Itaú BBA - Recovery continues, but with volatility and concerns over the medium term

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Recovery continues, but with volatility and concerns over the medium term

April 17, 2018

Anecdotal information suggest continuation of recover, but the balance of risks is tilted towards disappointment.

With information through April 17, 2018

This report summarizes anecdotal information on current economic conditions received from key business contacts, economists, market experts, and other sources outside Itaú. Apart from the “our view” section, it is not a commentary on the views of Itaú’s Macroeconomic Research team.

Contents:

Consumption and Production of goods and services
Economic activity remains on a recovery trend, according to reports from most sectors. But volatility is still present, and we note increasing concerns about the medium term prospects.

Investment
Investment continues to recover moderately since the second half of 2017. But there is increasing interest about the election outlook, and concerns about the future macro policy and its impact on the different businesses.

Labor Market, Production costs and prices
Some sectors are starting to report impacts of the labor reform: labor lawsuits have been declining since the beginning of this year.

Our view
We have maintained our GDP growth forecasts at 3.0% for 2018 and 3.7% for 2019. But the balance of risks is tilted towards disappointment, amidst higher uncertainties for the political and macroeconomic scenario, both internal and external.



Consumption and Production of goods and services

Economic activity remains on a recovery trend, according to reports from most sectors. But volatility is still present, and we note increasing concerns about the medium term prospects.

The auto sector continues to be one of the highlights, with several indications of demand picking up. The trend is expected to continue for upcoming months, but this positive view is very much centered in the short term.

The sectors involved with exports and imports highlight a substantial increase in the volume of imports in the last 6 months, as demand (consumption, investment) picks up. However, there is uncertainty about economic policy over the medium term, especially regarding potential changes in taxes that affect trade.

The retail sector reports that same-store-sales will grow by double-digit rates year-over-year in April, but still doesn’t see a broad-based pick-up within the different products. The retail food sector reports that the two recent relevant events, Christmas and Easter, were positive.

Sectors related to production and sales of electronics report activity on a clear recovery trend, and a substantially positive growth rate in the beginning of the year.

Investment

Investment continues to recover moderately since the second half of 2017. But companies continue to focus on specific investment in efficiency and modernization, and postpone larger (long-term) investments.

There is increasing interest about the election outlook, and concerns about the future macro policy and its impact on the different businesses.

Labor Market, production costs and prices

Some sectors are starting to report impacts of the labor reform: labor lawsuits have been declining since the beginning of this year.

In addition, we continue to see no pressure on costs and prices, as the unemployment rate at high levels and low inflationary inertia are factors that allow lower wage adjustments.



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