1. February 07 Brazil economic outlook

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

10. Falling but still high real rates

11. Sources: IMF & IBGE Growth has been disappointing

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

13. PAC: Acceleration Growth Program 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

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

15. Institutional Framework Congressional autonomy Judiciary independence Rule of law

16. Investment grade: how far is it?

17. Baseline scenario

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