Economic climate in Latin America improved slightly, despite worsening in Brazil

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1 August 13 th APRIL/2015 Ifo/FGV Economic Climate Index for Latin America JULY/2015 Economic climate in Latin America improved slightly, despite worsening in Brazil The Ifo/FGV Economic Climate Index for Latin America (ECI) - developed in partnership between the German Ifo Institute and the FGV taking as a data source the Ifo World Economic Survey (WES) advanced 4% in July, compared with April, remaining at very low levels by historical standards. The improvement was driven by the decrease in pessimism regarding the six coming months, while the assessments for the current economic situation of countries in the region continued to worsen. Both the Expectations Index (EI) and the Present Situation Indicator (PSI) remain below average and in the unfavorable zone of the economic cycle (below points). Present Situation Chart 1: Economic Climate Index for world and Latin America (in points) 58 Expectations jul/04 jan/06 jul/07 jan/09 jul/10 jan/12 jul/13 jan/ Economic Climate Index - Latin America Economic Climate Index - World The July survey keeps the trend observed since July 2013, when reporting an economic climate in Latin America less favorable than the average of the 117 countries surveyed. Worldwide, the economic climate recorded a soft fall, changing to 106 from 110 points between the surveys of April and July. The decline of the indicator is due to the worsening assessments of current conditions, which went to unfavorable from favorable, while expectations remained stable and in the favorable zone of the economic cycle. In countries / regions with greater weight in global trade flows, and thus in the global ECI, the economic climate worsened but remained favorable, as in the case of United States and the European Union. China, the world's largest exporter, reported deterioration in the economic climate driven by the drop in PSI, but expectations have improved and are in the favorable zone and above the average of the last ten years. Therefore, the improved expectations in the United States and China show a favorable trend for global growth though at a slow pace. It is noteworthy that the survey was conducted before the announcement of the China's currency devaluation, which could lead to an improvement in the expectations of that country, stimulated by exports.

2 1 20 Chart 2: Economic Climate Index for Selected Countries 150 (in points) European Union United States Japan Germany France United Kingdon China India Russia South Africa jan/15 apr/15 jul/15 Brazil In the group of Latin American countries studied by the Survey, the economic climate has improved in Colombia, Ecuador, Mexico and Peru, despite all of them remain with the ECI below historical average and only Colombia and Peru are in the favorable zone of the economic climate. It stands out the particular case of Peru, which reports a favorable ECI since July 2009 (only in April 2015 the index was in the neutral zone), despite being a country dependent on exports of commodities. The ECI decreased in Argentina, Brazil, Chile, Paraguay and Uruguay. In Paraguay and Uruguay the economic climate changed to unfavorable from favorable, but is above 90 points, and therefore near the neutral zone. The worsening in these countries can be attributed in part to the recessionary conditions of its Mercosur partners, Argentina and Brazil. In Argentina all indicators worsened and the ECI stood at 66 points, with PSI and EI in the unfavorable zone of the cycle (50 and 82 points, respectively). The result, nonetheless, exceeded that of Brazil, which recorded an ECI of 48 points, with PSI reaching rock bottom (20 points) and EI presenting stability in relation to the survey of April, in 76 points. Bolivia and Venezuela kept the ECI, but in different situations. Venezuela continues with all indicators at the lowest possible level of the survey from July In Bolivia the ECI, although unfavorable, is near the neutral zone and only five points below the historical average of the last ten years. The assessment of the current situation is favorable in this country. The concern is in the unfavorable expectations since January 2015, possibly influenced by the Brazilian recession and by oil prices. The survey brings this quarter a survey on inflation expectations for 2015 and Venezuela reports an inflation rate for 2015 of 116% and 68% for Experts do not project improved economic conditions in that country. In 2015, after Venezuela, the highest expected inflation was determined in Argentina (28%), followed by Brazil (8.8%). By 2020, after Venezuela, we see Argentina (10.6%), Bolivia (6.2%) and Brazil (5.3%). In short, the Latin America Survey of July 2015 shows that the region is still far from the global recovery, although the analysis by countries shows great heterogeneity of situations. 2

3 Chart 3: Economic Climate Index for Latin America countries 131 (in points) Argentina Bolivia Brazil Chile Colombia Ecuador Mexico Paraguay Peru Uruguay Venezuela jan/15 apr/15 jul/15 RANKING OF COUNTRIES Previous Position Present Position Country ECI of the last 4 quarters Apr/15 Apr/ Paraguay Peru Bolivia Colombia Uruguay Mexico Chile Ecuador Argentina Brazil Venezuela

4 APPENDIX PRESENT SITUATION INDEX (IN POINTS) PSI jan/13 apr/13 jul/13 oct/13 jan/14 apr/14 jul/14 oct/14 jan/15 apr/15 jul/15 10 years Latin America Argentina Bolivia Brazil Chile Colombia Ecuador Mexico Paraguay Peru Uruguay Venezuela EXPECTATIONS INDEX (IN POINTS) EI jan/13 apr/13 jul/13 oct/13 jan/14 apr/14 jul/14 oct/14 jan/15 apr/15 jul/15 10 years Latin America Argentina Bolivia Brazil Chile Colombia Ecuador Mexico Paraguay Peru Uruguay Venezuela ECONOMIC CLIMATE INDEX (IN POIN) ECI jan/13 apr/13 jul/13 oct/13 jan/14 apr/14 jul/14 oct/14 jan/15 apr/15 jul/15 10 years Latin America Argentina Bolivia Brazil Chile Colombia Ecuador Mexico Paraguay Peru Uruguay Venezuela

5 M e t h o d o l o g i c a l N o t e The Latin America Economic Survey aims for monitoring and forecasting of economic trends, based on quarterly information supplied by economy experts in their respective countries. The survey is - simultaneously - applied with the same methodology in all countries of the region, a method that allows the construction of an agile and comprehensive picture of the economic situation in countries and economic blocks. In July 2015, were consulted 1101 economic experts in 117 countries, being 141 in Latin America. The survey generates information of both qualitative and quantitative nature. The Economic Climate Index (ECI), is the synthesis indicator, comprised of two items of qualitative nature, the Present Situation Index (PSI) and the Expectations Index (EI), which deal, respectively, with the general economic situation in the country at the moment and for the upcoming six months. The individual responses are combined for each country without any weighting. For the average value of each index to be reached, 9 points are assigned to positive responses (+), 5 to indifferent responses (=) and 1 to negative responses (-). The ECI represents an arithmetic mean of the two indices that comprise it. The process of aggregating data for a particular group of countries or continent is made according to the relative share of foreign trade (exports + imports) in each country regarding the total in the region. According to specific criteria of the survey, the phase of the business cycle the country is at the moment is determined by a combination of PSI and EI. When the two indices exceed the average limit of 5 points, the economy is in the "boom" phase. When both are below 5 points, there is recession. The phase of decrease occurs when the PSI is higher and EI is lower than 5 points. And the recovery phase with a higher EI and the PSI lower than 5 points. Indicators on this report are presented considering the value 5 as. Thus indicators above are in the favorable zone and below in the negative zone. 5