Itaú BBA - We forecast 1Q17 GDP growth at 1.1%

Macro Vision

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We forecast 1Q17 GDP growth at 1.1%

mayo 26, 2017

Strong contribution from agriculture and a favorable carryover for industrial production.

Our scenario assumes a strong contribution from agriculture and a favorable carryover for industrial production.

We lowered our forecast to 1.1% from 1.4% due to weaker economic activity figures in March.

GDP increase in 1Q17 driven by agriculture and the carryover for industrial production

IBGE (Brazil’s census bureau) will release the 1Q17 GDP next Thursday, June 1.

Based on Itaú Unibanco’s monthly GDP data and other economic-activity indicators, we forecast 1Q17 GDP growth at 1.1% qoq/sa (-0.3% yoy). We expect a revision of 4Q16 GDP to -0.5% from -0.9%.

The figure results mainly from a positive contribution from the agriculture GDP, with forecasted gains of 17% for the soybean crop and 47% for the corn crop (vs. 2016). According to our calculations, most of the positive contribution will take place in 1Q17, due to the methodology used by IBGE, the census bureau, to distribute each crop across quarters.

Industrial GDP will also contribute positively in 1Q17. Notwithstanding the stagnation seen in the first two months of the year and the 1.8% decline in March, the robust increase seen in December 2016 ensures a positive statistical carryover into 1Q17. 

Finally, we forecast near-zero contribution from the service sector. 

IBGE updated the methodology for the monthly retail survey (PMC) and monthly service survey (PMS) starting in 2017. In our view the methodology changes have little relevance to the quarterly growth (see more details in Macro Vision – We increased our 1Q17 GDP forecast to 1.4% from 0.5%).

Downward revision due to weaker figures in March

The three major economic activity indicators weakened considerably in March. Industrial production fell 1.8% mom/sa. Real services revenues fell 2.3% and retails sales declined 1.9% mom/sa over the same period. All results came in below expectations and our forecasts.

Meanwhile, the outlook for agricultural production improved further, slightly improving our (already strong) forecast for agricultural GDP.

The balance is a small decline in our GDP forecast to 1.1% qoq/sa from 1.4% previously. In yoy terms, we forecast -0.3% (vs -0.1% previously).


 

Artur Manoel Passos


 

 



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