Itaú BBA - Activity indicators fall further in Brazil

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Activity indicators fall further in Brazil

May 15, 2019

Both our monthly GDP proxy (PM-Itaú) and service sector revenues (PMS) declined in March.

Talk of the Day


On economic activity, our monthly GDP proxy (PM-Itaú) posted a 0.4% mom/sa decline in March, leading the year-over-year rate to -0.6%. Mixed economic activity figures were behind the decline. On one hand, industrial production (PIM-PF) and real revenues from services (PMS – see the paragraph below) fell 1.3% and 0.7%, respectively. On the other hand, broad retail sales (PMC) climbed 1.1% during the month. From the demand standpoint, household spending advanced 0.3% mom/sa in March, while capital investment remained virtually stable. In 1Q19, PM-Itaú fell 0.6%. For April, we expect, for the time being, PM-Itaú to rise 0.6% mom/sa.
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Real service sector revenue (PMS) dropped 0.7% mom/sa in March, the third consecutive decline, leading the year-over-year rate to -2.4%, weaker than market expectations (-0.7%) and our forecast (-1.5%). The breakdown was ambiguous, as services offered to families, which has only a 10% weight on the aggregated PMS index, but is significantly important for our GDP tracking, increased 1.4% mom/sa. Transportation services was also positive in the month, growing 0.5% mom/sa. IT & communication services was the negative highlight, declining 1.7% mom/sa. The result reinforces the weakness of economic activity in the first quarter of the year – our 1Q19 GDP forecast remains at -0.2% qoq/sa. The GDP release is likely to show a slightly positive result for services, offset by negative readings for the industrial and agricultural sectors.

Day Ahead: BCB’s monthly activity index (IBC-Br) for March will come in at 8:30 AM, for which we forecast a 0.2% mom/sa decline, leading the year-over-year rate to a 2.3% decrease.


Manufacturing and retail sales in the first quarter of the year remained solid, pointing to a consolidation of the activity recovery. Robust sector indicators and strong imports of capital goods (hinting the investment rebound persisted in 1Q19) are consistent with a 3.4% GDP growth (without seasonal adjustments; 2.8% in 4Q18), to be released today. Retail sales increased 5.3% yoy in March (6.1% in February), close to both the market consensus and our forecast (5.5%). In 1Q19, food and beverage sales led retail growth, but a sharp deceleration of auto sales led to a moderation of total sales. At the margin, retail sales (excluding fuels and auto sales) accelerated to 11.5% qoq/saar in 1Q19, the fastest pace since 2Q18 (2.1% in 4Q18). Manufacturing completed five consecutive quarters of growth in 1Q19. The 3.2% increase in March (2.9% previously) came in between our 2.6% expectation and the 3.5% market consensus. At the margin, manufacturing accelerated to 2.8% qoq/saar, from the 6.4% drop in 4Q18. The still expansionary monetary policy, low inflation (benefitting real wage growth) and improved private sentiment would drive the economic recovery this year. Nevertheless, the sluggish global growth is a downside risk.
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Day Ahead: At 1:00 PM, GDP for the first quarter of 2019 will be published. In 4Q18, the gradual activity recovery advanced with both investment and private consumption accelerating. So far this year, retail sales point to still robust consumption, while imports of capital hint at the investment rebound persisted. We expect growth of 3.4% for the original series (2.8% in 4Q18). Later in the day, the monthly coincident activity indicator (ISE) will be published for March.


Day Ahead: At 4:00 PM, the INDEC (the official statistical agency) will publish the National CPI for April 2019. The consulting firm Elypsis expects a 4% mom increase, down from 4.7% in March. Thus, annual inflation would hit 56.7% yoy, up from 54.8% in March.


Day Ahead: The statistics institute (INEI) will announce March’s GDP proxy. We estimate that the GDP proxy expanded 2.9% yoy in the month, from 2.1% in February. Assuming our forecast is correct, 1Q19 GDP proxy would grow 2.2% yoy (from 4.8% in the 4Q18).

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