Macro Research Economic Outlook

Macro Research Economic Outlook Mário Mesquita Chief Economist Itaú Unibanco April 2017

Latin America

fev/13 abr/13 jun/13 ago/13 out/13 dez/13 fev/14 abr/14 jun/14 ago/14 out/14 dez/14 fev/15 abr/15 jun/15 ago/15 out/15 dez/15 fev/16 abr/16 jun/16 ago/16 out/16 dez/16 fev/17 LatAm: weak activity in 2016, recovery expected for 2017 and 2018 More constructive NAFTA solution gains probability, improving the scenario for Mexico (Mexican peso appreciated significantly); Despite favorable financial conditions for the region, activity remains weak in South America. In Mexico, exports sustain growth; In Argentina, there is a still unbalanced recovery. CB drove interest rates up (+ 1.5%), in response to the worsening inflation scenario (despite exchange rate appreciation) amid wage negotiations. S&P upgraded rating to B; We forecast interest rate cuts forecast for Chile, Colomdia and Peru. In Mexico, the Central Bank has slowed the pace of hiking (to 0.25 pp) Monthly GDP yoy 3mma 8.0% 5.0% GDP growth 4.0% 6.0% 4.0% 3.9% 4.0% 3.0% 2.0% 2.8% 3.0% 2.5% 2.1% 2.0% 1.6% 2.3% 2.0% 0.0% -2.0% 1.0% -4.0% -6.0% Chile Colombia Mexico Peru Argentina 0.0% -1.0% -2.0% -3.0% 2015 2016E 2017E 2018E -2.30% Argentina Chile Colombia Colômbia México Mexico Peru 3

Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 LatAm: stronger currencies help to reduce inflation in South America Inflation rate deviation from target center 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% Exchange rate depreciation Local currency per dollar 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Chile Colombia Mexico Peru -5.0% -10.0% CLP COP MXN PEN 2014 2015 2016 2017e 4

LatAm: central banks (mostly) on easing mode Monetary policy rates Monetary policy rates 8.0 7.0 6.0 5.0 4.0 3.0 2.0 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 2016 2017f 2018f Chile Colombia Mexico Peru 0.00 Chile Colombia Mexico Peru 5

LatAm: sustainable exchange rates Average current account deficit in the last 20 years Equilibrium exchange rate** Appreciation (-) / Depreciation (+) needed to achieve the average current account deficit* Brazil 2.10% 3.21 2.7% Colombia 2.60% 3470 18.7% Chile 0.80% 627-5.1% Mexico 1.60% 16.75-12.5% Peru 2.80% 3.24-0.6% Argentina 0.00% 19.94 28.9% *Average in March-April relative to equilibrium **The equilibrium exchange rate for each country was based on the current level of the terms of trade. In the event of a positive (negative) shock in the terms of trade, the equilibrium exchange rate will be stronger (weaker). Source: Bloomberg, Haver analytics 6

Colombia

The oil price collapse was a blow to the economy The impact of the oil price collapse was a blow to the economy, leading to lower real wages and requiring tighter fiscal and monetary policies. After a buoyant period of economic growth (4.4% in 2014 and 3.1% in 2015), activity slowed-down to 2.0% in 2016; Oil production is the main drag on activity and investment continues to contract. Activity coincident indicator (%) Terms of Trade (Index) & GDP (YoY, %) 10 200 8 8 6 170 6 4 2 140 4 0-2 110 2-4 11 12 13 14 15 16 17 80 02 04 06 08 10 12 14 16 0 3MMA YoY, SA Source: DANE, Banrep, Itaú. QoQ/SAAR Terms of Trade GDP (Rolling-4Q; rhs) 8

Inflation back on track The effect of a notable exchange-rate depreciation and the impact of El Niño on food prices drove inflation to historical highs, leading the central bank to embark on an extended tightening cycle; However, as supply-side shocks fade, inflation is en route towards the central bank s target range; The central bank is now embarking on a loosening cycle to avoid an excessive deceleration of domestic demand. 10 Inflation (YoY, %) Policy Rate (%) 15 12 10 8 8 6 10 6 4 4 2 5 0 2-2 -4 0 0-6 11 12 13 14 15 16 17 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Monetary policy rate Real Policy Rate Headline CPI Average Core Food (rhs) 2004-present average Market expectations Source: DANE, Banrep, Itaú.

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Twin deficits narrow gradually After a sharp deterioration of the CA balance, the recovery in oil prices is aiding exports and supporting a significant correction of the CAD (to 4.4% in 2016, from 6.4% in 2015); Meanwhile, the terms-of-trade shock gave the government room to deviate from the structural balance. Going forward, convergence to the 1.0% deficit target is expected The recent narrowing of the CAD had led the official "experts committee to increase the maximum fiscal deficit permitted under the fiscal rule for this year. CAD (% of GDP) 2 0.0 Fiscal balance (% of GDP) 0-1.0-2 -2.0 Structural Balance -4-3.0 Forecasted Nominal Balance (2016 MTFP) -6-4.0 2016 deficit -8 01 03 05 07 09 11 13 15-5.0 Max fiscal deficit Rolling-4Q Seasonally Adjusted annualized Source: Finance Ministry.

Oil related fiscal revenue will remain low in coming years The oil sector has been affected not only by low prices, but also by a poor outlook for production; Under-investment in the sector is affecting the country s reserves and will likely result in diminished production going forward; Oil related fiscal revenue should be close to 0.5% of GDP).. Oil Production and reserves (LHS kbpd; RHS years) Energy balance (Rolling-4Q; % of GDP) 1100 1000 900 800 700 600 500 400 10 8 6 4 2 0 8 6 4 Reserves (years) Oil Production 2015 Forecast 2016 Forecast Updated 2017 forecast 2 02 04 06 08 10 12 14 16 Energy Balance (ex coal)

Mexico

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-16 Sep-16 Nov-16 Jan-17 Mar-17 Reduced uncertainties over trade relations with the U.S. CDS and Exchange rate 230 210 190 170 150 130 110 90 70 50 22 21 20 19 18 17 16 15 14 13 12 Financial Conditions 4.00 Index is measured as the number of standard deviations from its historical value. 2.00 0.00-2.00-4.00-6.00-8.00-10.00 Mar-07 Mar-09 Mar-11 Mar-13 Mar-15 Mar-17 Mexico 5 Year CDS USDMXN (RHS) Source: Bloomberg, Itaú Unibanco 13

Inflation is yet to fall Higher gasoline prices and past depreciation are pushing inflation up; Inflation expectations for longer horizons are stabilizing. Mexico - CPI YoY Mexico Inflation Expectations 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 6.00 5.50 5.00 4.50 4.00 3.50 3.00 Dec-15Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16Feb-17 Headline Core Core services 2017 2018 2019

Manufacturing exports curb the slowdown Lower real wages and remaining uncertainties over trade relations with the U.S. will hit internal demand, but higher U.S. industry growth and a competitive exchange rate are buffers for the economy. 3.0% 2.8% 2.5% 2.3% 2.0% 1.8% 1.5% 1.3% 1.0% Activity and Manufacturing Exports 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% IGAE (monthly GDP) - YoY ma3m Manufacturing Exports - YoY ma3m (RHS)

Central bank slows down the tightening pace 9 8 Mexico - Monetary policy rate and Taylor rule % Mexico - Monetary policy rate and Taylor rule with fed funds rate 9 8 % 7 Actual (our forecast dotted) Taylor Rule 7 Actual (our forecast dotted) Taylor Rule with Fed Funds 6 6 5 5 4 4 3 3 2 Dec-07 Sep-10 Jun-13 Mar-16 Dec-18 2 Dec-08 Jun-11 Dec-13 Jun-16 Dec-18 Source:Banxico, INEGI, Itaú

LatAm: forecasts Peru Mexico 2015 2016 2017 2018 2015 2016 2017 2018 GDP - % 3.3 3.9 3.3 4.0 GDP - % 2.6 2.3 1.8 2.1 PEN / USD (Dec) 3.41 3.36 3.40 3.35 MXN / USD (Dec) 17.4 20.7 19.5 18.5 Interest rates - (Dec) - % 3.75 4.25 3.75 3.75 Interest rates - (Dec) - % 3.25 5.75 7.00 6.50 IPC 4.4 3.2 3.0 2.6 IPC 2.1 3.4 5.0 3.3 Colombia Chile 2015 2016 2017 2018 2015 2016 2017 2018 GDP - % 3.1 2.0 2.3 2.8 GDP - % 2.3 1.6 1.8 2.5 COP / USD (Dec) 3175 3002 3080 3175 CLP / USD (Dec) 709 670 675 695 Interest rates - (Dec) - % 5.75 7.50 5.50 4.50 Interest rates - (Dec) - % 3.50 3.50 2.50 3.25 IPC 6.8 5.8 4.1 3.5 IPC 4.4 2.7 2.8 3.0 Argentina 2015 2016 2017 2018 GDP - % 2.6-2.3 2.7 3.0 ARS / USD (Dec) 13.0 15.9 18.0 20.5 7-day Repo rate (Dec) - % n/a 24.8 20.0 16.0 IPC - % (Buenos Aires) 26.9 41.0 22.0 16.00 Source: Itaú Unibanco 17

Brazil

Fiscal: adjustment is needed to stabilize public debt Gross debt (%GDP) 80 75 75 76 70 65 60 55 50 2010 2011 2012 2013 2014 2015 2016 2017 2018 19

Fiscal: federal government fiscal results went through a strong deterioration Primary Result of Federal Government, States and Counties and state companies Recent Performance 3% % GDP 1.5% % GDP 2% 0.5% 1% 0% 0.2% 0.1% 0.0% -0.5% -1.5% 0.1% -1% -2% Federal Government State, Counties and state companies -1.7% -2.5% -2.5% -3% -2.5% -2.1% 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998-3.5% Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Source: Itaú, Unibanco, National Treasury, Central Bank 20

Total Spending on Social Security - Public + Private (% of GDP) Fiscal: spending too much given the demographic profile 20 2011-2013 18 Italy 16 14 Young country, high spending Poland Austria Germany 12 Brazil 10 8 Mongolia Mexico 6 Bolivia Chile Japan 4 Kuwait 2 Georgia 0 0 4 8 12 16 20 24 28 32 Dependency ratio = (Younger than 14+Older than 65 / Between 14 and 65) Source: Paulo Tafner 21

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Fiscal: social security accounts for a large share of primary expenses Social Security Expenses (% GDP) Social Security Share in Total Primary Expenses 10.5% 10.0% 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% Without reform 70% 60% 50% 40% 30% 20% 10% 0% 40% 10% 7% 48% 2016 2025 Reform + minimum wage Proposed reform Without reform Reform + Minimum wage = Inflation Govt proposed reform 22

Social security reform expectation: 55% of proposed reform impact Reform Retirement - Minimum Age + Transitional Rule Details 65y, 25 years of contribution. Adjustment factor (Toll) = 30%. Men above 55 and women above 50, increases 1/1.5y every 2 years Original Proposal Impact in 2025 (% of GDP) Current Proposal Impact in 2025 (% of GDP) 1.40% 0.90% Retirement - End of Special Rural Regime Rural worker retirement 5y less than urban 0.20% 0.0% Rural Social Security Contribution Rural beneficiary contribute 5% of minimum wage to be defined (up to 0.40%) 0.0% Rural Exporters Tax Break - 0.10% 0.10% Change in Value of Benefit Survivor Pension -De-earmarking from minimum wage new benefit value Survivor Pension - End of accrual of pensions 70% of avg. contribution + 1.5 p.p. between 25-30y, 2 p.p. between 30-35y, 2.5 p.p. between 35-40y 50% of benefit received by survivor + 10% per dependant w/ minimum wage as floor New entrants will not be able to accrue retirement benefits above private (INSS) benefit ceiling - - 0.10% 0.05% 0.10% 0.0% Welfare Benefits (LOAS/BPC) - New age to qualify Increase age of access to 68y 0.10% 0.05% Welfare Benefits (LOAS/BPC) - De-earmarking from minimum wage and new benefit value Rule to be defined to be defined (up to 0.10%) - Fonte: Itaú Public Servant's Retirement - Unification w/ Private Sector 65y for men above 50 and women above 45 + 25y of contribution + benefit limit defined by INSS benefit ceiling Total Impact n/a n/a 2.0% 1.1% 23

Fiscal: 3.1 pp impact on GDP by 2025 Social security reform and impacts % GDP Social Security Deficit+ BPC/LOAS in 2016-3.3% Social Security Deficit+ BPC/LOAS in 2025 without reform -5.6% (+) Minimum wage growth= inflation 1.1% (+) Minimum age 65 y + transition rule 1.0% (+) Revenue increase due to longer contribution period 0.4% (+) End of special retirement regimes 0.2% Impact: 3.1 p.p (+) Death pensions End of benefits accumulation and untying 0.2% (+) Social Benefits LOAS/BPC New age criteria and untying 0.1% (+) Tax exemption reversal for rural exporters 0.1% Social Security Deficit+ BPC/LOAS in 2025 with reforms -2.5% 24

Fiscal: what measures are needed to deliver the spending cap? Total federal expenditure increases to 21.2% of GDP up to 2025 without reforms (from below 20% today). Respecting the spending cap means that federal expenditure would decline to 16.3% of GDP up to 2025. Thus, total fiscal adjustment is of 4.9% of GDP (21.2% - 16.3%). How could it be achieved? Out of the 2.0% impact of the social security reform, 1.5% account for expenditure measures TOTAL ADJUSTMENT (p.p. of GDP) 4.9 Reforms Social Security Reform 1.5 Minimum wage (only inflation adjustment) 1.1 End of bonus for low-wage workers (abono) 0.3 Unemployment Insurance Reform 0.1 Discretionary Payroll (readjustment only 50% of inflation) Up to 0.6 Maintain health and education stable in real terms Up to 0.5 Payroll tax break Up to 0.3 End of interest rate equalization program (PSI) Up to 0.2 Others (ex. investment, adm. costs) Up to 0.2 25

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Fiscal: public debt dynamics is quite sensitive to GDP performance 90.0% 85.0% 80.0% 75.0% 70.0% 65.0% 60.0% 55.0% Itaú Scenario BCB Focus Survey Public Debt Dynamics 50.0% ITAU 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F Real GDP Growth -3.5% 1.0% 4.0% 2.8% 2.8% 2.8% 2.5% 2.0% 2.0% 2.0% Selic year avg 14.2% 10.8% 8.4% 7.4% 6.8% 6.8% 7.0% 7.7% 7.8% 7.8% IPCA 6.3% 4.4% 3.8% 3.6% 3.5% 3.5% 3.6% 3.7% 3.7% 3.8% Primary Balance - % GDP -2.5% -2.2% -1.6% -0.8% -0.4% 0.0% 0.4% 0.6% 0.9% 1.2% FOCUS 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F Real GDP Growth 0.5% 2.3% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% Selic year avg 10.9% 9.3% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% IPCA 4.6% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% Primary Balance - % GDP* -2.3% -1.6% -0.8% -0.4% 0.0% 0.4% 0.6% 0.9% 1.2% *survey until 2020; Our forecast from 2021 onwards 26

Politics: the government has broad support in Congress Government support in Congress Lower House: 513 Representatives Senate: 81 Senators 20% 20% PMDB-68 REDE-1 PMDB-19 Others-15 PSC-7 PROS-7 PHS-7 PPS-8 PTN-13 SD-14 PSDB-50 PP-47 PV-1 PRB-1 PPS-1 PSC-2 PTB-3 PSD-4 PSDB-11 PTB-18 PRB-22 DEM-27 PSB-33 PR-42 PSD-35 80% PR-4 DEM-4 PSB-7 PP-7 80% Government Base Opposition Source: Arko Advice 27

Politics: 2018 elections and social security reform 13-Apr Approved Special Comittee Outlook on Social Security Approved Lower House Approved by Approved? % of initial proposed proposal approved Arko 25-Apr 28-Apr 30-Sep 75% 60% Luciano Dias 25-Apr 28-Apr 30-Sep 100% 80% Eurasia 25-Apr 28-Apr 30-Sep 70% 70% MCM 25-Apr 28-Apr 30-Sep 70% 65% Average 25-Apr 28-Apr 30-Sep 79% 69% Outlook on 2018 Elections March 6th Lula running? Populist economic policy? Arko Medium Medium Luciano Dias Low Low Eurasia Medium Low MCM Medium Medium

May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 BRL (R$/US$) CDS 5Y External: the exchange rate is tied to country risk Exchange rate and CDS (5y) 4.00 BRL CDS New reform efforts 500 450 3.50 400 350 3.00 300 250 2.50 2.00 1.50 200 150 100 50 29

Jan-95 Dec-95 Nov-96 Oct-97 Sep-98 Aug-99 Jul-00 Jun-01 May-02 Apr-03 Mar-04 Feb-05 Jan-06 Dec-06 Nov-07 Oct-08 Sep-09 Aug-10 Jul-11 Jun-12 May-13 Apr-14 Mar-15 Feb-16 Jan-17 Dec-17 Nov-18 Oct-19 Sep-20 External: BRL seems near fair value Current Account and Exchange Rate 2.0% 5.00 1.0% 4.50 0.0% 4.00-1.0% 3.50-2.0% -3.0% 3.00-4.0% 2.50-5.0% 2.00 Current Account BRL - Prices of Feb17 (lag=2.5 year; 12m avg.) 30

Inflation: latest data confirm disinflation scenario 10 IPCA (Market-set prices ex food) Average of 3 core measures, % annualized, seasonally adjusted; weight: ~0.6 9 8 7 6 5 4 3 3MMA 2 mar-02 mar-03 mar-04 mar-05 mar-06 mar-07 mar-08 mar-09 mar-10 mar-11 mar-12 mar-13 mar-14 mar-15 mar-16 mar-17 31

mar/12 jul/12 nov/12 mar/13 jul/13 nov/13 mar/14 jul/14 nov/14 mar/15 jul/15 nov/15 mar/16 jul/16 nov/16 mar/17 mar/12 jul/12 nov/12 mar/13 jul/13 nov/13 mar/14 jul/14 nov/14 mar/15 jul/15 nov/15 mar/16 jul/16 nov/16 mar/17 mar/12 jul/12 nov/12 mar/13 jul/13 nov/13 mar/14 jul/14 nov/14 mar/15 jul/15 nov/15 mar/16 jul/16 nov/16 mar/17 mar/12 jul/12 nov/12 mar/13 jul/13 nov/13 mar/14 jul/14 nov/14 mar/15 jul/15 nov/15 mar/16 jul/16 nov/16 mar/17 Inflation: downward trend is widespread 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% IPCA Regulated Prices (yoy) 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% IPCA Industrials (yoy) IPCA Food (yoy) 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 10.5% 10.0% 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% IPCA Services (yoy) 32

Monetary policy: falling inflation allows interest rate cuts 15% Selic % p.a. 14% 13% 12% 11% 10% 9% 11.25% 8.97% 9.75% 8% 8.25% 8.25% 7% 2008 2010 2011 2012 2013 2015 2016 2017 2018 Itau Unibanco Forecast Yield Curve Pricing 33

Activity: when will Brazil grow again? Our approach: Fundamentals Asset prices Leading indicators 34

Activity: how have fundamentals evolved? 2015: strong dip in commodity prices, high interest rates 2016: high leverage and interest rates Commodity prices (ICI in USD, yoy) Real Interest Rates Gap (Real rates/real equilibrium rates) Leverage (Net financial expenses/ebitda) 40% 30% 20% 10% 0% -10% -20% -30% -40% 4% 3% 2% 1% 0% -1% -2% -3% -4% 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% Source: BCB, IBGE, Itaú Unibanco 35

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Activity: what does our model forecast? Growth = α + β 1 Int. Rates + β 2 Comm + β 3 Leverage( 1) + ε t 8.0% GDP growth (%12m) 6.0% 4.0% 2.0% 0.0% -2.0% 100 bp Int.Rates 0.5% GDP 10% Comm. Prices. 1% GDP 10 pp Fin.Exp/EBITDA 0.5% GDP -4.0% -6.0% Actual Forecast 36

Nov-94 Jun-95 Jan-96 Aug-96 Mar-97 Oct-97 May-98 Dec-98 Jul-99 Feb-00 Sep-00 Apr-01 Nov-01 Jun-02 Jan-03 Aug-03 Mar-04 Oct-04 May-05 Dec-05 Jul-06 Feb-07 Sep-07 Apr-08 Nov-08 Jun-09 Jan-10 Aug-10 Mar-11 Oct-11 May-12 Dec-12 Jul-13 Feb-14 Sep-14 Apr-15 Nov-15 Jun-16 Jan-17 Commodity Prices Boom Commodity Prices fall Mexico Crisis Asis Crisis Russia Crisis BRL devaluation Nasdaq 11 de Setembro Default Argentina 2002 Elections Lehman Greece default GIPS crisis Taper Tantrum Impeachment Activity: indicators support rise in industrial production... 3 Ibovespa x Industrial Production 2 1 0-1 -2-3 -4 Ibov. in USD 3MMA / 12MMA Z Score (since 1991)) Ibovespa Industrial Production (T+3) 37

set-94 mar-95 set-95 mar-96 set-96 mar-97 set-97 mar-98 set-98 mar-99 set-99 mar-00 set-00 mar-01 set-01 mar-02 set-02 mar-03 set-03 mar-04 set-04 mar-05 set-05 mar-06 set-06 mar-07 set-07 mar-08 set-08 mar-09 set-09 mar-10 set-10 mar-11 set-11 mar-12 set-12 mar-13 set-13 mar-14 set-14 mar-15 set-15 mar-16 set-16 Boom de commodities Queda de commodities Mexico Crisis Asia crisis Russian Crisis BRL devaluation Nasdaq 9/11 Default Argentina 2002 Elections Lehman Greece Crisis GIIPS Crisis Taper Tantrum Impeachment Activity:... and in Investment 3.5 Export prices x Investment 3.0 2.5 2.0 1.5 1.0 0.5 0.0-0.5-1.0-1.5-2.0-2.5-3.0 média móvel de 3 meses/ média móvel de 12 meses Z Score -3.5 Preço de Exportações Investimento 38

Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Activity: confidence indices in an upward trend Industrial production Log and trend 4.70 3.0 Industrial Production and Industrial Confidence Z-score (2010 to 2016) 4.65 2.0 4.60 4.55 1.0 4.50 0.0 4.45-1.0 4.40 4.35 4.30-2.0-3.0 Hiato PIM FGV CNI Itaú 39

Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Activity: diffusion index precedes GDP... 80% 76% 72% 68% 64% 60% 56% 52% 48% 44% 40% 36% 32% 28% 24% 20% 16% Diffusion Index vs. GDP Growth Diffusion index (12m, t-2) GDP growth (12m) (rhs) 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% -6% -7% 40

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Activity: market conditions and diffusion indices Market Conditions and Diffusion 3 90% 2 80% 70% 1 60% 0 50% -1 40% -2 30% 20% -3-4 MCI-BR Diffusion (3MMA) 10% 0% 41

Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Activity: companies are deleveraging Companies Leverage Ratio Net Financial Expenses/ EBITDA (4Q) 6 0.75 5 0.65 4 0.55 0.45 3 2 2.6 0.35 0.25 0.15 0.28 1 0.05-0.05 0-0.15 Fonte: Economática, Itaú Unibanco Pesquisa Macroeconômica

Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Activity: inventories still falling Inventories/Revenue Seasonally adjusted 0.120 0.115 0.110 0.105 0.100 0.095 0.090 0.085 0.080 Fonte: Economática, Itaú Unibanco Pesquisa Macroeconômica

Heatmap Industrial Production: improvement at the margin Index* Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 By Category of Good All Industry 83.0 84.5 84.8 85.1 86.6 86.7 83.8 84.4 83.4 83.7 85.8 85.6 85.7 Mining 93.8 92.9 94.5 96.4 96.1 98.0 96.4 98.5 98.4 99.9 101.6 102.6 102.1 Manufacturing 81.4 83.2 83.7 83.6 85.5 85.2 82.5 82.9 81.8 81.4 83.5 83.1 83.4 Non-Durable Goods 93.2 94.0 93.4 92.0 93.2 90.8 90.2 89.6 88.5 87.6 91.2 93.9 92.4 Durable Consumption Goods 63.4 63.9 61.5 65.0 66.3 68.9 64.1 66.0 65.7 68.6 72.2 68.7 73.6 Capital Goods 63.3 66.1 67.4 69.1 73.1 69.8 69.4 68.0 66.6 68.3 66.3 63.5 67.6 Intermediary Goods 86.4 86.3 86.9 86.7 87.6 89.3 85.9 86.9 85.1 85.9 87.1 87.8 88.2 By Segment Foodstuffs 96.6 102.1 106.9 100.2 99.0 101.3 93.7 99.5 96.1 95.7 96.3 97.4 94.8 Oil & Biofuel Derivatives 102.0 95.9 100.3 92.5 91.8 92.2 90.1 91.2 92.6 89.2 87.4 90.7 92.5 Auto Vehicles 55.0 56.5 54.5 57.9 64.8 62.1 57.1 60.4 58.2 62.1 68.2 62.5 66.3 Metallurgy 77.9 76.8 74.3 77.7 81.5 82.6 81.2 81.2 79.1 79.2 79.4 80.7 79.2 Other Chemical Products 94.0 93.0 90.5 93.3 98.0 94.4 93.1 94.0 92.9 90.2 94.4 93.5 93.0 Machines & Equipment 67.0 74.5 76.1 75.9 75.4 75.1 74.0 73.6 72.2 73.8 75.2 70.6 77.5 Metal Products 71.0 70.9 68.7 70.6 70.7 70.6 71.7 70.1 68.6 66.6 68.2 68.2 70.9 Non-metallic minerals 83.5 83.5 83.8 83.0 84.2 84.8 80.6 76.8 78.0 79.8 79.9 81.6 83.0 Rubber & Plastic 82.7 81.1 81.0 84.0 83.7 84.7 84.1 83.0 79.4 81.1 86.6 84.3 83.8 Beverages 91.6 91.5 94.4 95.7 92.9 93.1 93.3 93.1 89.7 89.9 84.7 91.2 92.4 Pulp & Paper 99.4 96.1 99.7 101.4 99.9 99.8 99.3 101.8 100.6 101.7 101.9 105.2 99.3 Machines and Electric Material 75.0 79.3 81.2 79.6 81.5 81.3 80.9 74.5 72.7 70.9 72.1 71.2 74.6 Computers and Electronics 55.3 55.1 55.9 57.8 59.0 62.3 60.4 59.9 60.7 64.3 75.0 66.6 66.9 Pharmaceuticals 85.8 96.0 85.9 84.0 86.7 78.1 84.9 80.7 78.0 76.6 65.0 82.3 83.6 Clothing 78.1 79.0 75.7 75.9 83.3 80.7 76.3 78.8 78.4 82.8 91.8 84.6 87.5 Leather & Footwear 90.4 89.0 89.5 89.2 98.6 91.1 92.1 89.2 89.2 88.6 95.8 92.8 90.1 Textiles 74.2 75.0 74.9 75.1 78.1 76.7 76.4 76.6 75.8 76.5 76.4 78.4 78.3 Other Transportation Equipment 75.2 75.0 69.5 76.1 74.8 74.6 72.9 69.9 67.3 62.8 65.9 69.8 69.5 Furniture 76.8 73.2 71.3 70.4 73.0 71.9 72.1 68.4 68.5 67.9 73.6 73.8 75.6 Cleaning & Cosmetics 104.1 102.7 99.2 104.4 110.9 107.3 104.1 101.2 99.5 97.6 102.5 102.7 98.9 Lumber 94.2 97.8 96.2 95.6 99.3 98.2 97.6 95.9 94.1 96.3 95.9 96.2 93.2 Tobacco 69.2 74.5 67.4 61.8 68.9 57.4 56.6 54.1 59.0 72.7 64.8 68.0 73.3 Construction Material 75.7 75.8 75.1 75.7 75.5 76.3 73.8 71.3 69.5 70.2 70.5 71.9 71.7 *Monthly Index, seasonally adjusted, Avg. 2012 = 100 Very Weak Weak Neutral Strong Very Strong Score -2-1 0 1 2 Criteria Z < -1-1 < Z < -0.5-0.5 < Z < 0.5 0.5 < Z < 1.0 Z > 1 44

Activity: unemployment, however, still on the rise Unemployment rate - PNADC Quarterly, seasonally adjusted 15 14 13 12 11 10 9 8 7 13.2 13.8 6 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 45

jan-07 jan-08 jan-09 jan-10 jan-11 jan-12 jan-13 jan-14 jan-15 jan-16 jan-17 Activity: but hiring already shows some improvement Admissions and Lay-offs (CAGED) Thousands, seasonally adjusted 1,900 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 Admission Lay-off 46

GDP Tracking 1Q17: 1.7% growth (qoq/sa) Industrial production (extraction) Industrial production (transformation) 110 5% 86 3% 105 0% 100-5% 95 90 QoQ (rhs) Level SA -10% 85-15% jan/16 ago/16 mar/17 Broad Retail Sales 87 QoQ (rhs) Level SA 4% 86 3% 85 2% 84 1% 83 0% 82 81-1% 80-2% 79-3% jan/16 ago/16 mar/17 85 2% 84 1% 83 0% 82-1% 81-2% 80 QoQ (rhs) Level SA -3% 79-4% jan/16 ago/16 mar/17 Service Sector Real Revenue 94 1% 92 0% 90-1% 88 86 QoQ (rhs) Level SA -2% 84-3% jan/16 ago/16 mar/17 Fonte: IBGE, Itaú Pesquisa Macroeconômica

Bumper crop brings positive contribution to 1Q17 Throughout the year, contribution should be around 0.4% 1.0% Agriculture GDP Contribution to YoY growth: 0.8% 0.6% 0.4% 0.2% 0.0% -0.2% -0.4% -0.6% 1T14 2T14 3T14 4T14 1T15 2T15 3T15 4T15 1T16 2T16 3T16 4T16 1T17 2T17 3T17 4T17 Pesquisa Macroeconômica

Brazil: what to expect in the short run 2014 2015 2016 2017 2018 Economic Activity GDP (%) 0.5-3.8-3.6 1.0 4.0 Unemployment (%) December (PNAD cont.) 7.1 9.7 12.6 13.4 12.9 Inflation CPI (%) 6.4 10.7 6.3 3.9 3.8 Monetary Policy Selic Rate (%) 11.75 14.25 13.75 8.25 8.25 Fiscal Primary Surplus (% GDP) -0.6-1.9-2.5-2.2-1.6 Balance of Payments Exchange Rate (eop) 2.66 3.96 3.25 3.35 3.45 Current Account (% GDP) -4.3-3.3-1.2-1.6-2.4 49