Itaú BBA - Brazilian Lower House still voting on amendments to the pension reform

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Brazilian Lower House still voting on amendments to the pension reform

July 12, 2019

On Wednesday, the House concluded the first round of voting on the base text, with 379 votes in favor and 131 against the proposal.

Our LatAm Macro Monthly report will hit your mailboxes today, featuring scenarios for Brazil, Mexico, Argentina, Chile, Colombia, Peru, the global economy and commodities.

Talk of the Day


The Lower House will carry another session today to continue voting on the amendments (“destaques”) to the pension reform. On Wednesday, the House concluded the first round of voting on the base text, with 379 votes in favor and 131 against the proposal, while the surveys were pointing to 330-350 votes, a surprisingly strong margin. The amendments are essential to gauge the fiscal impact of the final version of the reform – some of the measures already approved include different retirement rules for police officers, lower minimum contribution period for men and changes in the benefit formula for women. After the rest of the amendments are voted, the bill will follow to the second round of voting in the House and, if approved, move on to the Senate.

Retail sales point to moderate consumption growth in May. Broad retail sales grew 0.2% seasonally-adjusted in the month, slightly weaker than market expectations (0.3%) and our forecast (0.4%), while core retail sales declined 0.1%, also below market expectations (+0.1%) and our call (+0.2%). Compared to May 2018, the core indicator climbed 1.0% yoy, while the broad indicator increased 6.4% yoy. According to the breakdown, out of 10 broad retail components, six advanced in May on a seasonally-adjusted monthly basis. Vehicles showed the steepest decline (-2.1%). On a quarterly basis, broad retail sales rose 1.5%, while core retail sales remained stable. The reading is consistent with our view of moderate growth in household spending in 2Q19. ** Full story here.

Paper cardboard dispatches declined 2.2% mom/sa in June, extending its downward trend. This release is important for our industrial production forecast, which now stands at -1.1% mom/sa in June, indicating that economic activity remains soft in 2Q19.

Day Ahead: May’s service sector revenue survey will be released at 9:00 AM, for which we forecast a 0.5% mom/sa decline, leading the year-over-year rate to a 3.5% growth. 


The central bank of Mexico (Banxico) published the minutes of June’s meeting. Held two weeks ago, four out of five board members voted to leave the policy rate unchanged at 8.25%. As widely expected, deputy governor Gerardo Esquivel was the member who voted for a 25-bp cut, arguing that inflation is in a convergence path to Banxico’s inflation target. Moreover, the change of the monetary policy stance of central banks in the developed world and the greater economic activity slack warranted a 25-bp cut, according to him. The minutes show there are divisions even within members who voted to leave the policy rate unchanged. Two board members are not open to cut rates until inflation shows a clear trend towards the central bank target. On the other hand, two members (one of them likely being Esquivel) hinted that Banxico should react to a rate cut by the Fed, which is likely to happen in July, to prevent further monetary conditions’ tightening. The majority of board members mentioned it is essential that core inflation resumes its downward trend. Overall, the minutes suggest higher odds of the central bank cutting rates in 3Q19. Although two votes for a rate cut are likely in August meeting, the minutes suggest core inflation needs to fall before the majority of board members feel comfortable in starting an easing cycle. ** Full story here.

Macro Scenario: We revised our GDP growth forecasts to 0.8% for 2019 (from 1.0%) and 1.1% for 2020 (from 1.3%). We expect the deceleration of the U.S. economy to curb economic recovery, while external and domestic uncertainties surrounding Mexico´s economy are likely to continue to limit investment. The labor market has already begun to deteriorate, with slowing private consumption during a period of contractionary fiscal policy. On monetary policy, despite still-high inflation, the central bank adopted a softer stance in response to the wider-than-expected output gap and looser financial conditions abroad. We now expect Banxico, conditional on diminishing uncertainty, to start its easing cycle in September 2019, reaching a rate of 7.5% by the end of this year with three consecutive 25-bp cuts. We previously expected the cycle to begin in November. ** Full story here.

Day Ahead: The Statistics Institute (INEGI) will publish May’s industrial production at 8:00 AM, which we estimate decreased 0.6% yoy (from -2.9% in April).


Macro Scenario: Recent growth momentum gains are unlikely to persist as private sentiment slumps, the labor market weakens and the global slowdown consolidates. We still see growth of 2.4% this year (4% in 2018) and 2.9% next year. Despite signaling stable rates ahead, we believe a prolonged period of trade-related global uncertainty would likely result in a sharper growth slowdown in Chile’s open economy, widening the output gap beyond that considered in the central bank’s baseline scenario. Hence, we see the board cutting the policy rate further (to 2% before the end of this year) to ensure inflation converges to the 3% target in the relevant two-year forecast horizon. ** Full story here.

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