Itaú BBA - We raised our 2Q17 GDP forecast from -0.2% to 0.0%

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We raised our 2Q17 GDP forecast from -0.2% to 0.0%

agosto 16, 2017

The increase is a consequence of stronger data in June.

The increase is a consequence of stronger data in June. Positive surprises include industrial production, retail sales, service real revenues and the labor market.

In our assessment, 2Q17 was marked by stronger underlying growth than we had forecast for the GDP headline. Simulations suggest that the result will be revised upwards at the time of next quarter’s GDP release.

"Weak" aggregate result, better underlying growth

2Q17 GDP will be announced by the IBGE on September 1, a Friday.

Based on our Itaú Unibanco monthly GDP and other economic activity indicators, we estimated GDP to be flat qoq/sa in 2Q17. By coincidence, we also forecast stability in the year-over-year figure, improving from a 0.3% yoy decline in 1Q17. 

Two factors help explain the apparent slowdown compared with 1Q17.

First, we forecast a slight negative contribution from agricultural production to the 2Q17 qoq/sa headline, after a strong positive contribution the previous quarter. This negative contribution is due to the methodology used to measure the distribution of agricultural production between quarters, and it does not change the fact that the strong growth in agricultural production will boost the economy throughout the year.

Secondly, the weak activity data in March generated an unfavorable carry-over effect on the following quarter, affecting GDP growth in 2Q17 more than in 1Q17.

Monthly indicators suggest stronger underlying growth over the quarter. Industrial production, broad retail sales and real service revenues rose 2.5%, 3.7% and 3.1% between June and March, respectively. The labor market continued to show gradual improvement.

Thus, we forecast a "weak" aggregate result for 2Q17 but with widespread underlying growth. This is the opposite of the situation seen in 1Q17 (strong headline, but highly concentrated in the Agricultural sector).

The breakdown into supply components shows a 1.9% decline in agricultural output and a 0.4% drop in industrial output, offset by a 0.4% expansion in the Services sector.

Finally, our preliminary forecasts suggest that qoq/sa growth in 2Q17 will be revised upward with the first 3Q17 GDP release on December 1. This change would be a consequence of the methodology used by IBGE to seasonally adjust the GDP series. Given the non-seasonally adjusted GDP series that we forecast for each quarter, the model chosen to prepare the series for the seasonal adjustment will likely change between the 2Q17 and 3Q17 releases, altering the growth numbers of previous quarters.

Increase in forecast is due to strong data in June

The 0.2 percentage-point increase in the revision reflects the top three monthly surveys, which beat our expectations and the market median:

The labor market also surprised, with the unemployment rate declining in the quarter ended in June. Although the surprise was driven by gains in informal employment, these informal jobs also contribute to an increase in the wage bill, boosting family consumption.


Artur Manoel Passos



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