BRAZIL...NOMINAL INTEREST RATES –10 YEARSSelected emerging markets Source: Bloomberg, Bradesco2008 2010 2017 2018 2019 2020 CPI target Brazil …

BRAZIL MACROECONOMIC

OUTLOOKJanuary, 2020

Economic Research Department

Brazil is undergoing animportant change in its

economic policy

-0.60%

6.13%

-0.20%

-7%

-2%

3%

8%

13%

18%

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Despesa real, %

Source: STN, Bradesco

CENTRAL GOVERNMENT REAL EXPENDITURE% Annual

NOMINAL INTEREST RATES – 10 YEARSSelected emerging markets

Source: Bloomberg, Bradesco

2008 2010 2017 2018 2019 2020 CPItarget

Brazil 12.4 12.3 10.3 10.6 7.9 6.8 3.8South Africa 9.0 8.5 8.7 8.7 9.0 9.0 4.5

Russia 8.0 7.8 7.8 7.9 7.5 6.4 4.0Chile 6.6 4.8 4.2 4.6 3.6 3.2 3.0Colombia 10.8 7.9 6.6 6.7 6.4 6.3 3.0

Peru 7.3 5.9 5.6 5.4 4.7 4.1 2.0Mexico 8.3 7.0 7.2 7.9 7.6 6.9 3.0Average (ex-Brazil) 8.3 7.0 6.7 6.9 6.5 6.0 3.3

Source: BIS, BCB, Bradesco

CREDIT – INTERNATIONAL COMPARISONJun-19, % of GDP

143

51.1

100.7

42.3

70.6

87

42.3

28.3

0

20

40

60

80

100

120

140

160

Credit to the privatesector

Credit to the government Credit to non-financialcompanies

Credit to households

Título do Gráfico

Emerging Markets Brazil

However, to significantly accelerategrowth, the private sector will have to

be the protagonist of the economy

POST-PENSION REFORM AGENDASummary

Topics Reforms

Business environmentTax reform, Economic Freedom Bill, Law of Gas and Sanitation, Regulatory Mark of Regulatory Agencies,

BC+ Outlook

Privatization and concessions BRL 204 billion in projects

Openness of economy Mercosul-EU Deal, unilateral reduction of CET, new deals

Demand boost FGTS, Bolsa Família Programme Christmas Bonus, monetary policy

Macro and fiscal reformsTransfer of Rights (Petrobras), Central Bank Independence, aid to states and municipalities,

administrative reform

Implemented reformsSpending cap bill, TLP, labor reform, public credit downsizing, social security and anti-fraud, reduction

of inflation target, home equity credit, positive credit bureau, LIG, eletronic bonds

Source: Bradesco

Aviation (41 airports)

10.3Waterway (12 ports)

4.2

Roads (16 mil km)

131.0

Railroads (15 mil km)

58.9

CONCESSIONS AND PRIVATIZATION PROGRAMSDetails

R$ 204 billion by 2022

R$ 10 billion of investment: + 0,15 p.p. GDP

27.4

26.5

8.0

14.8

12.7

20.3

6.0

0 5 10 15 20 25 30

2021 3ºQ

2020 4ºQ

2020 3ºQ

2020 2ºQ

2020 1ºQ

2019 4ºQ

2019 3ºQ

Source: Min. Infraestrutura, Bradesco

TRADE OPENNESSExport + import % from GDP, 2017

Source: EIU, Bradesco

117.1%

114.9%

65.7%

54.3%

46.6%

40.5%

40.4%

39.0%

37.3%

27.3%

23.1%

0% 50% 100% 150%

Asia

Europe

Canada

South Africa

Russia

Latam

Australia

India

China

USA

Brazil

GDPAnnual rate of change, %

Source: IBGE, Bradesco

4.4

1.4

3.1

1.1

5.8

3.24.0

6.15.1

-0.1

7.5

4.0

1.93.0

0.5

-3.5 -3.3

1.3 1.3 1.2

2.5

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Crescimento anual do PIB, em %

4.0

0.81.3

-0.5

3.94.4

5.36.4 6.5

4.5

6.2

4.8

3.5 3.5

2.3

-3.2-3.8

2.0 2.1 1.82.5

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Renda real

8.5

2.0

6.7

12.0 12.3

-2.1

17.9

6.8

0.8

5.8

-4.2

-13.9-12.1

-2.6

3.9 3.05.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Investment

Government Consumption Household Consumption

-0.2

2.6

3.8

1.6

3.9

2.0

3.64.1

2.0

2.9

3.9

2.2 2.3

1.5

0.8

-1.4

0.2

-0.7

0.4

-0.2

0.4

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Source: IBGE, Bradesco

GDPAnnual rate of change, %

5.0

3.74.3

5.8

4.8

2.1

5.8

3.52.9 2.8

1.0

-2.7-2.2

0.81.5 1.3

2.5

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Serviços

4.9

7.0

13.1

8.2

3.24.5

-2.1

-9.0-10.0

-7.5

-2.5

0.3

3.7

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

08 09 10 11 12 13 14 15 16 17 18 19 20

Título do Gráfico

Services

Construction

2.0 1.1

4.63.2

5.8

-3.7

6.75.6

-3.1

8.4

2.8 3.3

-5.2

14.2

1.4 1.6 2.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Título

Agricultural

Industrial

8.2

2.0 2.0

6.2

4.1

-4.7

10.2

4.1

-0.7

2.2

-1.5

-5.8-4.6

-0.5

0.5 0.82.0

-10.0

-5.0

0.0

5.0

10.0

15.0

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Renda real

Source: IBGE, Bradesco

GDPAnnual rate of change, %

DOMESTIC AND EXTERNAL DEMANDSeasonally adjusted level

Source: IBGE, Bradesco

174.9

148.1

100.8

80

100

120

140

160

180

200

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Título do Gráfico

Consumption + Investment Government External Demand

CONFIDENCE INDEXSeasonally adjusted level

Industrial Services

Retail Construction

Source: FGV, Bradesco

99.5

70.0

75.0

80.0

85.0

90.0

95.0

100.0

105.0

110.0

115.0

120.0

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Índice de Confiança da Indústria - Série com ajuste sazonalFonte: FGV

98.1

60

70

80

90

100

110

120

10 11 12 13 14 15 16 17 18 19 20

96.1

60.0

70.0

80.0

90.0

100.0

110.0

120.0

09 10 11 12 13 14 15 16 17 18 19 20

Título do Gráfico

ICS Neutro

92.3

60.0

70.0

80.0

90.0

100.0

110.0

120.0

11 12 13 14 15 16 17 18 19 20

indice confianca dessaz

EMPLOYMENT AND INCOMESlow recovery of the labor market

Unemployment Real Income

-1.7%

1.1%

4.1%

3.4%3.3%3.4%3.3%2.9%

4.1%

3.3%

2.1%

-0.8%

-2.3%

1.5%1.6%

0.5%

2.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Renda real

9.8%9.3%

9.8%

8.8%

8.0%8.5%

8.2%7.6%

7.3% 7.2%6.8%

8.3%

11.3%

12.8%12.3%

11.9%11.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Título do Gráfico

Source: IBGE, Bradesco

CREDIT – FREE RESOURCESInventories, % yoy in nominal terms

Source: BCB, Bradesco

13.2%10.9%

15.1%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

12 13 14 15 16 17 18 19 20

Total PJ PF

78.0

83.0

88.0

93.0

98.0

14 15 16 17 18 19 20

Manufacturing

Retail

Services

INDUSTRY, RETAIL AND SERVICESSeasonally adjusted level

Source: IBGE, Bradesco

NOMINAL EXCHANGE RATER$/US$

Source: Bloomberg, Bradesco

4.09

2.90

3.10

3.30

3.50

3.70

3.90

4.10

4.30

Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20

BRAZILIAN RISK: 5 YEAR CDSb.p.

Source: Bloomberg, Bradesco

109.7

138.5

321.2

234.3

97.7

0

50

100

150

200

250

300

350

One year beforeinvestment-grade

Investment-gradeperiod (excluding

global crisis)

Global crisis One year beforedowngrade to junk

Today

Título do Gráfico

-0.26

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

11 12 13 14 15 16 17 18 19 20

INTEREST RATE DIFFERENTIALBrazil and peers*, 1 year

Source: Bloomberg, Bradesco * South Africa, Chile, Colombia, Peru, Mexico, Turkey and Australia

NOMINAL EXCHANGE RATER$/US$, end of period

Source: Bloomberg, Bradesco

1.962.32

3.53

2.892.65

2.342.14

1.77

2.34

1.741.671.88

2.042.34

2.66

3.90

3.263.31

3.874.15

4.00

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Taxa de câmbio - R$ / US$ - Final

7.7%

12.5%

9.3%

7.6%

5.7%

3.1%

4.5%

5.9%

4.3%

5.9%6.5% 5.8% 5.9% 6.4%

10.7%

6.3%

2.96%3.7% 4.3%

3.6%

0%

2%

4%

6%

8%

10%

12%

14%

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Source: IBGE, Bradesco

CONSUMER PRICES INDEX – IPCA Annual rate of change, %

INFLATION RATE BY GROUPS12m

Source: IBGE, Bradesco

7.6%

8.3%7.7%

5.1%

10.2%

4.0%4.5%

6.7%

1.9%2.4%

3.3% 3.4%

4.5%

1.8%

3.5%

0%

2%

4%

6%

8%

10%

12%

IPCA Services(35.5%)

Regulated prices(26.1%)

Industrial goods(22.3%)

Food (16.0%)

jan13-aug16 sep16-sep19 nov/19

3.2%3.3%

3.0%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Título do Gráfico

3ma 6ma 12m

IPCA – AVERAGE INFLATION CORESCores at historically low levels

Source: IBGE, Bradesco

MARKET EXPECTATIONS – IPCAWell anchored inflation expectations

Source: BCB, Bradesco

3.6

3.7

3.5

3.6

3.7

3.8

3.9

4.0

4.1

4.2

jan-18 mai-18 set-18 jan-19 mai-19 set-19 jan-20

Título do Gráfico

2020 2021

NOMINAL INTEREST RATE Selic rate is expected to fall below 5% this year

Source: BCB, Bradesco

15.75%

19.00%

25.00%

16.50%18.00%

13.25%

11.25%

13.75%

8.75%

10.75%

7.25%

10.00%11.75%

14.25%13.75%

7.00% 6.50%

4.50% 4.25%

0%

5%

10%

15%

20%

25%

30%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Título do Gráfico

Source: Bradesco

OUR FORECASTS...

Bradesco economic forecasts are revised at the beginning of each month. During moments of greater volatility, the level of uncertainty and error margins naturally rise, especially between revisions.Our forecasts are based on the assumption that the adjustments necessary to ensure the sustainability of Brazil’s macroeconomic framework will be implemented over the next few years. If theseadjustments do not materialize or are better than expected, the forecast could be altered significantly. Last revised on December 6, 2019.

2017 2018 2019 2020

GDP growth (%) 1.3 1.3 1.2 2.5

Consumer inflation - IPCA (%) 2.95 3.75 4.3 3.6

Wholesale inflation - IGP-M (%) -0.5 7.5 7.3 4.5

Selic Rate (%, eop) 7.00 6.50 4.50 4.25

Exchange Rate (BRL/USD, eop) 3.31 3.87 4.03 4.00

Industrial Production (%) 2.5 1.1 -1.0 2.0

Retail Sales (%) 4.0 5.0 4.4 4.5

Job Creation (in thousands) 1899 966 1298 1528

Unemployment Rate (% of labor force, avg) 12.7 12.3 11.9 11.2

Outstanding Credit Growth (%) -0.5 5.0 5.9 9.4

Trade Balance (USD bn) 64.0 53.0 39.6 36.1

Current Account (USD bn) -15.0 -41.5 -49.7 -55.3

Primary Balance (BRL bn) -111 -108.3 -81 -91

Gross Debt (% of GDP) 74.1 76.7 77.8 78.4

DEPEC-BRADESCOwww.economiaemdia.com.br

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.

Updated: January 10th, 2020