Itaú BBA - Evening Edition – Retail sales fall sharply in Brazil

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Evening Edition – Retail sales fall sharply in Brazil

February 13, 2019

For the time being, we forecast a slight seasonally-adjusted increase in both retail sales indicators in January.

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Core retail sales dropped 2.2% in December, well below the median of expectations and our forecast (-0.1% and -0.3%, respectively). The breakdown shows that the normalization after strong Black Friday results in November was greater than expected. Broad retail sales (which include vehicles and construction materials) declined 1.7% in December. In addition to the Black Friday effect, sales of vehicles and construction materials also fell in the month. For the time being, we forecast a slight seasonally-adjusted increase in both retail sales indicators in January.

Tomorrow’s agenda: December’s Services Sector Survey (PMS) will be released at 9:00, for which we expect a 1.2% yoy decline.


Tomorrow’s agenda: The INDEC (the official statistical agency) will publish the January’s national CPI at 5:00 PM (SP Time). The consulting firm Elypsis, which tracks prices, has projected a new sequential reduction in headline inflation for January to 2.5% mom, which would lead the annual inflation rate to 48.7%.


Tomorrow’s agenda: The central bank will publish the minutes of its January meeting at which the board unanimously hiked the policy rate by 25bps (to 3%). We expect the minutes to outline that the domestic activity and core inflation evolvement has been in line with expectations, yet provide some inkling that the riskier external outlook could result in a more cautious approach to the normalization process.


Tomorrow’s agenda: The central bank will publish December’s trade balance at 1:00 PM (SP Time). We expect a trade deficit of USD 800 million in the period (USD 517 million surplus one year earlier). At the same time, activity indicators for the month of December will be published. We expect industrial production to rise 4.0% yoy, while still strong auto sales in the month point at robust retail sales growth of 8.0% in twelve months.


Macro scenario: Consumer prices remained stable in January and annual inflation slowed to 2.4%, nearing the lower bound of the central bank’s target range (4% ± 2%). We expect the central bank to leave the monetary policy rate unchanged in 2019, although now the risks are tilted toward an interest rate cut. Economic activity recovered in 4Q18 due to increased electricity generation. We estimate that GDP grew by 4% in 2018. Our YE19 GDP growth forecast also stands at 4%, although we see downside risks due to the drought. The government issued USD 500 million in bonds in the international financial markets recently. We expect total public gross debt to be at 21.4% of GDP by the end of 2019.


Macro scenario: The fiscal deficit closed 2018 at 2.7% of GDP, down from 3.5% in 2017, helped by the transfer of assets resulting from the “over 50” law (1.3% of GDP). For 2019, we forecast a fiscal deficit at 2.9% of GDP due to slower expected growth. Economic growth is likely to decelerate due to a sluggish tourist season and lagging exports and investment. We forecast GDP growth of 1% in 2019, following a 1.9% estimated expansion in 2018. Annual inflation decreased in January due to lower price increases for public services compared with the same month last year. Our YE19 inflation forecast stands at 7.5% (above the upper bound of the target range).

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