Economic overview: Smooth lending for emerging market "Flight" when Eurozone crashed deep in the sea of an economic crisis.

Résumé du document

Economic forecast for the end of the year shows an important profit repatriation, dividend payments, and service balance deficit while there is a trade surplus (See on the chart). Such figures are determinant of the sales deficit of 2.7%. Besides, capital account registers a massive growth of FDI inflows reversal from portfolio investments that largely covers the sales deficit by a capital surplus. These changes of public investments traduce the government requirement to raise long term cash flow by contrary to hot financial money.

Considerable capital flows and Foreign exchange intervention have raised foreign exchange reserves that are around US$ 341bn in September. Liquidity ratio reflects that reserves could cover more than one year of importations. Concerning monetary policy, as seen in the domestic sector, inflation is at its highest level since one year. Therefore the Central Bank and government appreciate the money in order to put pressure on this inflation. We expect a gradual and limited depreciation of the real next year, that should also be supported by developed economies' recovery and related exit-strategies (exit of FDI inflows) and by some reduction of commodity prices.

Extraits

[...] Over long-term, this policy of appreciation, and so inflation would increase the Current account deficit, because of low exports due to high prices, that would not be covered by 2011e 2012f foreign investments. External sector (USD) Exhange Rate Merchandise exports Merchandise imports Current account balance Current account balance in % of GDP Net FDI Gross foreign debt Foreign debt in % of exports FX reserves excl. Gold Import cover in months Year‐End (BRL per USD) BRAZIL Financial scenario 2011/2012 of Brazil Overview of the Global financial market: Asset performance has dropdown relatively over the world stock exchanges. First victim of what we can call a crisis, the European countries. [...]

[...] in Sao Paulo As seen in the external sector analysis, Brazil has emerged as an important power in the region and has attracted significant public investments (FDI/ Portfolio). Also the government and Central Bank launch a monetary policy of appreciation in order to push back inflation. At the same time "The real is suffering because BRAZIL Financial scenario 2011/2012 of Brazil China is our biggest trading partner," said Luciano Rostagno, chief strategist with the Sao Paulo unit of West LB Each of these three factors added pressure on the exchange rate, which in counterpart have a bad influence (see bad equilibrium, external sector, below) Pressures that are not in the same direction, we, so on, expect a stable variation of the exchange rate over the end of 2011 and 2012. [...]

[...] Those various effects: output slowdown, import rising, CPI increased ; could be explained by the Real appreciation, (See Below in External sector and Currency) September data shows a slowdown of inflation rate that reduce of about 0,25% to which had passed from 6 to 7,25% by the beginning of the year. A great adjustment that favored trade balance and BOP. Such changes don't have to be passed over by investors. For Rousseff government, the focus now is on inflation. As everywhere, inflationary pressures are being fuelled by commodity prices. Food and beverage inflation, for example, is currently running around ytd. [...]

[...] Key indicators 2011(esti mate) President : Dilma Rousseff Country risk assessment : Low (rank as USA and France by the Economist inteligence Unit) Currency : Brazilian real Inflation (2011) : Exchange regime : Floating Rate (since ) GDP (2010) in $US : 2.023 B (7th) GDP Per Capita (in PPP) : GDP variation & In.lation GDP change in % (real) InFlation in % (annual) Domestic economy GDP change in % (real) GDP in USD Bn Inflation in % (annual) Budget balance in % of GDP BRAZIL Macroeconomic and Financial forecast 2011/12 of Brazil Trade openness ratio : 19% Main source of merchandise trading partner : China, USA Trade Balance : POSITIVE Current Account : NEGATIVE Capital Account : POSITIVE Balance of payments: POSITIVE Spotlight figures External sectors: Economic forecast for the end of the year show an important profit repatriation, dividend payments, and service balance deficit while there is a trade surplus (See on the chart). Such figures are determinant of a CA deficit of 2,7%. Besides, capital account registers a massive growth of FDI inflows reversal from Portfolio investments that largely covers the CA deficit by a Capital surplus. [...]

[...] Equities market: (See hereafter the Brazilian index of San Paulo) Latin American global outlook of the equities market register a performance of at the end of October growth underperforming the expectations). Equities performance is affected by a contrasted economic period of September, as shown Brazilian figures: - Industrial production - Retail sales - CPI index However economic performance of LDC countries are below developed countries, by an estimated net result at the end of 2011 highly optimistic. (Euro: UK: Much of the Brazilian equity will perform depending in how eurozone resolve its sovereign debt crisis. This would provide a worldwide uptrend for equities. [...]