Brazil Economic Weekly

Transcription

1 Macroeconomic Research Department Macroeconomic Research Department Brazil Economic Weekly October 28 th 216 After another negative quarter for the labor market, adjustment is expected to continue in the following months Ariana Stephanie Zerbinatti Numbers released this week show that the labor market continued its downward trend in the third quarter. Although labor statistics tends to lag behind economic activity, frustration with the economy s short-term outlook means that the ongoing adjustment is likely to continue in the next few months. The underperforming job market also affected consumer confidence, whose recent improvement was almost entirely due to the rise of the expectations index, as the current conditions index remains at a very low level. Along with a weak performance in retail sales, these factors lead us to believe that household consumption will continue to decline. Specifically for the third quarter, we expect a.8% decrease on the margin. Given this scenario, we also expect credit demand to remain sluggish in the fourth quarter. We predict a continuing weak labor in the coming months. We expect 12.2% unemployment in the fourth quarter, with a slowdown in the decline of employed individuals. As for formal jobs, we estimate an additional decline of approximately 68, jobs by the end of the year. Part of this negative result is explained by seasonal effects, as December is traditionally one of the slowest months of the year, regardless how the economy is faring. For next year, we expect a slow and gradual recovery of activity, resulting in the creation of 3, jobs. U.S. interest rates may rise only in December, providing a small boost to the dollar Constantin C. Jancsó BRAZIL ECONOMIC WEEKLY The Federal Reserve Open Market Committee (FOMC) will meet on November 1-2. Although we believe that current conditions lead the Fed to tighten policy still in 216, we only expect this to occur in the following meeting, on December Prospects of divergence between monetary policy in the U.S. and the rest of the world have favored the U.S. dollar. The U.S. currency is already stronger than the average of the last 2 years (by approximately 7%) and well above the low point hit in 211 (+36%), but is still almost 2% weaker than its highest level since the beginning of We believe that the interest rate hike in the U.S. and the resulting increase in the interest-rate differential may generate some additional appreciation of the dollar as the markets fully incorporate the interest rate rise into prices (the current probability attributed to a rate increase in 216 is still less than 1%). However, a more consistent appreciation of the U.S. currency depends primarily on positive news regarding economic growth. Finally, the prospect of an only moderate appreciation of the dollar against major currencies does not seem enough to cause the Federal Reserve to postpone the next rise in interest rates 1

2 After another negative quarter for the labor market, adjustment is expected to continue in the following months Ariana Stephanie Zerbinatti Numbers released this week show that the labor market remained on a downward trend in the third quarter. Although labor statistics tend to lag behind economic activity, frustration with the economy s shortterm outlook means that the ongoing adjustment is likely to persist in the next few months. Seasonally adjusted, the unemployment rate in the quarter ended in September reached 11.9%,.9 p.p. higher than three months earlier, according to the PnadC survey of the IBGE (Brazil s national statistics office). Contrary to what we expected months ago, there was a slight acceleration in the growth of unemployment relative to the previous period, when it rose.8 p.p. Even though the slowdown in the economically active population (PEA) prevented an even higher unemployment rate, the decline in unemployment accelerated from.5% in the second quarter to 1.2% in the last. With that, the unemployed population reached 12 million people in September. 13, 12, 11,9 Unemployment rate (%) Seasonally adjusted 11, 1, 1,1 11,1 1,5 11, 9, 8, 7,9 8,6 8,9 7,4 9,3 Jan 91 to Feb 12: extrapolated backwards with data from PME, annual Pnad and Seade/Dieese. 7, 6, Mar-97 Sep-97 Mar-98 Sep-98 Mar-99 Sep-99 Mar- Sep- Mar-1 Sep-1 Mar-2 Sep-2 Mar-3 Sep-3 Mar-4 Sep-4 Mar-5 Sep-5 Mar-6 Sep-6 Mar-7 Sep-7 Mar-8 Sep-8 Mar-9 Sep-9 Mar-1 Sep-1 Mar-11 Sep-11 Mar-12 Sep-12 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 6,7 Source: IBGE Unemployed population (in thousands) Seasonally adjusted Jan 91 to Feb 12: extrapolated backwards with data from PME, annual Pnad and Seade/Dieese Domestic Outlook Source: IBGE Even though the formal labor market continued to shed fewer jobs, going from a 3.9% decline in the last six months to 3.1% in the last three, the informal Jan-91 Aug-91 Mar-92 Oct-92 May-93 Dec-93 Jul-94 Feb-95 Sep-95 Apr-96 Nov-96 Jun-97 Jan-98 Aug-98 Mar-99 Oct-99 May- Dec- Jul-1 Feb-2 Sep-2 Apr-3 Nov-3 Jun-4 Jan-5 Aug-5 Mar-6 Oct-6 May-7 Dec-7 Jul-8 Feb-9 Sep-9 Apr-1 Nov-1 Jun-11 Jan-12 Aug-12 Oct-13 May-14 Dec-14 Jul-15 Feb-16 job growth lost momentum in the third quarter. The number of people holding informal jobs grew 1.1% in the average for the last three months, a significant 2

3 decline from the 6.% seen in the last six months. The number of self-employed individuals (who comprise 25% of the total employed population) also stood out, as it fell 18.9% in the average for the last three months, compared with a 11.7% drop in the last six months. Earlier this year, the category posted positive growth, which helped ease some of the effects of the declining employment rate for the period. Although it may account for a smaller share of total employment (approximately 12%), the increasing drop in domestic employment also had a significant impact, contributing negatively with.4 p.p. to the total decline in employment in the third quarter. While they suggest that the worst of the layoffs may be behind us, information on the formal labor market provided by the Caged database of the Ministry of Labor, continues pointing to net layoffs at a higher pace than expected months ago, especially after the negative surprise with the September data. Last quarter s activity numbers are also slightly lower than our estimate of a.8% drop in GDP, which already takes into account the very negative activity numbers released so far, especially for August. Still, looking at seasonally adjusted net job losses, we notice a slight slowdown in the destruction of jobs, from 116, to 18, between the quarters ended in June and September. Seasonally adjusted, the number of new hires was stable in the third quarter, against a 2,7% drop in the second quarter. Meanwhile, layoffs slowed down in the period, going from a 1.3% increase to a new high of.7%. GDP (y/y) real and projection (L) 12, 215 Caged (3-month) (R) 1, , 129 5, , 76 4, 2, 2,2 11,,7 1, -2, -,5-1, -78-4, -4, , -8, Net formal job creation (Caged), seasonal adjusted three months moving average vs YoY GDP % change Source: Caged, IBGE Broken down by industry, the adjustment in the industrial and retail sectors were less intense between the second and third quarters, despite the weak results from September. It should be noted that the industrial sector was one of the first to start cutting jobs, as industrial production saw one of the most dramatic declines in recent years. In addition, the growth of industrial activity in the first half may have provided a positive contribution to the net job gains. On the other hand, construction, which had shown signs of improving in the first half, went back to posting higher net job losses in recent months, returning to the same levels as the beginning of 215. The results were due to a faster pace of layoffs in infrastructure works. Domestic Outlook Jul-6 Sep-6 Nov-6 Jan-7 Mar-7 May-7 Jul-7 Sep-7 Nov-7 Jan-8 Mar-8 May-8 Jul-8 Sep-8 Nov-8 Jan-9 Mar-9 May-9 Jul-9 Sep-9 Nov-9 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul Moving quarterly average of seasonally adjusted net job gains/ losses from Caged Manufacturing Source: Caged 3

4 Moving quarterly average of seasonally adjusted net job gains/losses from Caged Retail Source: Caged -5. Jul-6 Sep-6 Nov-6 Jan-7 Mar-7 May-7 Jul-7 Sep-7 Nov-7 Jan-8 Mar-8 May-8 Jul-8 Sep-8 Nov-8 Jan-9 Mar-9 May-9 Jul-9 Sep-9 Nov-9 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul Moving quarterly average of seasonally adjusted net job gains/losses from Caged Construction Jul-6 Sep-6 Nov-6 Jan-7 Mar-7 May-7 Jul-7 Sep-7 Nov-7 Jan-8 Mar-8 May-8 Jul-8 Sep-8 Nov-8 Jan-9 Mar-9 May-9 Jul-9 Sep-9 Nov-9 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul Source: Caged 12-month net jobs/losses from Caged (in thousands) 5 Mining Manufacturing IPUS* Construction Retail Services Public Service Agriculture Total -11,6-1,8 2-4,8-34 (*) Industrial Public Utility Services, includes activities such as street lighting and water and sewage ,6-4,2-42,3-471,7-452,1-443, ,5 Source: Caged -2. Jun/ ,6 Sep/16 Domestic Outlook Wages decompressed in the third quarter, especially the average wages of new hires recorded by Caged, from a year-to-year rise of 8.3% for the quarter ended in June to another increase of 6.2%. Even though the September results are strongly influenced by the base effect (since the same period last year recorded a strong increase), we would still have a significant slowdown, of approximately 7.4%. Nominal average earnings, despite accelerating from 5.6% to 6.4% growth in the period, are well below the average increase of 1.4% seen in September 215. Thus, the adjustment of the labor market also impacted wages, albeit at a lower level than it did employment. These numbers reinforce our estimates that wage gains should stay on a moderate trend in the coming months, contributing to the continuity of the disinflation process. 4

5 15, 13, 11, 1,4 13,5 12,6 12,7 11,2 12, 9,8 Caged Pnadc (6 months forward) 11,1% 9,7% Year-on-year change of nominal average earnings (PnadC) and average wage of new hires (Caged) in % 9, 7, 7,3 6,9 8,6 8, 7,4 6,7% 5, 4,6% 4,8% 3,8 3, Source: Caged, IBGE The underperforming jobs market also affected consumer confidence, which has been improving recently almost entirely because of a rising expectations index, since the current situation index remains at a very low level. One significant statistical trend has been the behavior of the consumers financial situation indexes contained in the FGV Consumer Survey, which shows an even larger gap between the current situation and expectations than the aggregate indices. Despite the improvement between the second and third quarters, the current situation has improved very slowly, including in the beginning of the current quarter. Similarly, the survey also shows that a higher percentage of individuals faced difficulties finding employment (this statistic has a strong correlation with the unemployment rate). The fear of unemployment index released by the CNI has shown a significant drop from June to September, although it is also at a fairly high level. Along with a weak performance in retail, these factors lead us to believe that household consumption will continue to drop. Specifically for the third quarter, we expect a.8% decrease on the margin. Given this scenario, we also expect credit demand to remain sluggish in the fourth quarter. We predict that the labor market will remain weak in the coming months. We expect 12.2% unemployment in the fourth quarter, with a slowdown in the decline of employed individuals. As for formal jobs, we estimate an additional drop of approximately 68, jobs by the end of the year. Part of this negative result is explained by seasonal effects, as December is traditionally one of the slowest months of the year, regardless how the economy is faring. For next year, we expect a slow and gradual recovery of activity, resulting in the creation of 3, jobs Jun-6 19,6 Oct-6 85,1 8,2 17,5 11,4 95,9 93,8 89,8 82,5 115, 88,4 9, Feb-7 Jun-7 Oct-7 Feb-8 Jun-8 Oct-8 Feb-9 Jun-9 Oct-9 Feb-1 Jun-1 Oct-1 Feb-11 Jun-11 Oct-11 Feb-12 Jun ,8 98,3 Oct-12 Feb-13 Jun-13 Next 6 months 17,1 Current 99, 89,6 76,1 66, 61,2 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 94,1 63,6 Financial situation of consumers Seasonally adjusted Source: FGV Domestic Outlook Fear of unemployment index (the higher the index, the greater the fear) Source: CNI ,3 1,7 97,2 95,7 1,6 97,7 95,2 82,8 9,7 8,1 88,5 81,2 76,5 71,6 1, 75,3 69, 77, 74,8 18,5 15,9 mar/99 jun/99 set/99 dez/99 mar/ jun/ set/ dez/ mar/1 jun/1 set/1 dez/1 mar/2 jun/2 set/2 dez/2 mar/3 jun/3 set/3 dez/3 mar/4 jun/4 set/4 dez/4 mar/5 jun/5 set/5 dez/5 mar/6 jun/6 set/6 dez/6 mar/7 jun/7 set/7 dez/7 mar/8 jun/8 set/8 dez/8 mar/9 jun/9 set/9 dez/9 mar/1 jun/1 set/1 dez/1 mar/11 jun/11 set/11 dez/11 mar/12 jun/12 set/12 dez/12 mar/13 jun/13 set/13 dez/13 mar/14 jun/14 set/14 dez/14 mar/15 jun/15 set/15 dez/15 mar/16 jun/16 set/16 12,3 11,8 5

6 13, 12, 11, 11,2 12,6 12,2 Unemployment rate (%) 1, 9, 8, 7, 9,6 9,7 8,8 9,3 9,9 1,2 9,9 9,4 9,9 8,9 8,1 8,6 8,3 7,7 7,3 7,2 6,8 8,4 Annual average Jan 91 to Feb 12: extrapolated backwards with data from PME, annual Pnad and Seade/Dieese. 6, Domestic Outlook Source: IBGE Production and projection: BRADESCO Net formal job gains/losses Caged in thousands Source: Caged Production and projection: BRADESCO

7 U.S. interest rates may rise only in December, providing a small boost to the dollar Constantin C. Jancsó The Federal Reserve Open Market Committee (FOMC) will meet on November 1-2, and although we believe that the Fed will judge that current conditions justify an increase in interest rates still in 216, we forecast this will happen only in the following meeting, on December Historically, the Federal Reserve avoids making changes to monetary policy in the run-up to the presidential elections. Since the current conjuncture does not seem to require an immediate change in monetary policy, the most likely scenario seems to be that the decision to change the prime rate will be left to after the November 8 election. In recent speeches, most Fed members have been consistent with such scenario. As shown in the following graph, this view is in line with the consensus. The futures market of the Fed Funds rate place the odds of an interest rate hike in November at only 1/5, but these odds jump to 2/3 for an increase of at least.25 p.p. at the FOMC December meeting. 9% 8% 7% 83%,25%,5%,75% Implicit odds distribution for the Fed Funds rate 6% 5% 56% 54% 5% 4% 3% 2% 1% 17% 32% 1% 3% 14% 24% 21% % % November December February March Source: Bloomberg Global Outlook In the main conclusion to an article 1 written earlier this week, fund manager and columnist Mohamed El-Erian claimed that the interest rate normalization process conducted by the Federal Reserve will not be done on autopilot, that is, with repeated hikes over equal periods of time, until the economic policy makers succeed in generating higher growth rates for the economy. And that, for now, the volatility risks in asset prices remain high. El Erian calls attention to the appreciation of the dollar, which has increased its value in recent weeks, returning to the levels seen in the beginning of the year. This movement of the exchange rate is related mainly to the expected divergence between monetary conditions in the United States and the in rest of the world. While the U.S. ponders the normalization of its monetary policy and the likelihood of raising the prime rate, other major central banks (such as the European Central Bank, the Bank of England, the Bank of Japan or the People s Bank of China) are still focused on the risks of inflation staying at uncomfortably low levels and on the need to provide new stimulus to their economies. 1 El-Erian, Mohammed A., Why this dollar surge is different for the Fed, Bloomberg News, October 26,

8 ,41 92,94 95,54 91,77 92,63 Dollar index relative to a currency basket ,24 78,67 74,53 77,6 75,68 87,51 89,71 87,64 88,74 Note: The dollar index is calculated by the Federal Reserve Bank of St. Louis, and reflects the U.S. dollar s change relative to a basket of currencies (composed of the euro and its predecessors, the yen, the sterling pound, the Swiss franc, the Australian dollar, the Canadian dollar and the Swedish krona), weighted by the currencies in U.S. foreign trade. 71,87 7 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Oct-16 Source: : Federal Reserve Bank of St. Louis El Erian goes on to say that, contrary to what happened at the beginning of the year, the dollar s high value has not translated into pressure on U.S. stock prices. He argues that the fear of a strong dollar having a negative impact on competitiveness led to the stock markets plunge in the first quarter. And that, the current situation is different because investors have become convinced that the interest rate normalization process will be very gradual, which appears to be consistent with the opinion of the FOMC members. The minutes of the FOMC September meeting show that 1 of the Committee s 17 members expected an interest rate increase of only.25 p.p. until the end 216, and only 7 of the 17 expected more than two additional increases over the course of 217. With that, investors were left assured that the risk of the economy weakening prior to a more solid recovery is low, but also that the differential between interest rates in the U.S. and the rest of the world will increase. Thus, the dollar appreciates because of the expectations of an interest rate hike, but the stock market is not affected. Historically, periods of strong dollar appreciation are associated to high stock market levels, for a simple reason: the growth is positive for the stock market because it raises companies profits, and it s also good for the dollar, because it makes the country attractive in comparison with the rest of the world, in addition to normally being associated with periods of increased interest differential. But the present moment is not a good example of this correlation because of low growth, which is why El Erian warns us about the risks of volatility in the markets. In the short term, the current situation seems to favor a strengthening of the dollar due to the policy divergence outlook. However, as shown in the following chart, the U.S. currency is already above its average for the last 2 years (by approximately 7%) and well above the low point hit in 211 (+36%), but still almost 2% below its highest level since the beginning of Note that these fluctuations measure the dollar s performance against an average of the world s major currencies (see definition above). The dollar s behavior relative to specific currencies or against those of emerging countries may have been significantly different, reflecting each economy s fundamentals. In any case, without a consistent improvement in economic fundamentals (i.e., growth), we believe it is unlikely that the dollar will have enough momentum to approach its historical highs, even with the interest rate differential in its favor. That argument is bolstered by expectations of a very gradual monetary normalization policy ,12 Dollar (index) Average since 1996 Dollar index relative to a currency basket Global Outlook , ,83 99,93 79,4 113,1 Oct-73 Oct-74 Oct-75 Oct-76 Oct-77 Oct-78 Oct-79 Oct-8 Oct-81 Oct-82 Oct-83 Oct-84 Oct-85 Oct-86 Oct-87 Oct-88 Oct-89 Oct-9 Oct-91 Oct-92 Oct-93 Oct-94 Oct-95 Oct-96 Oct-97 Oct-98 Oct-99 Oct- Oct-1 Oct-2 Oct-3 Oct-4 Oct-5 Oct-6 Oct-7 Oct-8 Oct-9 Oct-1 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 68,11 92,63 86,81 Source: : Federal Reserve Bank of St. Louis 8

9 Finally, another issue related to the U.S. monetary policy outlook is related to whether the appreciation of the dollar could affect the short-term monetary policy decision-making. We don t believe so. As shown in the previous graph, the dollar has appreciated moderately between 211 and 213 and a little more significantly between 214 and 215, but has been somewhat stable since then. The U.S. currency s recovery since 211 was more related to increased risk aversion (mostly related to the sustainability of public debt in some European countries) than any actual improvement in sentiments towards the United States itself. This trend accelerated in 214, in response to improved growth expectations in the U.S., while investors were preparing for a significant increase in the monetary easing by the European Central Bank (culminating in the announcement of the assets purchase program that was later expanded in January 215). Along with deteriorating expectations regarding the global economy and its effect on net exports and final demand, this appreciation of the dollar appears to have been one of the factors that led the Federal Reserve to postpone the beginning of its monetary policy tightening cycle at the time. In the words of the President of the St. Louis Federal Reserve (in a 216 presentation), the dollar appreciated mostly during the second half of 214 during the runup to the European Central Bank quantitative easing. This appeared to have had a substantial effect on the net exports contribution to U.S. GDP growth during the winter of Since then, however, the effects of a stronger dollar appear to be waning. It does not seem to be a situation which will repeat in the present. We believe the dollar s rise in recent weeks is a rebound from the depreciation seen in the second and third quarters of this year, but without a solid improvement of growth expectations, we believe that the interest differential alone will not provide the dollar with enough momentum to reach its 2-year high. In addition, the effectiveness of the liquidity expansion policies (especially in Europe, but to some extent also in Japan) has been increasingly questioned, which suggests that the conditions that allowed the dollar to rally in 214 will not be repeated. Thus, we believe that the interest rate hike in the U.S. and the consequent increase in the rate differential may generate some additional appreciation of the dollar as the markets fully incorporate the interest rate rise into prices (the current probability of a hike in 216 is still less than 1%). However, a more consistent appreciation of the U.S. currency depends primarily on positive news regarding economic growth. Finally, the prospect of an only moderate appreciation of the dollar against major currencies does not seem remotely enough to cause the Federal Reserve to postpone the next rise in interest rates. Global Outlook 9

10 Bradesco Macroeconomic Forecast Bradesco Macroeconomic Forescast As of October 28 th (*) Forecast. na = not available. Source: Official figures Production and forecasts(*): BRADESCO * 217* DOMESTIC ACTIVITY, INFLATION AND INTEREST RATES GDP (%) Agriculture (%) Industry (%) Services (%) Private consumption (%) Government consumption (%) Investment (%) Exports of goods and services (%) Imports of goods and services (%) GDP (R$ billion - current prices) 2,72 3,19 3,333 3,885 4,373 4,85 5,316 5,687 5,94 6,16 6,633 GDP (US$ billion) 1,396 1,695 1,668 2,27 2,611 2,459 2,463 2,416 1,772 1,775 2,38 Population (million) Per Capita GDP (US$ - current prices) 7,281 8,716 8,469 11,83 13,229 12,343 12,255 11,919 8,668 8,613 9,816 Industrial Production - IBGE (%) Unemployment Rate - IBGE (%) Retail Sales - (%) CPI - IPCA - IBGE (%) CPI - FIPE (%) WPI - IGP-M - FGV (%) Nominal Interest Rates - Selic target (end of period - %) Nominal Interest Rates - Selic target (12-month - %) ,82 1,81 1,81 1,81 Real Interest Rates - Selic (12-month - %) ,25 4,54 4,54 4,54 EXTERNAL ACCOUNTS AND FX Trade Balance (US$ billion) Exports (US$ billion) Imports (US$ billion) Trade flow (exports + imports) (% of GDP) Deficit of Services and Income (US$ billion) Current Account Deficit (US$ billions) Current Account Deficit (% of GDP) Foreign Direct Investment (US$ billions) FX - end of period (R$ / US$) FX - yearly average (R$ / US$) Nominal FX devaluation (YoY - %) Nominal FX devaluation (average - %) International Reserves (US$ billion) Total Medium and Long term External Debt (US$ billion) FISCAL ACCOUNTS Primary Surplus (R$ billions) Primary Surplus (% of GDP) Public Sector Nominal Balance (% of GDP) Gross Public Debt (domestic and external) (R$ billion) 1,542 1,74 1,973 2,11 2,243 2,583 2,748 3,252 3,91 4,546 5,283 Gross Public Debt (domestic and external) (% of GDP)

11 Team Octavio de Barros - Macroeconomic Research Director Fernando Honorato Barbosa Economists: Ana Maria Bonomi Barufi / Andréa Bastos Damico / Ariana Stephanie Zerbinatti / Constantin Jancso / Daniela Cunha de Lima / Ellen Regina Steter / Estevão Augusto Oller Scripilliti / Fabiana D Atri / Igor Velecico / Leandro Câmara Negrão / Marcio Aldred Gregory / Myriã Tatiany Neves Bast / Priscila Pacheco Trigo / Regina Helena Couto Silva / Thomas Henrique Schreurs Pires Internships: Bruno Sanchez Honório / Christian Frederico M. Moraes / Fabio Rafael Otheguy Fernandes / Mariana Silva de Freitas / Rafael Martins Murrer Team - 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. 11