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Brazil’s retail sector confidence recedes in March

March 28, 2019

The index accumulates a loss of 8.3 points in the last three months

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The BCB quarterly inflation report has just been released. We will soon publish a report on the central bank’s document.

Confidence in the retail sector receded 3.2 p.p. in March, the lowest reading since October 2018. The index accumulates a loss of 8.3 points in the last three months. These drops, both in the current situation and expectations components, reinforce the scenario of slow recovery in the sector influenced by the high level of uncertainty and the reduction of consumer confidence published this week. All in all, the result reinforces our view of weak growth in early 2019.  

The BCB released the credit figures for February. In real terms, the daily average of new non-earmarked loans climbed 3.3% mom/sa. The performance of the indicator was driven by increases of 5.6% in loans for non-financial corporations and 1.5% in loans for households, adjusted for inflation and seasonality.  In the earmarked segment, new loans soared 11.3% -  new loans for the segment rose 1.0% for non-financial corporations and 20.7% for households (following a 12.4% drop). Overall seasonally-adjusted delinquency remained virtually stable at 2.9%.
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Day Ahead: February’s central government’s budget balance will be released – we expect a BRL 17.8 bn deficit.


Trade deficit narrowed in February, with both exports and imports contracting. Monthly trade balance posted a USD 1.2 billion surplus in February, above median market expectations (USD 0.3 billion surplus, as per Bloomberg) – taking the 12-month rolling deficit to USD 13.8 billion (from a deficit of USD 14.1 billion in January). Looking at the breakdown, also using 12-month rolling figures, energy balance improved slightly, posting a deficit of USD 23.4 billion in February (from a deficit of USD 23.7 billion in January), while non-energy balance remained practically unchanged, posting a surplus of USD 9.6 Billion. However, at the margin the trade deficit improved more substantially, as the seasonally-adjusted 3-month annualized measure came in at USD 4.9 billion in February ( from USD 13.4 billion deficit in January), with the energy deficit at USD 18.8 billion (from a deficit of USD 23.4 billion) and the non-energy surplus at USD 13.9 billion (from USD 10.0 billion).

We expect the trade deficit to remain broadly stable between 2018 and 2019. Oil production is not clearly stabilizing - so the improvement in energy balance is unlikely to last - and the deceleration of the U.S. economy will exert downward pressure on Mexico’s manufacturing exports. However, uncertainty over domestic policies and over the USMCA approval in US Congress will likely slow investment growth at a time that the USDMXN stands at competitive levels.
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Additionally, February’s unemployment rate stood at 3.30%, below market expectations of 3.45% (as per Bloomberg). With seasonally adjusted figures, unemployment rate improved slightly, posting a rate of 3.42% in February (from 3.49% in January), while the participation rate stood at 59.5% (practically unchanged from last month). In turn, the labor informality rate, also using seasonally adjusted figures, increased to 57.7% in February (from 56.2% in January).

Day Ahead: Banxico will hold its monetary policy meeting. While it is widely expected to remain on hold (at 8.25%), recent activity and inflation figures, combined with a looser monetary policy stance by the Fed, can lead the central bank to loosen communication somewhat, gradually paving the room for rate cuts.


Day Ahead: The INDEC will publish the EMAE (official monthly GDP proxy) for January at 4:00 PM. According to leading and coincident indicators, the economic activity grew on a sequential basis in January. Official indicators for industrial output and construction activity showed month-over-month gains of 4.6% and 4.4%, respectively, adjusted by seasonality. The monthly GDP proxy published by OJF consulting firm (IGA index) rose 0.25% mom/sa in the same period. We forecast a 0.7% gain against December 2018, leading to a 6.9% year-over-year drop.


Day Ahead: Think-tank Fedesarrollo will publish industrial and retail confidence for February. At the start of this year, industrial confidence improved (6.3%; 0% one year earlier; 0 = neutral) reaching the most optimistic January level since 2014. Meanwhile, retail confidence remains firmly in optimistic territory at 29.3%, compared to 21.8% one year ago (no change from December). Going forward, we expect stable and low inflation along with a mildly expansionary monetary policy will likely support private sentiment.

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