Itaú BBA - Evening Edition – Brazilian GDP grew 0.5% in 4Q19, in line with market expectations

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Evening Edition – Brazilian GDP grew 0.5% in 4Q19, in line with market expectations

Março 4, 2020

In our view, economic activity will continue on a moderate acceleration process, but the coronavirus outbreak poses a risk to this scenario

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GDP increased 0.5% qoq/sa and 1.7% yoy in 4Q19, in line with market expectations and our call. From the supply side, industrial GDP increased 0.2%, services grew 0.6% and agricultural production declined 0.4% qoq/sa. Relative to our forecast, industrial GDP and services came in slightly stronger than expected, offset by weaker agricultural production. From the demand side, consumption increased 0.5%, while investment declined 3.3%. Rising consumption and falling investment were expected, but both came in slightly weaker than we anticipated, offset by stronger government consumption and net exports.

In 2019, GDP grew 1.1%. Consumption and investment grew 1.8% and 2.2% respectively, while government consumption and exports dropped by 0.4% and 2.5% respectively. These figures reinforce that the weakness of the global economy (affecting exports) and the negative contribution from the public sector are the main drags on aggregate demand. In our view, economic activity will continue on a moderate acceleration process, despite a weaker 1Q20, driven by private credit growth, which affects consumption and investment. The downside risk to this scenario is clearly the performance of the global economy due to the new coronavirus outbreak.** Full Story here.

The Constitutional Affairs Committee approved the revision of public funds (PEC 187/2019). The proposal is part of the 2nd phase of the reform agenda and aims at eliminating most of the country’s 248 federal funds. According to the Administration these funds concentrate resources in specific activities and projects and therefore restrict the use of these provisions. The proposal now heads to the Senate Floor.

Cornavirus update: The Ministry of Health confirmed one new coronavirus case and a preliminary test indicates that there’s already a forth case, but it still lacks a final confirmation.

Tomorrow’s Agenda: The BCB announced that will intervene in the FX market through an offer of 20,000 swap contracts (USD 1Bln) at 9:30AM (SP time). Also, February’s Anfavea auto production will be published at 11:20 AM (SP time). 


Tomorrow’s Agenda: Nominal wage growth for January will be released at 9:00 AM (SP time). Nominal wages grew 4.5% yoy in December (4.2% in November; 4.4% in 3Q19), resulting in a real wage expansion of 1.4% (1.3% previously; 2.1% in 3Q19). With the labor market gradually loosening, wage dynamism is likely to lose steam ahead.


According to the latest central bank survey, inflation expectations for 2020 declined in February. Market participants forecast inflation at 40.0% for this year (median value), down from 41.7% in the previous survey. The average expected headline inflation for the period February-April was revised downward to 2.7% mom (from 3.0%). Inflation expectations for the next twelve months slipped to 39.9%, from 40.0% previously. Consumer prices are expected to increase by 30.5% in 2021, down from 31.3% before. Core item prices are expected to increase by 39.3% this year, and 39.0% for the next twelve months (-2.0 pp before). The expected yield of Badlar rate ticked down to 27.7% by end-December, from 28.0% before. Analysts revised upward their exchange-rate forecasts for December 2020 to ARS/USD 78.9, from 78.7 in the previous survey. Finally, participants forecast a 1.2% GDP contraction this year (-1.5% previously).

Tomorrow’s Agenda: Manufacturing and construction data for the first month of the year will be released at 4:00 PM (SP time). According to leading indicators, both indexes showed diverging performances on a sequential basis. The industrial index (IPI), published by OJF consulting firm, rose 1.6% mom/sa in January (-1.9% yoy), while construction activity, according to Grupo Construya, fell 3.7% mom/sa (-3.9% yoy).  


Tomorrow’s Agenda: The Colombian national institute of statistics (DANE) will release the inflation figures for February at 9:00 PM (SP time). We expect a CPI of 0.65% mom (above last year’s 0.57% gain), leading to an annual inflation of 3.70%.

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