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Retail confidence improves in Brazil

Agosto 23, 2019

Retail confidence advanced 3.2 p.p. in August (to 98.7), the third consecutive increase.

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According to FGV’s monthly survey, retail confidence advanced 3.2 p.p. in August (to 98.7), the third consecutive increase. The breakdown shows that the movement was driven by the current conditions component (+7.1 p.p., to 95.7), while the expectations component slightly declined (-0.8 p.p., to 101.8) after registering two consecutive increases in the previous months.

August’s IPCA-15 inflation came in at 0.08% (from 0.09% in July), below our forecast of 0.11% and market expectations of 0.16%. The year-over-year change decelerated somewhat to 3.22% from 3.27% in July, also below our call of 3.25% and the market consensus of 3.32%. Out of nine groups that form the price index, four posted deflation in the period and all core inflation measures remain on a very comfortable path. Recent IPCA reports, including yesterday's IPCA-15, reinforce our view that inflation remains on a benign path. The two main factors supporting our scenario — a wide output gap and inflation itself, in the form of inertia or anchored expectations — continue to suggest comfortable inflation dynamics. For the time being, our full-year estimates for the IPCA are 3.6% for both 2019 and 2020. ** Full story here.

On the fiscal side, tax collection came in at BRL 137.7 billion in July, better than our forecast (BRL 134.6 bn), but close to market’s expectations (BRL 137.0 bn). Tax collection increased 2.9% yoy in real terms in the month. The surprise came from BRL 3.2 bln in atypical collection from revenues related to corporate profits (IRPJ/CSLL), which increased 21.0% yoy in real terms in July, while those related to the wage bill and consumption remained roughly stable. Excluding revenues from the REFIS/PRT, tax collection increased 3.6% yoy in real terms, with the 3mma rate accelerating to 3.7% (from 3.2%), representing some recovery if compared to recent months.

Day Ahead: July’s CAGED formal job creation will be released today. We expect a net creation of 20k formal jobs (25k in seasonally adjusted terms, decreasing the 3-month s.a. moving average to 19k from 25k).


Activity grew in 2Q19, after four consecutive quarters of contraction, but remained subdued. The EMAE (official monthly GDP proxy) remained flat on a year-over-year basis in June, posting a 0.4% yoy gain in 2Q19 (-1.91% adjusted for calendar effects). Adjusted for seasonality and working days, output decreased by 1.4% QoQ/saar, down from -0.7% in the previous quarter. The outcome of the primaries for the presidential election in October fueled fears of a sovereign default, which hurt Argentine asset prices and the currency. Tighter monetary policy to stabilize the exchange rate market, lower real wages and heightened uncertainties will likely lead to a further contraction of internal demand. Hence, we see clear downside risks to our -1.4% GDP growth forecast for this year. ** Full story here.


CPI posted a bi-weekly rate of -0.08% in the first half of August, below our forecast of 0.07% and median market expectations of 0.14%. The figure was driven down by non-core CPI, which declined 0.66% (from 0.86 a year ago), with non-core food and energy prices falling 1.44% and 0.08%, respectively. In turn, the core bi-weekly rate stood at 0.11% (from 0.18% a year ago). On an annual basis, CPI decelerated to 3.29% yoy in the 1H of August (from 3.72% in the 2H of July). We now expect inflation to end 2019 at 3.5% (from 3.7% previously). Although core inflation remained persistent, Banxico seems to have diverted away their focus from this indicator (as seen the last monetary policy statement). Thus, we believe the decline in headline inflation increases the odds of further monetary easing in the short-term. We expect the policy rate to end this year at 7.25%, from a current level of 8%. ** Full story here.

Day Ahead: At 8:00 AM, the national statistics institute (INEGI) will publish Q2’s GDP, which we forecast at -0.8% yoy (from 1.2% in 1Q19), slightly below the flash estimate announced last week by INEGI (-0.7%). Together with the quarterly data, INEGI will publish June’s monthly GDP proxy (IGAE), which we expect at -0.6% yoy (from -0.4% in May). At the same time, the Central Bank will also publish Q2’s current account balance, of which we expect the deficit to remain narrow.


Think-tank Fedesarrollo’s industrial confidence indicator moved further into optimistic territory in July, while retail confidence is at its least upbeat levels since March last year. Industrial confidence came in at 9.3% in July (0 = neutral), 4.3pp higher than one year ago (8.4% in June). The improvement from July 2018 was mainly due to factors reflecting current activity (current orders as well as inventory levels), while expectations for the next quarter moderated (1.9pp to 41.2%). Regarding exports, respondents continue to see a drop in orders versus one year ago (likely reflecting the global growth slowdown), but are hopeful of a recovery ahead. Meanwhile, retail confidence came in at 25.8% in July (0 = neutral) from 29.5% one year ago (27.8% in June). The deterioration was explained by higher inventory levels and weaker activity (despite private consumption driving GDP growth in 1H19), while expectations posted a mild moderation. Looking ahead, a loose labor market amid relevant external headwinds would likely contain confidence levels and limit the growth recovery. However, following the publication of 2Q19 national accounts last week, we see growth likely coming in above our 2.6% forecast in 2019 (2.6% last year).

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