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Pension reform to be presented to Brazilian Congress today

February 20, 2019

Further details about the proposal and its impact on public finances should be the highlight

Talk of the Day


The official proposal for the pension reform is expected to be presented to Congress today, probably at 9:30 AM. Last week, local reports indicated that president Bolsonaro agreed with a minimum retirement age of 65 years for men and 62 years for women, with a transition period of 12-14 years. Further details about the proposal and its impact on public finances should be the highlight. Also, a press conference with the economic team is scheduled for 10:15 AM, and at 10:30 AM, minister Paulo Guedes will present the proposal to the governors.

On fiscal accounts, tax collection came in at BRL 160.4 billion in January, a bit stronger than expected (our call: BRL 159 bln; market’s: BRL 157.6 bln). Tax collection decreased 0.7% yoy in real terms during the month, but this was distorted by large REFIS/PRT revenues collected in January last year. The negative highlight in the month came from revenues related to consumption and wage bill, which declined 0.2% yoy and 0.3% yoy in real terms in the period, respectively, while revenues related to profits overperformed (14,0% yoy in real terms).

Excluding revenues from the REFIS/PRT, tax collection is keeping a good pace, despite some weakening at the margin. Real revenues ex-REFIS increased 4.5% yoy in real terms in the month, with the 3-mma going to 3.1% from 4.2% in December. The central government primary result for January will be released only next week.

The Serasa Experian Index for Retail Activity fell 2.8% in January (our seasonal adjustment). In year-over-year terms, the index slowed to -0.9% (from 2.6% in the previous month). The breakdown shows monthly declines in 4 out of 6 categories, led by furniture & household appliances (-2.3%). Combining with other indicators, our preliminary forecasts for January retail sales are: core (0.4% mom/sa) and broad (0.3% mom/sa).

FGV has just released its industry survey preview, suggesting a small improvement for the sector - following declines in 3Q18 and stagnation in 4Q18. The results are consistent with a weak recovery in 1Q19.

Confidence in the industrial sector rose 0.9pp to 99.1 in February. The index is now 1.9 pp below the 1Q18 average. The improvement was driven by better current conditions (up 2.0 pp to 99.0), while expectations fell 0.3 pp to 99.2. The preview of the capacity utilization (NUCI) rose by 0.4pp to 74.7, following four consecutive declines and 2.4pp accumulated drop between Sep-18 and Jan-19. 

Looking forward, we expect the improvement in financial conditions since October to boost further the industrial sector. The final survey (including additional data) will be released on February 26.


According to think-tank Fedesarrollo, a majority of consumers were still downbeat at the start of the year, but a recovery remains underway. Consumer sentiment improved to -2.8% from last year, as well as from the end of 2017 (-8.3% in December and -19.6% in November; 0 = Neutral). The continued recovery of consumer confidence is in line with the passing of a more-consumer friendly tax reform in December than initially expected, as well as some strengthening of the Colombian peso. Relative to January 2018 (-5.4%), better expectations explain the improvement. Overall, this sub-index went from -4.6% one year ago to -0.4% in January (-11.1% in December) boosted by improved economic expectations for the next 12 months. Meanwhile, the sub-index that focuses on economic conditions inched up to -6.4% from -6.6% one year earlier. Nevertheless, it is still worse off than the -4.1% recorded in the previous month. We believe low inflation along with an expansionary monetary policy and a broadly stable exchange rate will aid the consumer outlook and support a continuation of the consumption recovery. We expect an activity pick-up this year to 3.3% (2.6% expected in 2018).


Day ahead: The treasury ministry will publish the federal fiscal accounts for January 2019. We expect further fiscal consolidation this year but the risk of a primary deficit larger than the target is high.

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