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THE BRAZILIAN ECONOMIC OUTLOOK

This report highlights the current state of the Brazilian economy, including a downward trend in industrial production, challenges in household consumption and unemployment, high public deficit, gradual pace of exports, low investment rate, improving business confidence, monetary policy opportunities, and policies for enhancing competitiveness and growth. It also discusses the progress in infrastructure development and opportunities for investment in various sectors such as electric power, highways, railways, oil, airports, ports, and the new natural gas regulation.

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THE BRAZILIAN ECONOMIC OUTLOOK

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  1. THE BRAZILIAN ECONOMIC OUTLOOK Renato da Fonseca Executive Manager of Research and Competitiveness | CNI São Paulo, July 29th, 2019

  2. MAIN MESSAGES The economy is still in low gear Measures and policies to stimulate competitiveness and growth are starting to be adopted. The Concessions and Privatization agenda is the most advanced 3

  3. BRAZILIAN ECONOMY IS STILL IN LOW GEAR INDUSTRY PRODUCTION SHOWS A DOWNWARD TREND GDP DROPS AGAIN ON THE FIRST QUARTER OF 2019 Industrial production – manufacturing, mining and quarrying Index – Base: 2002 average = 100, seasonally adjusted GDP’s quarterly growth rate, seasonally adjusted Source: National Accounts/IBGE. Source: PIM-PF/IBGE.

  4. RECOVERY OF HOUSEHOLD CONSUMPTION IS BEING DIFFICULT UNEMPLOYMENT SHOWS SLIGHT DOWNWARD TREND, BUT REMAINS AT HIGH LEVELS HOUSEHOLD DEBT IS ON THE RISE AGAIN Unemployment rate (%) Household debt in the financial system as a percentage of the accumulated income over 12 months - % Source: Continuous PNAD/IBGE. Source: Brazilian Central Bank.

  5. HIGH PUBLIC DEFICIT HINDERS EXPANSIONARY FISCAL POLICY PRIMARY RESULT OF THE CONSOLIDATED PUBLIC SECTOR IS IMPROVING, BUT STILL NEGATIVE GOVERNMENT INVESTMENT IS FALLING Government investment, as a % of the GDP Government revenue minus government spending, as a % of the GDP Source: National Treasury Source: National Treasury

  6. EXPORTS INCREASING IN A GRADUAL PACE LOWER RISK EXPORTS HOLDING VIRTUALLY STEADY IN 2019 Brazil risk and Exchange rate Exports and Imports, US$ million EMBI Exchange rate R$/US$ • Estimate • Source: Secex/MDIC. Source: Central Bank

  7. INVESTIMENT RATE REMAINS LOW INVESTMENT RATE WAS 16% OF GDP IN 2018 Government revenue minus government spending, as a % of the GDP Source: National accounts/IBGE

  8. CONFIDENCE RECOVERS FROM FALL DURING CRISIS, BUT FRUSTRATIONS ARE FREQUENT BUSINESS CONFIDENCE IN AN INCREASING TREND WITH BUMPS ICEI – Business Confidence Index, manufacturing, mining and quarrying, and construction Confidence Lackofconfidence *The ICEI varies in the 0-100 interval. Figures above 50 points indicate that entrepreneurs are confident. Source: CNI.

  9. THERE IS ROOM FOR EXPANSIONARY MONETARY POLICY AND INFLATION REMAINS BELOW THE TARGET INTEREST RATES HAVE FALLEN, BUT STILL HIGH Average interest rate for credit operations with non earmarked funds - Percentage (%) IPCA index accumulated over 12 months (%) Inflationtarget Source: IBGE. Source: Brazilian Central Bank.

  10. POLICIES THAT SHOULD ENHANCE COMPETITIVENESS AND GROWTH SOCIAL SECURITY REFORM IS PRACTICALLY APPROVED TAX REFORM IN DISCUSSION • IMPROVEMENT IN BUSINESS ENVIRONMENT • MP 881 (Economic Freedom Bill) • LABOR LEGISLATION MODERNIZATION • Review of workplace health and safety regulations • Additional proposals for simplifying work legislation • BETTER INTEGRATION WITH • THE GLOBAL ECONOMY • TRADE AGREEMENTS • Mercosur-EuropeanUnion • South Korea, Canada, EFTA

  11. INFRASTRUCTURE AGENDA ALREADY SHOWS RESULTS PRIVATIZATION FROM 2016 TO 2018 • 4th bidding Round of Marginal Accumulation • 14th and 15th bidding Rounds of Blocks • 2nd, 3rd, 4th and 5th bidding Rounds (sharing system) Oiland Natural gas • 82 lots of transmission lines • 05 hydropower plants • 07 distributors, in the states of Goiás, Alagoas, Piauí, Acre, Amazonas, Rondônia and Roraima Electric energy • 16 airports conceded • 01 highway • 27 Port terminals • 01 railway Transportation Source: PPI.

  12. OPPORTUNITIES IN INFRASTRUCTURE FOR 2019 TO 2022 • ELECTRIC POWER • 29thpower auction • HIGHWAYS • Concessions: over 9 thousand Km until 2022 • ELETROBRAS PRIVATIZATION • 31% of Brazilian power generation capacity • 47% of transmission • 7% of distribution • RAILWAYS • Concessions: over 3 thousand Km until 2022 • OIL • Transfer of rights surplus production sharing bidding round (over US$ 25 bi) • Bidding round (sharing system, 3 rounds) • Concessions (3 rounds) • AIRPORTS • 6th round of concessions: 22 airports in 3 groups • PETROBRAS’ DIVESTMENT • 8 refineries (represents 50% of Brazilian refining capacity). • 3 pipelines for natural gas (shareholdings) • 12 transport and storage terminals • PORTS • 13 portterminals

  13. NEW NATURAL GAS REGULATION COMPETITIVE ENVIRONMENT IN TRANSPORT AND DISTRIBUTION PRE-SALT PRODUCTION Price reduction to almost half in 10 years Expectation to double the supply in 10 years

  14. XXII JOINT MEETING OF JAPAN – BRAZIL ECONOMIC COOPERATION COMMITTEE

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