October 7, 2020

Brazilian American Chamber of Commerce

Economic outlook for Brazil during and after this Covid-19 crisis

Roberto Campos NetoGovernor of Banco Central do Brasil

2

Sou

rce:

Our

Wor

ld in

Dat

a, O

cto

be

r6/2

020

COVID-19Brazil and other regionsCovid-19: new deaths slowly decreasing

Daily new confirmed deaths, rolling 7-day average

3

Sou

rce

: Hea

lth

Min

istr

y

COVID-19The disease across Brazilian regionsNew daily cases per million, 7 - days moving average, 04/Apr – 26/Sep

North

North

Northeast

Northeast

Midwest

Midwest

Southeast

Southeast

South

South

Metropolitan region CountrysideTotal

Sour

ces:

Tho

mso

n R

eute

rs, T

rack

ther

ecov

ery,

BEA

Real GDP

5

0

- 5

-10

-15

-20

-25

-30

-35

p.p.

% (

QoQ

ann

ualiz

ed)

-32.9

Consumption (-25.1 p.p.)

Change in stocks (-4.0 p.p.)

Government (0.8 p.p.)

Investment (-5.4 p.p.)

Net exports (0.7 p.p.)

GDP (QoQ annualized)

4

16q2 17q2 18q2 19q2 2 0q2

GLOBAL ECONOMYCovid-19: Shock and impactsUnited States

Strong decline in economic activity in the 2nd quarter. Recent data suggest consumer spending is returning to the pre-crisis levels

2016 2017 2018 2019 2020 Aug

35

30

25

20

15

10

5

Pe

rso

nal

Sav

ings

Rat

e

%

-50

10

0

-10

-20

-30

Tota

l sm

all b

usi

nes

s r

even

ues

( p

erc.

ch

ang

e in

com

par

iso

n to

jan

/20

)

15-Jan 01-Mar 01-Apr 01-May 01-Jun 01-Jul 01-Aug

-40

01-Sep

20-Sep-20.4%

5

GLOBAL ECONOMYCovid-19: Shock and impactsEurope

The Covid-19 shock was simultaneous, but it affected countries and sectors asymmetrically. Recovery began in May, after severe losses in April

Sour

ce: O

ECD

Sta

tas a

nd B

loom

berg

fore

cast

s at

Se

pte

mbe

r 29

th, 2

020

. Dat

a ar

e se

aso

nally

adj

uste

d.

GDP Retail Sales

Germany Italy France United Kingdom Spain Euro Area

67

72

77

82

87

92

97

102

107

Jan-2020 Mar-2020 May-2020 Jul-2020

Jan

2020

=10

0

Netherlands

76

80

84

88

92

96

100

2019Q4 2020Q1 2020Q2 2020Q3(f) 2020Q4(f)

Q4

20

19

=1

00

Sour

ces:

NB

S, B

loom

berg

GDP10

8

6

4

2

0

-2

-4

-6

-8

(% Y

oY)

15

Q2

15

Q4

16

Q2

16

Q4

17

Q2

17

Q4

18

Q2

18

Q4

19

Q2

19

Q4

20

Q2

Consumption (2.3 p.p.)Exports (0.5 p.p.)

Investment (5.0 p.p.)

GDP (3.2%)

6

GLOBAL ECONOMYCovid-19: Shock and impactsChina

Fast recovery, although incomplete. Investment is the main driver

Re

tail

Sale

s( %

Yo

Y)

Aug/200.5%

-25-20-15-10

-505

1015

14

12

10

8

6

4

2

0

New

cre

dit

tra

nsa

ctio

ns

RM

B tr

illio

n

jul/17 jul/18 jul/19 jul/20

Banking credit

Others*

*corporate and government bonds, new equity issuances, trusted and entrusted loans

Sour

ce:

Goo

gle,

Tho

mso

n R

eute

rs

7

GLOBAL ECONOMYCovid-19: Shock and impactsInflation

Rise in food prices and education

0

10

20

30

40

50

60

70

-5

-2

1

4

7

10

13

16

201

9-9

201

9-1

0

201

9-1

1

201

9-1

2

202

0-1

202

0-2

202

0-3

202

0-4

202

0-5

202

0-6

202

0-7

202

0-8

Ch

ina

US Euro area India

Colombia Chile China

4.15

-20

-10

0

10

20

30

40

50

201

9-9

201

9-1

0

201

9-1

1

201

9-1

2

202

0-1

202

0-2

202

0-3

202

0-4

202

0-5

202

0-6

202

0-7

202

0-8

US India Mexico

Colombia Chile China

-4

-3

-2

-1

0

1

2

3

4

5

201

9-9

201

9-1

0

201

9-1

1

201

9-1

2

202

0-1

202

0-2

202

0-3

202

0-4

202

0-5

202

0-6

202

0-7

202

0-8

US Euro area China

Mexico Colombia Chile

China

Difference between meat inflationand CPI (p.p.)

Difference between rice inflationand CPI (p.p.)

Difference between education inflation and CPI (p.p.)

8

GLOBAL ECONOMYEmerging Markets

Me

xico

Me

xico

Arg

en

tin

a

Arg

en

tin

a

Sou

th A

fric

a

Sou

th A

fric

a

Ru

ssia

Ru

ssia

Bra

zil

Bra

zil

Ind

ia

Ind

ia

Ch

ina

Ch

ina

-11

-8

-5

-2

1

4

7

10

2020 2021

GDP Forecasts

%

Retail sales

%, Y

oY

Sour

ces:

Mar

kit;

Foc

us M

arke

t exp

ecta

tion

s in

2 O

ctfo

r B

razi

l and

Ju

ne I

MF

fore

cats

for

the

othe

r co

untr

ies;

Blo

ombe

rg

Covid-19: Shock and impactsSigns of recovery

25

30

35

40

45

50

55

60

65

Brazil Colombia Mexico South Africa Russia India

PMI Manufacturing

Jun Jul Ago Sep

-50

-40

-30

-20

-10

0

10

Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20Brasil Chile ColômbiaMéxico África do Sul Rússia

9

Spur

ce:

BCB

, Blo

ombe

rg. G

ross

Deb

t: IM

F.

GLOBAL ECONOMYFinancial conditions

Group 1:Malaysia, Indonesia, Poland, Chile and Russia.

Gross Debt/GDP (average) = 35.7%

Group 2:Brazil, South Africa, Turkey, Colombia, Mexico and India.

Gross Debt/GDP (average) = 61.1%2020

AEs Group 1 Group 2

Stan

dar

d-d

evia

tion

s fr

om

th

e m

ean

jan fev mar abr mai jun jul ago

Risk Appetite

0.550.27

-1.71

* Data until Sept 11th.

Financial conditions still restrictive for emerging countries with unfavorable economic fundamentals

Risk Appetite

1.0

0.0

-1.0

-2.0

-3.0

-4.0

jul-19 sep-19 nov-19 jan-20 mar-20 may-20 jul-20 sep-20

10

GLOBAL ECONOMYStock Market Top 5 show strength in the stock market, despite the recent drop. Recovery is uneven. Low interest and default risks harm the financial sector.

R$56,8 bi

2014 2015 2016 2017 2018 2019 2020

30

25

20

15

10

5

0

450

400

350

300

250

200

150

100

50

0

-50

S&P 5354%

S&P 50070%

MSCI EM

71%

S&P 49543%

Top 5 market cap (%) Top 5 increase in the market cap (%)

Top 5 market share (%)

Top 5: Amazon, Apple, Facebook, Google, Microsoft

170

135

100

65

30

Baskets of S&P and reopening

Jan-20 mar-20 may-20 jul-20 sep-20

S&P500

Leasure and tourism

High prob. of default

Stay at home

Financial with higher exposition to interest rates

Sou

rce:

Blo

om

berg

, GS

GLOBAL ECONOMYCovid-19: Shock and impactsLoss provisions

Increase in loss provisions still suggests caution

Sou

rce

: B

loo

mb

erg

11

2005 2007 2009 2011 2013 2015 2017 2019 2005 2007 2009 2011 2013 2015 2017 2019JPMorgan Wells Fargo BofA Citi Santander Deutsche BNP HSBC

30

25

20

15

10

5

0

-5

30

25

20

15

10

5

0

-5

Loss Provisions (US$ bn)

US Europe

19.1%

10.3%

4.1%

26.2%

26.9%

-5%

0%

5%

10%

15%

20%

25%

30%

Apr-19 Aug-19 Dec-19 Apr-20 Aug-20

Chile Colombia Mexico Peru Brazil

GLOBAL ECONOMYImpact on credit marketCredit growth for business

1212

Sou

rces

: BCB

, Dat

astr

eam

, Blo

ombe

rg. B

razi

lian

data

refe

rs to

no

near

mar

ket c

redi

t to

busi

ness

.

EMEs(% Y/Y)

AEs(% Y/Y)

10.5%

6.6%

5.9%

5.5%

13.6%

-5%

0%

5%

10%

15%

20%

25%

30%

Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20

France Spain Germany Euro Area USA

Sour

ce:

IMF

13

% GDP

0

3

6

9

12

15

18

Jap

an

Cana

da US

Bra

zil

Ge

rman

y

Au

stra

lia

Sou

th a

fric

a

UK

Chin

a

Fran

ce

Ko

rea

Sau

di A

rab

ia

Ita

ly

Spa

in

Indo

nesi

a

Arg

en

tin

a

Rus

sia

Turk

ey

Indi

a

Mex

ico

Health

Families

Employment

Companies

Public Investments

Others

GLOBAL ECONOMYFiscal policy responsesFiscal response

Announced measures – comparative view

14

GLOBAL ECONOMYFiscal response x GDP %

an

d p

.p.

Fiscal policy responses

Sour

ce: I

MF.

Exp

ecte

d g

row

th b

efor

e th

e pa

ndem

ics:

WEO

O

cto

ber

201

9. ;

Bra

zilia

n gr

owth

=Fo

cus

-

2

4

6

8

10

12

14

16

18

Reduction in the expected growth for 2020-2021 (before - after the crisis)

Fiscal answers (announced measures, % of GDP)

DOMESTIC ECONOMYPolicy responsesThe roles of monetary and fiscal policies

Monetary and fiscal policies have well-defined roles

15

SolvencyFiscal Policy

If not properly managed, liquidity problems canbecome solvency problems

LiquidityMonetary Policy

DOMESTIC ECONOMYPolicy responsesThe roles of monetary and fiscal policies

Central Bank of Brazil and Ministry of Finance measures

16

Central Bank of Brazil Ministry of Finance

• Monetary and FX policies

• Liquidity and Capital

• Direct transfers

• Tax reliefs and deferrals

• Credit measures

Sour

ce: B

CB

Measures’ impacts

Summary of measures: BCB

17

Updated to 10/05

¹Potencial impact on credit provision.* Credit operations volume potentially benefited by the measure.** New measures.

DOMESTIC ECONOMYFacing the crisisBCB’s response

EMEs’ Comparative Overview

Liquidity Support(% of GDP)

Credit Support (% of GDP)

Sou

rce

s: F

SB/B

CB

–u

p t

o S

ep

tem

be

r 22nd

20.0% Brasil17.5% Brasil

18

Sour

ce:

Blo

om

berg

, BCB

, 202

0 fo

reca

st

1 Year RateStructural reductions

-5

0

5

10

15

20

25

30

2004 2008 2012 2016 2020

Real Public Spendingyoy % change

6.7%post exp. cap

29.8

12.4%pre exp. cap

%%

19

Social Security Reform

DOMESTIC ECONOMYFiscal and monetary policies interaction Room for conventional policies

Brazil: cautious MP actions

Government Expenditure Cap

0

4

8

12

16

Oct-15 Oct-16 Oct-17 Oct-18 Oct-19 Oct-20

20

DOMESTIC ECONOMYFX market Volatility in the FX market

Sour

ces:

BCB

and

B3

• In other markets, the growth of mini-contracts usually increases liquidity and reduces bid / offer spreads.

• In the local FX market, there has been a coincident increase in volatility and the proportion of mini -contracts in the total volume. There is not necessarily a causal relationship.

BRL vol. (observed-30d)Jan-19 apr-19 jul-19 oct-19 jun-20 apr-20 jul-20

BRL Volatility x Ratio Volume (WDO/DOLF)

BRL Volatility Ratio WDO/DOLF

21

• In its last meeting, the Copom unanimously decided to maintain the Selic rate at 2.00%p.a.

• The Copom believes that the current economic conditions continue to recommend an unusually strongmonetary stimulus, but it recognizes that, due to prudential and financial stability reasons, the remainingspace for monetary policy stimulus, if it exists, should be small.

• Consequently, possible future adjustments to the current degree of monetary stimulus would occur withadditional gradualism and would depend on the perception of the fiscal trajectory, as well as on newinformation that changes the Committee's current assessment about prospective inflation.

• Despite the asymmetry on its balance of risks, the Copom does not intend to reduce the monetary stimulusunless inflation expectations, as well as its baseline scenario inflation projections, are sufficiently close to theinflation target at the relevant horizon for monetary policy.

DOMESTIC ECONOMYCopom MinuteMonetary policy

233rd Meeting - September 16, 2020

22

Sou

rce

: IB

GE

DOMESTIC ECONOMYCovid-19: Shock and impactsStrong fall in 2Q2020 GDP

Consumption and investment fell

(15)

(11)

(7)

(3)

1

5

I II III IV I II III IV I II III IV I II III IV I II III IV I II

2015 2016 2017 2018 2019 2020

Contribution to real GDP growth (p.p.)Consumption

Government

Investment

Change in stocks +residual

External sector

Real GDP (YoY)

23

58

71

84

97

110

123

Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20

Consumer Manufacturing Services

Construction Retail Média

Seasonally adjusted data.

Confidence indicators

Average 2016-2019= 100

Sour

ces:

FG

V a

nd

Ciel

o

*Change in revenues in relation to the same days of Feb/20, with calendar adjustments.

Retail Sales – Cielo*

DOMESTIC ECONOMYCovid-19: Shock and impactsImpact of Covid-19: economic activity

Partial recovery of activity. Sectors most directly affected by social distancing remain depressed.

-85%

-75%

-65%

-55%

-45%

-35%

-25%

-15%

-5%

5%

15%

01 - 21 22 - 28 29 - 02 03 - 30 31 - 27 28 - 01 02 - 29 30 - 05 06 - 12 13 - 19 20 - 26 27 - 03

Mar Mar Apr May Jun Jul Aug Sep Sep Sep Sep Oct

Total retail Non Durables Durables Services

24

8

13

18

23

28

33

38

43

48

53

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37

BR

L b

illio

n

Weeks of the year

* Not including overdraft and credit card. Weekly data, accumulated over the last five working days, up to September 18th.

Sou

rce

: BC

B

Weekly new credit transactions*

Corporate 2020Corporate 2019

Household 2020Household 2019

16.4%

26.9%

8.3%

-11%

-7%

-3%

1%

5%

9%

13%

17%

21%

25%

29%

Aug-16 Aug-17 Aug-18 Aug-19 Aug-20

Outstanding credit(% m/m(-12))

Corporate

Total

Household

DOMESTIC ECONOMYOutcomes: credit distributionNonearmarked credit

Credit increase amid the crisis. Corporate credit rises faster than household credit

12%

17%

22%

27%

32%

37%

42%

47%

52%

57%

62%

Aug-17 Feb-18 Aug-18 Feb-19 Aug-19 Feb-20 Aug-20

Cen

ten

as

25

By line of credit

Sou

rce

: BC

B. D

ata

refe

r to

ave

rage

inte

rest

rate

in

no

ne

arm

arke

d n

ew

cre

dit

tra

nsa

ctio

ns

Interest rate(% per year)

Households Corporate Total26%

30%

34%

38%

42%

46%

50%

10%

15%

20%

25%

30%

Aug-17 Feb-18 Aug-18 Feb-19 Aug-19 Feb-20 Aug-20

Discount of trade bills

Working capital

Guaranteed overdraftaccount (right)

79%

97%

115%

133%

18%

21%

24%

27%

30%

Aug-17 Feb-18 Aug-18 Feb-19 Aug-19 Feb-20 Aug-20

Payroll deducted loans

Vehicles financing

Personal credit exceptpayroll dedicted (right)

Corporate

Households

DOMESTIC ECONOMYOutcomes: credit costInterest rates: new credit transactions

Interest rates are falling

Sou

rce

: BC

B

(1) Includes debentures totaling BRL 47.5 billions. (2) Includes: full renewal of the credit operation,including new credit; as well as renegotiations with changes in interest rate and guarantees.

New transactions + credit renewals

26

Others

S1 – public

S1 - private

By type of financial institution By type of client

Corporate

Middle and SME

Household

DOMESTIC ECONOMYOutcomes: credit distributionNew transactions and credit renewals

From March 16th to September 25th, in BRL billions

Corporate Middle SME Household Total Corporate Middle SME Household Total

S1 - public 49.7 21.1 51.1 163.9 285.9 11.6 38.5 25.8 113.2 189.1

S1 - private 315.4 73.9 73.9 144.8 608.0 89.3 20.2 16.1 42.5 168.1

S2 71.2 17.6 2.7 34.3 125.8 5.2 0.6 0.1 0.3 6.2

S3 65.9 28.9 6.5 46.5 147.8 16.4 3.3 1.5 9.9 31.0

S4 20.3 20.7 4.5 12.9 58.5 2.3 3.7 0.2 6.3 12.6

Cooperatives S3, S4 and S5 2.7 19.8 30.1 50.5 103.1 0.7 2.5 2.9 3.9 10.1

525.3 181.9 168.9 452.9 1,329.0 125.4 68.8 46.6 176.2 417.1

SegmentNew transactions (1) Credit renewals (2)Type of

financial

institution

Total

Banks

27

Sou

rce

: BC

B

DOMESTIC ECONOMYBanking System

-10

0

10

20

30

40

50

-3

0

3

6

9

12

15

Jun2013

Jun2014

Jun2015

Jun2016

Jun2017

Jun2018

Jun2019

Jun2020

Opportunity cost (left)

Selic 12M

Diference between net margins % (credit vs GB)

%

Opportunity costs - credit vs GB*Accumulated in the last 3 months

BRL bn

0

3

6

10

13

16

Dec2015

Jun Dec2016

Jun Jun Dec2018

Jun Dec2019

Jun Dec2020

Funding Costs Selic

%

Funding costs – Banking SystemAccumulated in the last 3 months

Opportunity cost and funding

* Government bonds

28

INCLUSION

COMPETITIVENESS

TRANSPARENCY

EDUCATION

InnovationMarket efficiencyInternational reserves

Rural creditHousing creditRelationship with CongressTransparency of Monetary PolicyCommunication plan for BCB actionsRelationship with foreign investors

Financial education

Cooperative creditMicrocreditCurrency conversibilityInitiatives for capital market

Means of payment - Pix

• Financial and payment institutions applied to membership and are in homologation cycle

• Regulation approved

• October 5th: customers started keyregistration

• 5 million keys already registered

• To be launched in November 2020

Availability

Speed

Convenience

Open environment

Various use cases

Enriched data

Safety

29

AGENDA BC#PixHighlights for 2020

30

Convergence AGENDA BC#

Texting

Payment

Content

Financial Innovation

31

Innovation in the financial system AGENDA BC#

Digital currency

Open Banking

• Simplification• Internationalization• Convertibility

Innovation in the currency

2021/2022

Open banking

• Operating rules approved

• Implementation schedule

How does it work today?

Open banking

32

AGENDA BC#Open bankingHighlights for 2020

• Measures to fight the economic effects of the Covid-19 crisis

• Regulation on issuance of electronic trade receivables

• Open banking regulation

• PIX - BCB’s means of payment

▪ Brand launch

▪ Register phase; public release expected for November/2020

• Credit cooperatives allowed to issue Real Estate Credit Bills (LCI)

• Agreement between BCB and the National Treasury Secretariat (STN) to use instant

payments

33

AGENDA BC#Main achievementsHighlights for 2020

Measures:

• BCB’s S&E Responsibility

• Partnerships

• Policies

• Supervision

• Regulation

34

BCB’s social and environmental responsibility• Strengthening internal environmental awareness

• Inclusion of the theme in the Museum of Economy

• Reduction of the environmental impact of the money cycle

• Review of the BCB’s S&E Responsibility Policy

• Implementation of TCFD* recommendations’

• Integrated risk management at the BCB

Partnerships• BCB joins the Network for Greening the Financial System (NGFS)

• Memorandum of Understanding with the Climate Bonds Initiative (CBI)

#Sustainability: highlights

35

* TCDF - Task Force on Climate-related Financial Disclosures

36

Policies• Creation of the ‘Green liquidity facility’

• Inclusion of sustainability criteria in the management of internationalreserves

Supervision• Structuring and broadening the scope for collecting information on S&E

risks

• Monitoring of climate risks and stress tests

#Sustainability: highlights

37

Regulation• Management of S&E risks by financial institutions – Regulatory

enhancement of Resolution No. 4.327/2014

• Improved transparency based on TCFD recommendations

• Creation of the ‘Green Bureau’ for rural credit

• Establishing incentives for green rural credit

#Sustainability: highlights

Additional challenges in the post-Covid-19 period

38

More sustainable and more inclusive growth

Common factors in the recovery

39

More technology

The epidemic has accelerated technological changemedicine, education, finance, communication

40

Comércio mundial

Mudanças nas cadeias globais de valor

41

World trade

Changes inglobal value chains

41

Low interest rates and high liquidity in the world

There are challenges, but alsoopportunities to reinvent the economywith private resources

42

A changing world

43

Technology

Change instandards of

consumption andproduction

Government actions

Secular change in the

workforce

Thank you!

Roberto Campos NetoGovernor of Banco Central do Brasil

October 7, 2020