Financial market once again lowers growth estimates

For the fourth consecutive time, institutions and analysts in the
financial sector consulted by the Central Bank’s weekly survey, the Focus report, have reduced their forecasts for 2012 economic growth. The latest Focus found that the market now sees GDP growth this year of 2.72%, compared to 2.99% in the prior weekly survey.

On the other hand, market estimates of GDP growth in 2013 remain steady at 4.5%.

On Friday, June 1, the government statistical bureau (“IBGE”) reported
that GDP growth in the first quarter of this year (January to March) was
0.2%, compared to the last quarter of 2011 (October to December). The
IBGE reported that total economic activity in the first quarter was
R$1,03 trillion.

Against this background, the Central Bank has been steadily reducing
the country’s basic interest rate, the Selic. And, on May 30, the bank’s
Monetary Policy Committee (“Copom”) announced it was lowering the Selic
by 0.5 percentage points from 9.0% to a historic low of 8.5%.

The latest Focus survey found that the market expects the
Selic to be at 8% at the end of this year. And the forecast is for Selic
to be slightly above 9% at the end of 2013.

As for inflation (the government target is for it to be up 4.5%, plus or minus two percentage points), Focus found the market forecasting the Broad Consumer Price Index (“IPCA”) at
5.15% (down from 5.17% last week) for the year. The estimate for 2013
is 5.6%.