BRAZIL MACROECONOMIC OUTLOOK: INCREDIBLE MOMENT OF A POLITICAL CRISIS BUT WE CANNOT JEOPARDIZE THIS CRISIS

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1 BRAZIL MACROECONOMIC OUTLOOK: INCREDIBLE MOMENT OF A POLITICAL CRISIS BUT WE CANNOT JEOPARDIZE THIS CRISIS 1 Economic Research Department April, 2016

2 WHY IS THE FISCAL POLICY SO CHALLENGING? Political crisis affects hardly the fiscal adjustment Mandatory expenditures by law reflect sectorial demands that become permanent Economy is still languish, impacting revenues performance 2

3 Déficit (R$ bi) BRAZILIAN SOCIAL SECURITY DEFICIT (R$ BILLION) SOURCE: STN, BRADESCO

4 Projeção com medidas PRIMARY SURPLUS AS % OF GDP % 04% 3.7% 03% 02% 3.2% 3.2% 3.3% 1.9% 2.6% 2.9% 2.2% 1.7% 01% 0.5% 00% -0.6% -01% -02% -1.9% -1.5% -1.5% -03% * 2017* 2018* SOURCE: BACEN

5 mai/03 fev/04 nov/04 ago/05 mai/06 fev/07 nov/07 ago/08 mai/09 fev/10 nov/10 ago/11 mai/12 fev/13 nov/13 ago/14 mai/15 fev/16 CONFIDENCE INDEX INDUSTRIAL SECTOR ÍNDICE DE CONFIANÇA DO EMPRESÁRIO INDUSTRIAL (ICEI) - DADOS DESSAZONALIZADOS Média (2003+) ICEI SOURCE: CNI, BRADESCO

6 jul/04 fev/05 set/05 abr/06 nov/06 jun/07 jan/08 ago/08 mar/09 out/09 mai/10 dez/10 jul/11 fev/12 set/12 abr/13 nov/13 jun/14 jan/15 ago/15 mar/16 INVENTORIES LEVEL INDUSTRIAL SECTOR Média histórica (2004+) * THE HIGHER THE INDICATOR, THE HIGHER THE INVENTORIES 6 SOURCE: FGV, BRADESCO

7 ago/06 fev/07 ago/07 fev/08 ago/08 fev/09 ago/09 fev/10 ago/10 fev/11 ago/11 fev/12 ago/12 fev/13 ago/13 fev/14 ago/14 fev/15 ago/15 fev/16 CONFIDENCE CONSUMER INDEX Confiança do Consumidor Fonte: FGV Neutro Elaboração: Bradesco ÍNDICE DE CONFIANÇA DO CONSUMIDOR (ICC) (DADOS DESSAZONALIZADOS) Set/2005= SOURCE: FGV, BRADESCO

8 ECONOMY IS STILL LANGUISH: AN EXTENDED RECESSION SOURCE: IBGE, BRADESCO

9 PIB: CONSUMO GDP : CONSUMPTION ANNUAL VARIATION SOURCE: IBGE, BRADESCO

10 EXPANDED RETAIL SALES (ANNUAL VARIATION) SOURCE: IBGE, BRADESCO

11 REAL INCOMES 2004 TO SOURCE: IBGE, BRADESCO

12 UNEMPLOYMENT RATE (ANNUAL AVERAGE) PNAD contínua PME SOURCE: IBGE, BRADESCO

13 PAYROLL (NUMBER OF JOBS) ,000 1,500 1, , ,500-2, SOURCE: MTE, BRADESCO

14 GDP : INVESTMENTS ANNUAL VARIATION SOURCE: IBGE, BRADESCO

15 PIB: AGRO GDP : AGRICULTURAL ANNUAL VARIATION SOURCE: IBGE, BRADESCO

16 GDP : INDUSTRY ANNUAL VARIATION SOURCE: IBGE, BRADESCO

17 GDP: SERVICES ANNUAL VARIATION SOURCE: IBGE, BRADESCO

18 * 2016* 2017* 2018* 2019* 2020* VARIAÇÃO ANUAL DO PIB DA CONSTRUÇÃO CIVIL Fonte: IBGE Elaboração e Projeção: Bradesco GDP : CONSTRUCTION ANNUAL VARIATION 15% 13.1% 10.7% 10% 9.2% 7.0% 8.2% 7.0% 7.0% 05% 4.9% 3.2% 4.5% 3.0% 5.0% 00% 0.3% -2.1% -0.9% -05% -5.7% -7.6% -10% 18 SOURCE: IBGE, BRADESCO

19 PETROBRAS OIL PRODUCTION THOUSAND BARRELS PER DAY Produção de Petróleo da Petrobras 2,700 2,200 1,700 1,200 1,004 1,132 1,271 1,336 1,500 1,540 1,493 2,1282,148 2,117 2,158 2,2132,292 1,971 2,004 2,022 2,034 1,980 1,932 1,7771,792 1,855 1, * 2017* 2018* 2019* 2020* 19 SOURCE: PETROBRAS, BRADESCO

20 PETROBRAS CAPEX USD MILLION Capex 60,000 50,000 48,383 43,406 43,288 43,038 40,000 35,443 35,000 30,000 29,053 20,000 15,487 23,256 23,000 20,000 10,000 5,245 4,084 6,469 6,010 7,451 10, * 20 SOURCE: PETROBRAS, BRADESCO

21 INFLATION: DESPITE THE RECESSION, SLOWING DOWN WILL BE MODERATE AND GRADUAL 21

22 * 2017* 2018* IPCA: CONSUMER PRICES INDEX (ANNUAL VARIATION) IPCA ANUAL 14.0% 12.0% 12.5% 10.7% 10.0% 8.9% 9.3% 8.0% 7.7% 7.6% 6.0% 6.0% 5.7% 5.9% 5.9% 6.5% 5.9% 6.4% 6.5% 4.0% 3.1% 4.5% 4.3% 4.5% 4.5% 2.0% 0.0% 22 SOURCE: IBGE, BRADESCO

23 12/08/13 11/09/13 11/10/13 10/11/13 10/12/13 09/01/14 08/02/14 10/03/14 09/04/14 09/05/14 08/06/14 08/07/14 07/08/14 06/09/14 06/10/14 05/11/14 05/12/14 04/01/15 03/02/15 05/03/15 04/04/15 04/05/15 03/06/15 03/07/15 02/08/15 01/09/15 01/10/15 31/10/15 30/11/15 30/12/15 29/01/16 28/02/16 29/03/16 MEDIAN MARKET EXPECTATION FOR THE IPCA IN SOURCE: BACEN, BRADESCO

24 BRAZILIAN CPI (IPCA): MARKET ESTIMATES (AVERAGE) % y/y * 2010* 2011* 2012* 2013* 2014* SOURCE: FOCUS ESTIMATES: MARKET * EFFECTIVE

25 CONSUMER PRICE INDEX (IPCA) ADMINISTERED PRICES - ANNUAL PERCENT CHANGE % 18.06% 15.0% 10.0% 8.96% 6.20% 6.00% 5.31% 4.73% 5.00% 5.0% 4.27% 3.67% 3.27% 3.13% 1.65% 1.52% 0.0% * 2017* 25 SOURCE: IBGE, BC, BRADESCO

26 CONSUMER PRICE INDEX (IPCA) DURABLE GOODS PRICES - ANNUAL PERCENT CHANGE % 4.00% 3.00% 3.06% 3.61% 3.00% 3.27% 3.00% 2.00% 1.00% 0.94% 0.00% -1.00% -0.05% -0.01% -2.00% -1.75% -1.89% -1.55% -3.00% -4.00% -3.47% * 26 SOURCE: IBGE, BC, BRADESCO

27 CONSUMER PRICE INDEX (IPCA) SERVICE PRICES - ANNUAL PERCENT CHANGE SERVIÇOS ANUAL 12.0% 10.0% 9.79% 8.74% 8.73% 8.0% 7.32% 6.66% 6.77% 8.10% 6.73% 8.02% 8.33% 8.12% 7.40% 6.0% 5.54% 5.72% 5.79% 4.86% 4.0% 2.0% 0.0% * 27 SOURCE: IBGE, BC, BRADESCO

28 ALIMENTAÇÃO ANUAL CONSUMER PRICE INDEX (IPCA) FOOD PRICES - ANNUAL PERCENT CHANGE % 20.0% 19.46% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 9.63% 7.48% 10.77% 11.12% 10.39% 7.19% 9.86% 8.48% 8.03% 12.01% 9.00% 6.0% 4.0% 3.87% 3.17% 2.0% 0.0% 1.99% 1.23% * 28 SOURCE: IBGE, BC, BRADESCO

29 INTEREST RATES MARKET SHAKEN BY THE IMPACT OF THE NEW FISCAL TARGET - NOMINAL INTEREST RATE (SELIC) % 25.00% 21.0% 14.0% 7.0% 19.00% 15.75% 19.00% 17.75% 18.00% 16.50% 13.25% 11.25% 13.75% 8.75% 10.75% 11.00% 7.25% 10.00% 11.75% 14.25% 12.25% 10.25% 9.25% 0.0% 29 SOURCE: BCB PRODUCTION: BRADESCO

30 7/14/13 10/14/13 1/14/14 4/14/14 7/14/14 10/14/14 1/14/15 4/14/15 7/14/15 10/14/15 1/14/16 4/14/16 BRAZILIAN NOMINAL EXCHANGE RATE - R$/US$ TAXA DE CÂMBIO R$/US$ fonte: Bloomberg DECEMBER 2009 R$ 1.74 / US$ DECEMBER 2010 R$ 1.67 / US$ DECEMBER 2011 R$ 1.88 / US$ DECEMBER 2012 R$ 2.04 / US$ DECEMBER 2013 R$ 2.35 / US$ DECEMBER 2014 R$ 2.65 / US$ DECEMBER 2015 R$ 3.96 / US$ DECEMBER 2016 R$ 3.60 / US$ SOURCE: BLOOMBERG FORECAST: BRADESCO

31 CDS VS EXCHANGE RATE CDS REAL R$/US$ 150 2, , , , , , , , , ,63 SOURCE: BRADESCO

32 2000 EXCHANGE RATE (POST STRESS SCENARIO) - R$/US$ SOURCE: BLOOMBERG, BRADESCO

33 ACCUMULATED VARIATION IN THE LAST 12 MONTHS OF SELECTED CURRENCIES Argentina Russia South Africa Colombia Egypt Brazil Mexico New Zealand Thailand Chile Índia Malaysia Turkey Korea UK Peru Canada China Philippines Taiwan Pakistan Indonesia Poland Singapore Switzerland UAE Australia #N/D DXY Euro Czech Republic Japan 69.0% 59.0% 49.0% 62.0% Última atualização: 14/04/ % 29.0% 32.6% 19.0% 15.8% 9.0% -1.0% 8.3% 5.6% 4.7% 3.9% 2.1% 0.2% 33 SOURCE: BLOOMBERG

34 11/07/13 08/08/13 05/09/13 03/10/13 31/10/13 28/11/13 26/12/13 23/01/14 20/02/14 20/03/14 17/04/14 15/05/14 12/06/14 10/07/14 07/08/14 04/09/14 02/10/14 30/10/14 27/11/14 25/12/14 22/01/15 19/02/15 19/03/15 16/04/15 14/05/15 11/06/15 09/07/15 06/08/15 03/09/15 01/10/15 29/10/15 26/11/15 24/12/15 21/01/16 18/02/16 17/03/16 14/04/16 Dólar em relação à cesta DXY. Fonte: Bloomberg. EXCHANGE RATES: BRL/USD & DXY DXY Real SOURCE: BLOOMBERG

35 /06/11 15/08/11 15/10/11 15/12/11 15/02/12 15/04/12 15/06/12 15/08/12 15/10/12 15/12/12 15/02/13 15/04/13 15/06/13 15/08/13 15/10/13 15/12/13 15/02/14 15/04/14 15/06/14 15/08/14 15/10/14 15/12/14 15/02/15 15/04/15 15/06/15 15/08/15 15/10/15 15/12/15 15/02/16 15/04/16 CDS_5 BRL Correlação: 96,5% 5 YEARS CDS AND BRL SOURCE: BLOOMBERG 35

36 36 COMMODITIES EXPORTS (% TOTAL EXPORTS) FONTE: MDIC, BRADESCO 54.3% 55.2% 54.6% 60.8% 59.7% 58.1% 59.8% 62.7% 61.2% 65.7% 67.6% 71.2% 68.7% 68.7% 67.6% 70.7% 68.5% 66.3% 53% 55% 57% 59% 61% 63% 65% 67% 69% 71% jan/01 mai/01 set/01 jan/02 mai/02 set/02 jan/03 mai/03 set/03 jan/04 mai/04 set/04 jan/05 mai/05 set/05 jan/06 mai/06 set/06 jan/07 mai/07 set/07 jan/08 mai/08 set/08 jan/09 mai/09 set/09 jan/10 mai/10 set/10 jan/11 mai/11 set/11 jan/12 mai/12 set/12 jan/13 mai/13 set/13 jan/14 mai/14 set/14 jan/15 mai/15 set/15 jan/16 36

37 BRAZILIAN EXPORTS - % MAIN PARTNERS FONTE: MDIC, BRADESCO % 18.8% 12.4% 1.7% 2.7% 0% 5% 10% 15% 20% 25% 30% 03/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /2016 Argentina China Germany USA Italy Japan

38 BRAZILIAN IMPORTS - % MAIN PARTNERS FONTE: MDIC, BRADESCO % 18.5% 2.9% 16.7% 6.5% 2.9% 0% 5% 10% 15% 20% 25% 03/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /2016 Argentina China Germany Italy Japan USA

39 BRAZILIAN EXPORTS - % MAIN PRODUCTS (2015) 36.2% 13.3% 7.5% 6.5% 3.3% 3.1% 2.9% 2.3% Soybean Iron Ore Crude oil Chicken Soybean meal Coffee Beans Beef Corn Tobacco in leaves Copper ores Pork Cotton Sugar unrefined Pulp Semi products: iron and steel Alloy iron Leather Gold Soybean: oil Airplanes Vehicles Aluminum Auto parts Flat Rolled Plastic Sugar refined Others 39 FONTE: MDIC, BRADESCO

40 (p) FONTE: FMI OIL PRICES (US$/BARREL) ELABORAÇÃO E (P) PROJEÇÃO: BRADESCO NÍVEL MÉDIO ANUAL DO PETRÓLEO BRENT (NOMINAL, FOB REINO UNIDO) - US$/BARRIL FONTE: BLOOMBERG, BRADESCO

41 (p) IRON ORE PRICES (US$/TON) FONTE: FMI ELABORAÇÃO E (P) PROJEÇÃO: BRADESCO NÍVEL MÉDIO ANUAL DO MINÉRIO DE FERRO (PREÇO SPOT NO PORTO DE TIANJIN/CHINA, MINÉRIO COM 62% DE TEOR DE FERRO) - US$/TONELADA FONTE: BLOOMBERG, BRADESCO

42 (p) SOYBEAN PRICES (US$/BUSHEL) FONTE: BLOOMBERG, BRADESCO

43 BRAZILIAN CURRENT ACCOUNT DEFICIT AS % OF GDP 19,000 10,000 1,000-8,000-17,000-26,000-35,000-44,000-53,000-62,000-71,000-80,000-89,000-98, , ,000-1,811-7,637-18,384-23,502-25,335-23,215-24,225-30,452-33,416 11,679 13,98513,643 4,177 1,551-24,302-28,192-47,273-52,480-54,283-81, ,181-3,2% PIB -1,0% PIB -58,905-13,070-18,702-1,3% PIB -5, FONTE: BC, BRADESCO

44 * 2017* 2018* FOREIGN DIRECT INVESTMENT (USD MILLION) 100,000 96,851 80,000 60,000 66,660 65,272 63,996 75,064 68,500 71,925 63,000 45,058 48,506 40,000 20,000 32,779 28,856 28,578 22,457 16,590 10,144 18,146 15,066 18,822 34,585 25, FONTE: BC, BRADESCO

45 BRAZIL THAT BRAZILIANS AND FOREIGNERS NEED TO KNOW 45 1º PRODUCER AND 1º EXPORTER SUGAR 1º PRODUCER AND 1º EXPORTER COFFEE 1º PRODUCER AND 1º EXPORTER ORANGE JUICE 1º PRODUCER REGIONAL JETS 2º PRODUCER AND 1º EXPORTER SOYBENS 2º PRODUCER AND 1º EXPORTER CATTLE MEAT 2º PRODUCER AND 1º EXPORTER TOBACCO 2º PRODUCER AND 1º EXPORTER ALCOHOL 2º EXPORTER FOODS 2º PRODUCER AND 2º EXPORTER IRON ORE 3º PRODUCER AND 1º EXPORTER POULTRY MEAT 3º PRODUCER AND 2º EXPORTER CORN 3º ELETRIC POWER 3º CONSUMER PERSONAL COMPUTER 3º PRODUCER FRUITS 3º PRODUCER COMMERCIAL AIRCRAFT 3º INTERNET USERS 3º PRODUCER BUSES 3º PRODUCER FOOTWEAR 3º CONSUMER PERFUMES AND COSMETICS 3º PRODUCER BAUXITE 4º PRODUCER AND 4º EXPORTER PORK MEAT 4º PRODUCER BEVERAGES 4º PRODUCER MILK 4º PRODUCER CERAMICS COVERINGS 4º PRODUCER SHIPPING INDUSTRY 4º PRODUCER PULP 4º PRODUCER TRUCKS 4º CONSUMER MOBILE PHONES 4º ROAD NETWORK EXTENSION 4º PRODUCER CLOTING 5º PRODUCER AND 4º EXPORTER COTTON 5º PRODUCER AND 7º EXPORTER ORNAMENT STONES 5º PRODUCER TEXTILE 5º PRODUCER COCOA 5º PRODUCER CEMENT 6º PRODUCER FHARMACEUTICAL 6º PRODUCER CHEMICAL 7º CONSUMER MAKET 7º PRODUCER RICE 7º PRODUCER AND 4º SALES CARS 8º PRODUCER ALUMINIUM 9º PRODUCER STEEL 5º PRODUCER PAPER 11º PRODUCER HONEY 13º PRODUCER OIL 15º WIND ENERGY 15º PRODUCER WHEAT

46 AGENDA NECESSARY TO INCREASE POTENTIAL GDP GROWTH FISCAL GOVERNANCE AND EXPENDITURE EFFICIENCY INCREASE THE EFFECTIVENESS OF MONETARY POLICY PRODUCTIVITY (DOING BUSINESS, TAX REFORM, LABOR REFORM, EDUCATION, TRADE OPENNESS) INFRASTRUCTURE 46

47 DEPEC - BRADESCO does not accept responsibility for any actions/decisions that may be taken based on the information provided in its publications and projections. All the data and opinions contained in these information bulletins is carefully checked and drawn up by fully qualified professionals, but it should not be used, under any hypothesis, as the basis, support, guidance or norm for any document, valuations, judgments or decision taking, whether of a formal or informal nature. Therefore, we emphasize that all the consequences and responsibility for using any data or analysis contained in this publication is assumed exclusively by the user, exempting BRADESCO from all responsibility for any actions resulting from the usage of this material. We all point out that access to this information implies acceptance in full of this term of responsibility and usage. The reproduction of the content in this report (partially or in full) is strictly forbidden except if authorized by BRADESCO or if the sources (the name of the authors, publication and BRADESCO) are strictly mentioned. 47 Update: 15 th April, 2016

BRAZIL MACROECONOMIC OUTLOOK: ECONOMY STABILIZATION AND LOOKING FOR REFORMS

BRAZIL MACROECONOMIC OUTLOOK: ECONOMY STABILIZATION AND LOOKING FOR REFORMS 1 Economic Research Department October, 2016 PRIMARY SURPLUS AS % OF GDP 5,0% 4,0% 3,0% 2,0% 3,7% 3,2% 3,2% 3,3% 1,9% 2,6% 2,9%