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Consumer confidence falls in Brazil

May 23, 2019

The decline was driven by drops both in the expectations and current situation components.

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According to FGV monthly survey, consumer confidence declined 2.9 p.p in May, to 86.6, the fourth consecutive drop. The negative result was driven both by the expectations index, which fell 3.7 p.p, and the current conditions component, which declined 2.2 p.p. This result is in line with the negative print from the industrial confidence preview released on Tuesday, which declined 1.6 p.p. in the same period.

Day Ahead: April’s tax collection will be published today at 10:30 AM, for which we expect a BRL 139 bln print.


Activity posted another loss in March. The EMAE (official monthly GDP proxy) posted a 1.3% mom/sa decline from February. Following the downward revision of the first two months of the year, quarter-over-quarter growth remained in negative territory (-0.8% annualized, unchanged from the quarter ended in February). In year-over-year terms, activity fell by 6.8% in March, below the market’s and our expectations (-6% and -5.8% yoy, respectively). Our seasonal adjustment indicates mixed results in the first quarter of the year. Primary activities (agriculture, fishing and mining) climbed 10.6% qoq/saar, similar to the 10.4% posted in 4Q18. Construction also grew by 15.0% qoq/saar, marking a significant recovery from the -20.2% qoq/saar registered in December. Services dropped by 0.1% qoq/saar, which was an improvement from the 5.7% decline in 4Q18. Finally, manufacturing increased by a modest 1.9% qoq/saar (from -18.1% in the previous quarter). We forecast GDP contraction of 1.2% in 2019. Recent performance shows the fragility of output stabilization insinuated in the early months of 2019. We expect the economy to grow on a sequential basis in 2Q19, boosted by normalization of agricultural output, but the risk to our base-case economic scenario for the year remains tilted to the downside, due to continued uncertainty in the political scenario and the leadup to the October presidential election, higher interest rates and ongoing fiscal tightening.
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Day Ahead: The trade balance for April will be released. We forecast a surplus of USD 900 million in the month (versus a USD 1300 million deficit registered in the same month of 2018).


Retails sales grew 1.6% year-over-year in March (from 2.5% in the previous month), below our forecast (2.3%) and the median of market expectations (1.8%). The figure was boosted by a positive calendar effect due to the Easter Holidays. In fact, according to calendar-adjusted data reported by the statistics institute (INEGI), retail sales grew at a slower pace (0.8% year-over-year in March, from 2.5% in February), taking the 1Q19 growth rate to 1.2% (from 1.7% in 4Q18). At the margin, retail sales improved somewhat in 1Q19, supported by the real wage bill. Using seasonally-adjusted figures, retail sales fell by 0.2% mom (from 1.1% in February), taking the quarter-over-quarter annualized growth rate to 1.7% in 1Q19 (from -0.8% in 4Q18). We expect private consumption to moderate its pace in 2019 (relative to the previous year), as the U.S. deceleration and uncertainties facing the economy curb GDP growth. However, recent real wage increases are a buffer for activity. Lower inflation and minimum wage increases, amid a still-tight output gap, are the factors boosting real wages.
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Day Ahead: At 10:00 AM, INEGI will publish CPI inflation figures for the first half of May. We expect bi-weekly CPI to fall by 0.30% (from -0.29% a year ago), leading the year-over-year rate to 4.43% (from 4.44% in the second half of April). 


According to think-tank Fedesarrollo, both industrial and retail confidence remained upbeat in April. Industrial confidence was 4.4% in April (0 = neutral), up from 2.0% one year earlier and 3.0% in March. The improvement from April 2018 was mainly explained by a less disappointing evaluation of current order volumes (-14.4% vs. -22.4% one year ago), while expectations for production in the upcoming quarter ticked up to 32.2%. On the other hand, retail confidence stayed elevated at 29.7%, compared to 28.7% one year ago (27.5% in March). The improvement from last year was explained by better expectations of the economic situation in the coming semester (from 47.5% to 49.7%) and the evaluation of the current situation (from 39.6% to 44.0%). An expansionary monetary policy alongside low inflation and a weaker Colombian peso (referred to by respondents at the principal factor that positively affected exports in the first quarter) would likely keep the business sector confident that improving activity momentum continues. Nevertheless, we note that weaker than expected 1Q19 GDP growth shows signs that the impact of weakening global growth could be filtering through to the Colombian economy, and raises downside risks to our 3.1% forecast for this year (2.6% in 2018).

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