Itaú BBA - Monthly GDP indicators expand in Brazil

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Monthly GDP indicators expand in Brazil

July 16, 2019

Both BCB and Itaú's monthly GDP indicators increased in May.

Talk of the Day


According to the BCB, the IBC-Br monthly activity index increased 0.5% mom/sa in May, in line with our forecast and the median of market expectations (both at 0.5%). It is the first positive result of 2019, after four consecutive monthly declines. However, on a quarterly basis, the index decreased 1.0%. Compared to the same month of 2018, the index increased 4.4%, slightly above our forecast (4.3%) and in line with market consensus. The steep year-over-year growth rate is mainly explained by the slide in economic activity occurred in May 2018, amid the truckers’ stoppages. 

Our Itaú Unibanco monthly GDP (PM-Itaú) also climbed in May (+0.3% mom/sa). On a year-over-year basis, the indicator soared 4.1%, also partly driven by the result amid the truckers’ stoppage in 2018. In the March-May quarter, PM-Itaú went up 0.3% vs. the previous quarter (December 2018-February 2019). From a demand standpoint, household spending advanced 0.4% mom/sa in May, while fixed capital investment remained broadly unchanged. Despite the small increase, the result is consistent with our expectation of sluggish growth in 2Q19. ** Full story here.

The BCB released yesterday its weekly survey with market participants (Focus). For the 20th consecutive week, the median of GDP growth forecasts for 2019 printed a downward revision, albeit small (-1 bp, to 0.81%). For 2020, GDP expectations dropped to 2.10% (from 2.20%), and, for 2021, remained flat at 2.50%. The median of IPCA inflation expectations for 2019 increased to 3.82% (from 3.80%), and, for 2020, fell slightly to 3.90% (from 3.91%). Inflation forecasts for 2021 continued at 3.75%. The year-end Selic rate forecasts for 2019 and 2020 remained stable at 5.5% and 6.0%, respectively. For 2021, analysts now expect the Selic rate at 7.0% (from 7.50% previously). Finally, the median of exchange rate expectations was stable at BRL 3.80/USD for 2019 and 2020, and dropped to BRL 3.81/USD (from BRL 3.84/USD) for 2021.


Activity in May was upbeat. Retail sales increased 8.2% yoy (4.0% previously), above the market consensus of 5.0% and our 4.6% forecast. Once adjusted for seasonal factors, retail activity grew at a slower but still upbeat pace. Food and vehicle sales contributed to roughly half (~4.0pp) of the retail sales gain in May (8.2% yoy), while all but one of the major categories expanded. Meanwhile manufacturing rose 3.2% yoy (-1.5% previously), in between our 2.4% forecast and the 4.2% market consensus. Once adjusted for seasonal and calendar factors, manufacturing grew a milder 2.6% yoy (-0.3% in April). Despite firm readings in May, the economy still faces significant headwinds. Low consumer confidence, a weak labor market, and our expectation of lower global growth make us believe a meaningful activity acceleration this year is unlikely. Hence, we see growth of 2.6% this year (stable from last year). ** Full story here.

The central bank’s monthly analysts survey shows that inflation expectations for 2019 edged up to 3.55% from the 3.40% expected in June. The 1-year horizon inflation outlook remained broadly stable at 3.30% (3.31% in June), while the 2-year horizon inflation expectation moderated to 3.08% (3.19% previously). Higher prices are seen as driven by supply-side shocks affecting volatile components, as yearend expectations for inflation excluding food prices only inched up to 3.29% (from 3.24% previously) and remained broadly unchanged for one and two-year ahead horizons. Meanwhile, the policy rate is seen stable at 4.25% at next week’s monetary policy meeting, where it will stay until February 2020, with the central bank hiking rates to 4.50% the following month (unchanged from June). We believe that the central bank will start an easing cycle before the yearend, cutting rates to 4.0%. Meanwhile, the growth outlook for this year moderated to 3.1%, from the 3.2% recorded the last time GDP was surveyed (April). A recovery to 3.5% is seen for 2020. Low consumer confidence, a weak labor market, and our expectation of lower global growth make us believe a meaningful activity acceleration this year is unlikely. Hence, we expect the central bank to increase the monetary stimulus ahead, but higher food inflation is a risk to our call.


Day Ahead: At 4:00 PM, the INDEC (the official statistical agency) will publish the national CPI for June 2019. The month over-month increase in consumer prices for June is estimated at 2.6% (by Elypsis consulting), which would mean a third consecutive decline since April. If this estimation is correct, the twelve-month inflation will fall to 55.6% from 57.3% in May.

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