**) Projections.

9. A NEW GROWTH PATTERN ?
Up to now the trademark of the Brazilian growth is its cyclotimic pattern . . .
F H C
LULA

10. A COMPARISON OF TWO CRISIS (2001 / 2008) A COMPARISON OF TWO CRISIS
There are a significant improvement in the macro fundamentals of the Brazilian economy between 2001 and
A COMPARISON OF TWO CRISIS
(2001 / 2008)
Period
WORLD
BRASIL
GDP
IPCA
Interest Rate
Public Debt
Current-Account
Int'l Reserves
Exchange Rate
(%)
/ GDP (%)
(US$ bi.)
(R$ / US$ - Dec.)
2.5
1.3
7.6
19.00
53.4
-23.2 36
2.32 *
3.0
4.8
4.6
11.25
41.5
-13.0
200
1.80
(*) Estimated.

11. EXTERNAL VULNERABILITY
Since 2003 there is an impressive improvement in the external accounts with a sequence of mega-trade surpluses and a positive current-account. We are now moving back to a cycle of deficits due to a fast expansion of imports . . .

12. INTERNAL VULNERABILITY
The internal vulnerability is also declining although at a slower pace and still highly dependent upon the continuous increase in tax revenues. The net debt / GDP should fall to 41.6% at the end of

13. THE CONTROL OF INFLATION
Due to a combination of tight fiscal and monetary policy, inflation has fallen significantly after There are, however, renewed pressures from the 2nd semester of

14. MANAGING EXPECTATIONS
Inflationary expectations for 2008 are moving upward, although they remain relatively stable for next year . . .

15. THE CENTRAL BANK AUTONOMY
The Central Bank raised interest rates in 2003 and 2005 to keep inflation under control. After a long cycle of cuts, it decided to keep the SELIC rate at 11.25%. There is a yellow flag due to the warm up of internal demand . . . 2 8
2003
2004
2005
2006
2007

16. EXCHANGE APPRECIATION
The improvement in the external accounts has led to a systematic appreciation of the real, that has being mildly affected by international uncertainties. The dollar devaluation reached 47% since the peak of 2 8
2004
2005
2006
2007

17. COUNTRY RISK
The counterpart of the reduction in external and internal vulnerabilities has been a significant fall in Brazilian risk perception, that has been only marginally affected by the external turmoil . . .

18. ECONOMIC GROWTH OF THE BRICS
RELATIVE PERFORMANCE
The Brazilian performance is still low in comparison with other super-emerging economies . . .
ECONOMIC GROWTH OF THE BRICS
Countries
2005
2006
2007
2008 *
2009 *
China
9.9
10.5
11.5
10.0
9.0
India
7.8
8.3
8.0
7.2
Russia
7.0
6.6
6.0
BRASIL
2.9
3.7
5.4
4.8
4.5
Source: World Bank.

19. GLOBAL COMPETITIVENESS
MACRO DISTORTIONS
Brazilian competitiveness is low due to an obsolete infrastructure, low quality of education and the weight of bureaucracy . . .
GLOBAL COMPETITIVENESS
(Selected Countries)
Countries
2006
2007
USA ↔
1st
Singapore ↑
3rd
2nd
China ↑
18th
15th
Chile ↑
23rd
26th
India ↔
27th
Russia ↑
43rd
46th
Mexico ↓
47th
45th
BRAZIL ↓
44th
49th
Source: IMD.

20. BRAZILIAN COMPETITIVENESS
DUALISM
The main cause is the public sector. The Brazilian private sector did adjust and it is being modernized with many corporations reaching the investment grade status and becoming multinationals . . .
BRAZILIAN COMPETITIVENESS
Global Index
Public Institutions
Companies 65 70 32
Source: World Economic Forum (WEF) 2005.

21. MACRO DISTORTIONS
The fiscal adjustment is of poor quality, based on a systematic increase in the tax burden that keeps growing even with the end of the CPMF. . .

22. SUSTAINED GROWTH
Brazil is one step below investment grade, which may be reached next year . . .
RATINGS
(Selected Countries)
Countries
Local Currency
Foreign Currency
Argentina B+
BRAZIL
BB+ BB
Chile A AA
China
Colombia
BBB
India
Mexico
Peru
BBB-
Russia A-
BBB+
Venezuela
BB-
Source: Standard & Poor's (December / 2006). Investment Grade >= BBB.

23. SUSTAINED GROWTH
Despite all distortions, macro stability is leading to a sharp increase of foreign direct investment that has not been, so far, affected by external uncertainties . . .

24. SUSTAINED GROWTH
Industrial production is accelerating led by capital and durable goods . . .

25. LEVERAGING GROWTH
The credit to the private sector is increasing but the level is still low in comparison with other emerging countries . . .

26. SUSTAINED GROWTH
The investment ratio is still low but it has being rising significantly twice the expected GDP growth . . .

27. EXTERNAL INTERNAL SCENARIO
EXPECTED GDP GROWTH
EXTERNAL INTERNAL SCENARIO
SCENARIO
Gradualism Competitiveness Neo-populism
Sustained % % %
Soft Landing % % %
Discontinuity % % recession