Itaú BBA - Evening Edition – Pension reform’s report presented at the Lower House in Brazil

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Evening Edition – Pension reform’s report presented at the Lower House in Brazil

June 13, 2019

According to the rapporteur, the fiscal impact estimate of the proposal after the changes amounts to BRL 913 bn in the next ten years.

Talk of the Day


The rapporteur for the pension reform, Samuel Moreira, presented today his report on the proposal to the Special Committee, in the Lower House. According to the rapporteur, the fiscal impact estimate of the proposal after the changes amounts to BRL 913 bn in the next ten years, in line with the market expectations. Moreira’s report maintained the minimum age as originally proposed by the government, but suggested changes to the transition rules, among other modifications. The report now heads to the Committee to be voted, without an official deadline. If approved, it will head to the Lower House floor, where it will be further discussed and eventually voted upon.

Real service sector revenue increased 0.3% mom/sa in April, after 3 consecutive declines. Compared to the same period of 2018, the indicator declined 0.8%, slightly below market expectations (-0.6%) and our forecast (-0.5%). The breakdown shows growth in 3 categories and declines in 2 groups. Services offered to families, which has a low weight on PMS but is important for our GDP tracking, increased 0.1% mom/sa. Transportation services, on the other hand, declined 0.6% after a positive reading in the previous month. Data already released for April and May indicate slow growth in the second quarter – our preliminary GDP forecast for 2Q19 stands at +0.3% qoq/sa, after a 0.2% decline in 1Q19. 

April’s Itaú Unibanco monthly GDP (PM-Itaú) advanced 1.0% mom/sa and 0.4% yoy. Mixed economic activity figures were behind this performance. On one hand, industrial production (PIM-PF) and real revenues from services (PMS) both went up 0.3% during the month. On the other hand, broad retail sales (PMC) remained virtually flat. From a demand standpoint, household spending increased 0.2% during the month, while capital investment expanded 2.1% mom/sa. For May, we expect, for the time being, PM-Itaú to remain stable. ** Full story here.

Tomorrow’s Agenda: At 8:30 AM, the Central Bank’s monthly GDP proxy (IBC-Br) for April will come in, for which we forecast a 0.2% mom/sa growth, leading the year-over-year print to 0.6%.


Consumer prices rose 3.1% mom in May, in line with the market consensus forecast and down from 3.4% in April and 4.7% in March. Lower volatility of the exchange rate and tight monetary policy contributed to a modest disinflation. The annualized measure of the last three months consequently decelerated to 55.2% (from 59.5% in April), while the annual reading reached a record high of 57.3%, due to the annual comparison base effect. Core inflation came in at 3.2% mom, down from 3.8% in April and 4.6% in March. At the margin, the core reading is running at an annualized 57.6% (last three months), down from 61.9% in April. On the positive side, the decline in food inflation steepened to 2.4% mom. Inflation on items affected by seasonality contributed to the deceleration of the headline figure, with a 0.6% mom price increase for these products, down from 1.6% mom in April. We forecast 40% inflation by December. This estimate implies continued disinflation ahead, driven by sustained exchange rate stability. However, we note that there may be periods of exchange-rate instability as the presidential election approaches, if market participants perceive a negative outcome in October.


As approval numbers drop, President Piñera made a second adjustment in 18 months to his cabinet. Think-tank CEP’s political perception survey for May showed that the Piñera administration suffered a major retreat in evaluation, with just 25% of the respondents approving the government (down from 37% in Oct-Nov 2018). Meanwhile, the disapproval rate sits at 50%, up from 39% previously. The slow advance in the reform agenda (amid a lack of majority in either chamber of Congress), the worsening economic environment, and general discontent with the political establishment are likely hurting the administration’s approval. So, it was no surprise to announce a cabinet reshuffle. The changes are in Foreign affairs: Out: Roberto Ampuero, In: Teodoro Ribera (Justice in Piñera 1.0); Economics: Out: Jose Ramón Valente, In: Juan Andrés Fontaine (Repeat from Piñera 1.0, coming from Public Works); Social development: Out: Alfredo Moreno (change), In: Sebastián Sichel; Public works: Out: Juan Andres Fontaine (change to Economics), In: Alfredo Moreno (coming from Social Development); Heath: Out: Emilio Santelices, In: Jaime Mañalich (Repeat from Piñera 1.0); Energy: Out: Susana Jiménez, In: Juan Carlos Jobet (Labor in Piñera 1.0). While the cabinet change will energize the administration, we expect to see only a limited practical impact, especially regarding the advancement of the ambitious reform agenda.


Tomorrow’s Agenda: At 12:00 PM, activity indicators for the month of April will be published. We expect industrial production to contract 2.0%, despite upbeat oil refining, as a notably high base of comparison and unfavorable calendar effect hamper activity. Meanwhile, retail sales growth is likely to moderate to 4.2% in twelve months (5.3% previously) as auto sales slowed and confidence dropped.

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