Domestic financial conditions tightened considerably as the global financial and economic outlook deteriorated from mid-September 2008. The supply of foreign credit to Brazilian enterprises, including exporters, had been abundant before the crisis but dried up rapidly. The cost of domestic borrowing rose sharply, and the real depreciated by over 40% from the highs of mid-2008 through year-end. Activity plummeted in the last quarter, dragged down by a collapse in industrial production, especially in credit-sensitive sectors, such as the motor industry, and a run-down in inventories, albeit from high levels. Demand for Brazilian exports also began to weaken later in the year. However, pressures were notably lower than those experienced by other large emerging-market economies. This is due essentially to the continued consolidation of macroeconomic adjustment following the floating of the real in 1999 – based on a policy framework combining inflation targeting, a floating exchange rate, rules-based fiscal policymaking and prudent public-debt management. This policy framework has delivered gradually falling inflation and public indebtedness, and has reduced external vulnerabilities. These factors have been essential for increasing resilience to external shocks and have laid the groundwork for raising the economy’s growth potential. Another reason for relatively good performance in spite of the crisis is that the banking sector is in good shape, and the non-financial corporate and household sectors do not suffer from the balance-sheet weaknesses that are at the heart of financial distress elsewhere. Indeed, there are signs that the economy is recovering, although the global economic outlook remains extremely uncertain.