Itaú BBA - Evening Edition - Retail sales surprise to the downside in Brazil

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Evening Edition - Retail sales surprise to the downside in Brazil

Janeiro 15, 2020

In our view, economic activity remains in a gradual acceleration trend, but with some weaker signs at the margin

Talk of the Day
 

Brazil

In November, core retail sales advanced 0.6% mom/sa, below market expectations (+1.2%) and in line with our forecast (+0.6%), while the broad component receded 0.5% mom/sa, below both market expectations and our forecast (mkt: +0.4%; Itaú: 0.0%). On an annual basis, the indicators increased 2.9% and 3.8%, respectively. The breakdown shows that 5 out of 10 categories posted gains in the month. Looking ahead, our preliminary forecast for December’s retail sales is a slight increase in the core component (+0.2% mom/sa) and a minor decline in broad retail sales (-0.3%). In our view, economic activity remains in a gradual acceleration trend, but with some weaker signs at the margin in November and December. Our preliminary forecast for 4Q19 GDP remains at +0.5% qoq/sa. ** Full story here.
 

According to local news, the government decided to raise the minimum wage to BRL 1045. Originally, salaries were increased to BRL 1039 (from BRL 998 in 2019), but after the stronger than expected inflation figures observed in December, president Bolsonaro decided to provide this extra increase in the minimum wage. The economic team estimates that for each BRL 1 increase in the minimum wage, the federal cost grows BRL 355 million, thus, the total cost of this proposal will be of around BRL 2.13 billion. The measure will be in force from February 1st onwards.

Tomorrow’s Agenda: On economic activity, BCB’s monthly activity index (IBC-Br) for November will be released. Our forecast points to a 0.3% mom/sa decrease, leading the year-over-year growth rate to 0.5%.

Argentina

The CPI increased 3.7% mom in December, after a 4.3% increase in November, below market consensus of 4.05%. With this result, annual inflation ended 2019 at 53.8%, marking its highest level in 28 years. Core item prices rose by 3.7% mom, led by food items, in particular meat, leading the annual core inflation to 56.7% in December, from 55.2% in the previous month. Looking ahead, we expect inflation to remain high in January, around 3.5% mom. In spite of the public-services freeze and a stable foreign exchange rate of 60 pesos to the dollar, the end of the VAT reduction on certain food items will pressure the CPI basket. Our forecast for 2020 stands at 43%. ** Full story here.

Peru

The monthly GDP proxy increased 1.9% yoy in November (from 2.1% in October), below both our forecast and market expectations of 2.4%. The breakdown shows that the non-natural resources sector decelerated to 1.6% yoy in November (from 2.0% in October), dragged mainly by a sharp contraction in construction output (3.7% yoy in November, from +1.2% in October), consistent with a weak public capital expenditure execution. Moreover, the natural resources sector decelerated to 2.0% yoy in November (from 2.4% in October), as fishing output contracted 13.8% yoy in November (from -0.7%) and mining output recovered to  4.0% (from 0.7%). In all, we now expect GDP growth for 2019 at 2.2% (from 2.3%). A growth improvement next year is likely, amid lower tensions between China and the U.S. and more supportive fiscal and monetary policies. ** Full story here.



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