Itaú BBA - Evening Edition – Retail sales decline sharply in Brazil

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Evening Edition – Retail sales decline sharply in Brazil

Maio 13, 2020

All of the March data show that the impact of social distancing measures was already strong that month

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Broad retail sales declined 13.7% mom/sa in March, slightly better than market expectations (-14.5%) and our call (-16.0%). The negative result reflects the impact of social distancing measures that started in mid-March. Sales in supermarkets (+14.6% mom/sa) and drugstores (+1.6% mom/sa) increased, likely in anticipation to the lockdown, while all the other components declined strongly. The main highlights were textiles, apparel and footwear (-42.3% mom/sa), auto & parts (-36.4%), books, periodicals, magazines (-36.1%) and furniture and appliances (-25.9%). The drop in the core retail index (which excludes vehicles and construction material) was milder (-2.5%) because supermarket sales have a higher weight in the core index (50%). All of the March data show that the impact of social distancing measures was already strong that month. Our GDP tracking indicates a 1.4% qoq/sa drop in Q1 (not annualized). For Q2, we currently forecast a 10.6% qoq/sa decline (not annualized). We see a recovery process starting in Q3, GDP to decline 4.5% this year, and grow +3.5% next year. **Full story here.

Paper cardboard dispatches dropped 5.5% mom/sa (-2.4% yoy) in April (our seasonal adjustment). The 3-month moving average also receded, by 2.3%. After this result, our preliminary forecast for industrial production (April) stands at -23.3% mom/sa (-31.5% yoy).

The BCB intervened in the FX market by selling USD 880 million in swap contracts. The BRL ended the session at 5.90 per dollar, a 0,6% depreciation from yesterday, after reaching 5.94 per dollar in the intraday high.

Itaú Daily Activity Index: Our Daily Activity Index has decreased 2.0 p.p. in the last available day (to 71.7), while the 7-day moving average increased 0.7 p.p., to 75.7. The index is down 28% from the first half of March to the last data available (Sunday, May 10th).


The central bank published its bi-annual financial stability report (IEF), highlighting the unusually large tensions that the financial system has faced since March, following the developments of the global health emergency. The central bank notes that there has been high volatility in the financial sector, but no events of significant financial disruption have been seen, partly due to the implementation of exceptional liquidity measures. Significant portfolio outflows from emerging markets in recent months by non-residents challenges the ability to finance current account deficits. However, the external financial position and macroeconomic conditions of Chilean businesses remain favorable to confront the capital outflows. These factors, together with a framework inflation targeting policy and flexible exchange rate regime, contribute to the mitigation of the adverse effects of foreign capital flight. The downturn in economic activity is materializing one of the risks reported in previous reports: the deterioration of the labor market. This risks highlights the importance of income support measures put forward by the authorities. Overall, the central bank notes that the current situation puts to test the bumper mechanisms of external shocks, the margins accumulated throughout the years, the resilience of the institutions and the depth of our financial market. At the same time, it demands efficiency and coordination among policymakers.


Macro Scenario: The government-imposed quarantine has controlled the transmission of COVID-19. We expect a 2.6% drop in GDP this year. The government announced a fiscal package to mitigate the effects of the lockdown, and the central bank aggressively cut the interest rate. ** Full story here.


Macro Scenario: The spread of COVID-19 in the country remains under control. We expect a significant drop in activity in 2Q20, followed by a moderate recovery during the second half of the year. We forecast a GDP contraction of 3.6% this year, from -2.3% in our previous scenario. The fiscal deficit (including the central bank) is expected to increase to 7.0% of GDP this year, from 3.5% in 2019, due to a negative impact on tax collection and an announced increase in spending. ** Full story here.


Tomorrow’s Agenda: Activity indicators for the month of March will be released. With car sales shrinking by 39.1% yoy and data reflecting a notable loosening of the labor market, we expect retail sales to contract 2%, a complete turnaround from the 13.2% increase registered in February (6.5% in 2019). Meanwhile, with energy demand shrinking 0.6%, we see manufacturing retreating 5% (+4.6% in February; 1.5% in 2019). The trade balance for March will be also be published. With the developments in the global market since February, exports slumped in March by 28.5%, while the lockdown of the Colombian economy would likely halt import demand. For March, we expect a trade deficit of USD 958 million (USD 755 million deficit last year).


Tomorrow’s Agenda: The Central Bank of Mexico (Banxico) will hold a board meeting to decide on the reference rate. We expect Banxico to cut its policy rate by 50-bp (reaching a rate of 5.50%), supported by well-behaved inflation and the sharp deterioration of economic activity. Board members seem to agree on the need for lower rates, but most of them still have a cautious tone over the easing pace, hinting that cuts larger than 50-bps are unlikely. We do not rule out votes for a cut larger than 50-bps.


Tomorrow’s Agenda: The INDEC (the official statistical agency) will publish the national CPI for April 2020. Elypsis consulting estimated a 2.0% month-over-month increase for consumer prices. If this estimation is correct, 12-month inflation will fall to 46.3% in April, from 48.3% in March.

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