MACROECONOMIC & POLITICAL SCENARIO

JANUARY

1
 Economics: desacelerando
1. International Economics

Economy: recuperando
2. Brazilian Economy

2
 IMF forecasts
Forecasts (%) Difference from October 2016
2016 2017
World 3,1 3,4 0,0
Developed Countries 1,6 1,9 0,1
USA 1,6 2,3 0,1
Euro Zone 1,7 1,6 0,1
Germany 1,7 1,5 0,1
France 1,3 1,3 0,0
Italy 0,9 0,7 -0,2
Spain 3,2 2,3 0,1
Japan 0,9 0,8 0,2
United Kingdom 2,0 1,5 0,4
Developing Countries 4,1 4,5 -0,1
China 6,7 6,5 0,3
Brazil -3,5 0,2 -0,3
India 6,6 7,2 -0,4
Source: IMF (Jan/17). Produced by MB Associados
3
 USA: short-term prospect for the economy is positive
Consumer Confidence Confidence of CEOs
(index) 113.7 (index)
115
7.0 6.9
110
105 6.5
100
6.0
95
90 5.5
Dec-15 Jun-16 Dec-16 Dec-15 Jun-16 Dec-16
Procurement manager index*
62

56 57.2
54.7
50

44
ISM- Non Manufacturing
ISM- Manufacturing
38
Dec-10 Dec-12 Dec-14 Dec-16
Source: Conference Board & Bloomberg. Prepared by: MB Associados. (*) Values over 50 indicate expansion and under 50 contraction. 4
 USA: growth prospects

GDP growth prospects for 2016 and Annualized quarterly growth

2017 (%) (%)
%
3.0 2016 2017 3.5
2016 2017

2.5
2.3 2.3 2.3 2.2 2.3
2.1
2.0
1.4

1.6 0.8
1.5

1.0
Jan/16 Jul/16 Jan/17 1T 2T 3T 4T

Source: Bloomberg. Prepared by: MB Associados. 5

 USA: Retail sales

Month variation/same month year before - %

6.0
Total Excluding autos

5.0

4.0 4.1
3.0 3.4
2.0

1.0

0.0
Dec-12 Dec-13 Dec-14 Dec-15 Dec-16
Source: U.S. CensusBureau. Prepared by: MB Associados.
 USA: Consumer inflation (CPI)

12-month accumulated growth - %

CPI Total
4
CPI nucleus (2) (energy removed)
3
CPI nucleus (1) (food and energy removed)

2
2.2
2.1
1.8
1

-1
Dec/12 Dec/13 Dec/14 Dec/15 Dec/16
Source: FED St. Louis. Prepared by: MB Associados.
 USA: tax result (little room for an expansionist policy)

12-month accumulated in USD bn

5,000
Revenue Expenses Tax result (deficit)

Deficit in USD bn 2015 2016

Tax year (Oct-Nov) -201.10 -180.84
3,839
3,000
12-month accum. (Dec-Nov) -461.66 -587.46 3,272
Gross debt (% of GDP) 105.1 108.2 (P)

1,000
587

-1,000
Nov-91 Nov-96 Nov-01 Nov-06 Nov-11 Nov-16
Source: American Treasury. Prepared by: MB associados.
8
 Interest rate and the dollar

104 3.0
Dollar index 10-year security (%)
102

2.5
100

98
2.0
96

94
1.5
92

90 1.0
jan-15 jul-15 jan-16 jul-16 jan-17
Source: Bloomberg. Prepared by: MB Associados.
9
 There is huge pressure on Europe

Brexit;

Three elections on the Continent (Netherlands, France and

Germany);

Immigration will continue to be a problem especially because

such countries as Turkey, Greece and Italy are in dire straits;

10
 Europe: asymmetric growth among countries

Growth expectations for 2016 - annual variation - %

3.8

3.2

1.9 2.0

1.2 1.2
0.9

0.2

Greece Italy France Portugal Germany UK Spain Ireland

Source: Bloomberg . Prepared by: MB Associados.

11
 China: currency devaluation may cause volatility

Exchange rate International reserves

(Yuan/USD) (USD trillion)
7.0 4.5

6.9 4.0
6.8 6.85 3.5
6.7 3.0
6.6
3.0
2.5
6.5
2.0
6.4
1.5
6.3
1.0
6.2
0.5
6.1
6.0 0.0
Jan-14 Jul-15 Jan-17 Dec-04 Dec-10 Dec-16

Source: Bloomberg. Prepared by: MB Associados. 12

 Petroleum: prices shouldnt continue at the current level
Short call Cut in OPEC production
000 contracts (000 barrels a day)
(USD/barrel)
900 160
Real production Jan/17 production Reduction
800 Saudi Arabia 10,544 10,058 486
140 Iraq 4,561 4,351 210
700 Iran 3,975 3,885 90
120 United Arab Emirates 3,013 2,874 139
600 Kuwait 2,838 2,707 131
100 Venezuela 2,067 1,972 95
Angola 1,753 1,673 80
500
Nigeria - - -
80
Algeria 1,089 1,039 50
400
Indonesia - - -
60 Qatar 648 618 30
300
Ecuador 548 522 26
40 Libya - - -
200
Gabon 202 193 9
Short call of producers/traders
100 20 TOTAL 1,346
WTI price
0 0
17-Jan 17-Jan 17-Jan
Source: Bloomberg. Prepared by: MB Associados. 13
1. International Economics

2. Brazilian Economy

14
 The early 2017 scenario
The 2017 dilemma is the shift from the Lula era to a new era whose final format
is not yet available.
On this path, there is an evident challenge of return to growth. When debating
2017 the aim is to identify the favorable and unfavorable factors that could lead the
country to leave behind the negative terrain toward for growth, even if very slight.
In the assessment of MB Associados the variables that will positively make a
difference will be lower interest rates and investment.
In the political field there is still the challenge for the transition government to
perform as best it can, addressing issues on the agenda, such as the Petrobras Lava
Jato scandal and the security crisis.

Despite the challenges and volatilities, the Temer government moves on

accompanied with good aides in the economic team, foreign affairs, mines and
energy, agriculture and education. It also has good managers in the National Bank
for Economic & Social Development (BNDES), Petrobras and Eletrobras. The
economy should have a positive, even if only slightly.
15
 Political factors at stake

The economic agenda is still the governments most consistent hedge.

In the macro field, the Central Bank in January began a steadier
downward trend in the basic interest rate and, in the tax area, the
discussion and process regarding the social security reform should
take shape in February. Emphasis is also on the concrete possibility
of addressing the crisis of the states, despite difficulties in the
Legislative and Supreme Court (STF).
In the micro field the agenda set up in December 2016 is expected
to continue, covering the credit, labor and tax areas. In this field
the economic team will be enhanced by Joo Manoel Pinho de
Mello in March.

16
 The early 2017 scenario
How does it compare to 2016?

Similar Different
Unemployment level still very high; Downward trend for interest rates;

Corporate balance sheets still quite Slowing inflation will have a positive
poor and possibility of major impact on available income;
insolvencies (oil and gas, mining,
Harvests with positive impacts on rural
heavy construction, housing
income;
construction, trade);
Injecting funds resulting from release of
Civil housing construction still
the inactive employee severance pay
digesting the negative impact of
fund (FGTS) accounts;
contract rescissions;
Increase in exports at a time of change
Financial crisis of the states;
in the world trade policy;

17
 The early 2017 scenario
The difference in growth in 2017 will be the scale of falling
interest rates and investment behavior

Petrobras
Oil & Gas
International companies

Eletrobras
Electricity Transmission auctions

Airports
Concessions Roads
Railroads
Ports
18
 GDP performance in 2017

Variation compared to previous quarter - %

1.2
0.8 0.7 0.7
0.6
0.3
0.4
0.0 2016 = -3.5%
-0.4
-0.8
-0.9
-0.5 -0.4
-0.6 2017 = 1.0%
-1.2
-1.1 -0.8
-1.6
-2.0
-1.6 2018 = 2.6%
-2.4
-2.3
-2.8
Variation compared to same quarter the year before - %
Source: IBGE. Prepared and forecast by MB Associados.

6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
I/11 III/11 I/12 III/12 I/13 III/13 I/14 III/14 I/15 III/15 I/16 III/16 I/17 III/17
Source: IBGE. Prepared and forecast by: MB Associados.

19
 GDP

Variation against same quarter the year before - %

10.0%
GDP Household Consumption Investment
5.0%

0.0%

-5.0%

-10.0%

-15.0%

-20.0%

Source: IBGE. prepared by MB Associados

20
 Harvest survey - Production

MB Agro
000 tons 2013/14 2014/15 2015/16 2016/17 Var 2016/17
Cotton 1,734 1,563 1,289 1,418 10.1% 1,332
Peanuts 316 347 406 411 1.1% 411
Rice 12,122 12,445 10,603 11,636 9.7% 12,239
Beans 3,454 3,210 2,515 3,124 24.2% 3,154
Corn 80,052 84,672 66,571 84,480 26.9% 86,113
Corn 1st 31,653 30,082 25,854 28,403 9.9% 30,288
Corn 2nd 48,399 54,591 40,718 56,077 37.7% 55,824
Soy 86,121 96,228 95,435 103,778 8.7% 101,151
Sorghum 1,891 2,055 1,032 1,540 49.3% 1,540
Wheat 5,528 5,971 5,535 6,727 21.5% 6,397
Other 2,405 1,279 3,266 2,155 -34.0% 2,155
Brazil 193,622 207,770 186,651 215,269 15.3% 214,491
Source: Conab (Jan/17) Prepared by: MB Agro

21
 Industrial production slow recovery

10

2.1

-5
-6.5

Interannual variation - % 12-monthy accumulated

-20
Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16
Source: IBGE. Prepared and projected by: MB Associados.
 Difference of GDP and carry over 2017 points to a
similar recovery to years when not in crisis
(GDP 1% in 2017)

5.0% 4.4% 4.4%

3.9%
4.0% 3.3%
3.0% 3.1% 2.9%
3.0% 2.4%
2.1% 1.9% 2.0%
2.0% 1.6%
1.3% 1.4%
0.8%
1.0%
0.0%
-1.0% -0.2% -0.2%
-0.7%
-1.1% -1.3%
-2.0%
-3.0%
-4.0% -3.7%
-5.0%

Source: IBGE. Prepared by: MB Associados.

 Import quantum index

12-month accumulated growth - %

25 Capital goods
Intermediaries
19 Durables
Non-durables
13

1
-2.8
-3.9
-5
-5.0
-7.7
-11

-17
Dec/08 Dec/10 Dec/12 Dec/14 Dec/16
Source: Funcex. Prepared by: MB Associados.
 Unemployment rate (PNAD)

Quarterly moving average %

14.0

12.0
11.9
10.0

8.0

6.0

4.0

2.0
Nov-92 Nov-95 Nov-98 Nov-01 Nov-04 Nov-07 Nov-10 Nov-13 Nov-16

Source: IBGE & IPEA. Prepared by: MB Associados.

 GDP and employment slow recovery, but on its way

2,500,000 10.00
2,000,000 8.00
1,500,000 6.00
1,000,000
4.00
500,000
2.00
0
0.00
-500,000
-2.00
-1,000,000
CAGED (12-month balance) -4.00
-1,500,000
-2,000,000 IBC-Br (12-month accumulated growth - %) -6.00

-2,500,000 -8.00
May-06

May-07

May-08

May-09

May-10

May-11

May-12

May-13

May-14

May-15

May-16
Nov-05

Nov-06

Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16
Source: Central Bank, Ministry of Labor. Prepared by: MB Associados.
 Net job generation per sector

12-month total 000 people

2.5 Civil construction

2.0 Industry
Services
1.5
Commerce
1.0

0.5

0.0

-0.5

-1.0

-1.5

-2.0

-2.5
Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16
Source: Caged. Prepared by: MB Associados.
27
 Real household income

12-month accumulated growth - %

4.0
3.0
2.0
1.1 0.8
1.0
0.1
0.0
-1.0
-2.4
-2.0
-3.0
-4.0

Source: IBGE. Prepared by: MB Associados.

Month compared to month the year before - %

5

-1

-2

-3

-4

-5
Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17 Nov-17

Source: IBGE. Prepared by: MB Associados.

28
 Growth of real average wage* of hired employees
12-month accum. growth - %

Industry Agriculture Civil construction Commerce Services

8.0

6.0

4.0

2.0
0.9
0.4
0.0 0.1
-1.2
-2.0 -1.5

-4.0
Dec-12 Dec-13 Dec-14 Dec-15 Dec-16
Source: Caged. Prepared by: MB Associados. (*) At last month prices, deflated by IPCA
 Ratio between real average wage of hired and fired
employees per sector
1,00

0,95

0,90

0,85
Total Industry
Commerce Services
0,80
Agriculture Civil construction

0,75
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16
Source: MTE. Prepared by: MB Associados.
 Inflation
IPCA & Average of nuclei IPCA & Services
(12-month accumulated growth - %) (12-month accumulated growth - %)
12-month accumulated growth - %
11.0
12.0
Core average IPCA
10.0

9.0 10.0

8.0

7.0 8.0
6.7
6.0 6.3
6.0
6.5
5.0
6.3
4.0 Servios IPCA
4.0
3.0
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec/11 Dec/12 Dec/13 Dec/14 Dec/15 Dec/16
Source: Bacen. Prepared by: MB Asociados.

IPCA & Food IPCA: Diffusion index

(12-month accumulated growth - %) 80%

16.0

14.0
IPCA Services Food
12.0 70%

10.0

8.0 8.6
6.5 60% 59.8%
6.0
6.3
55.7%
4.0

2.0 50%
Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16

Source: IBGE. Prepared by: MB Associados. 31

 1.0
3.0

0.0
2.0
4.0
5.0
6.0
7.0
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14

Total ex food & energy

Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Food & energy

Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
IPCA Food and energy x remaining
12-month accumulated growth - %
 IPCA: forecast for 2017

12-month accumulated growth - %

6.0

5.5 5.3
4.9 4.8
5.0 4.7
4.6
4.5
4.5 4.3 4.2
4.1
3.9 3.9
4.0 3.7
3.5
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: MB Associados. Prepared by: MB Associados

33
 Forward interest rate curve

1/23/2017 One month ago Two month ago

14.0

13.0

12.0

11.0

10.0
abr-17 ago-19 jan-22
Source: Bloomberg. Prepared by: MB Associados.

34
 Exchange rate

4.5 3.5
Exchange rate (BRL/USD) 10-year security (%)

3.0
4.0

2.5
3.5

2.0

3.0
1.5

2.5 1.0
23-Jan 23-Jul 23-Jan 23-Jul 23-Jan
Source: Bloomberg. Prepared by: MB Associados.
35
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