Weak economic data continues to roll in for the second quarter, confirming
that the nationwide truckers’ strike derailed the recovery. Economic activity
recorded the largest contraction on record in May, retail sales plunged
in the same month and the manufacturing PMI fell into contractionary
territory in June. However, the shock should be temporary seeing as the
strike ended in early June, and leading data for after the strike has shown
some improvement. In the political arena, five centrist parties declared in
July that they would back center-right Brazilian Social Democracy party
candidate Geraldo Alckmin in the October election, which should boost
his chances. Moreover, the combination of parties supporting him will give
Alckmin—who is regarded as the most market-friendly candidate—an
edge against his competitors as he will consequently receive the largest
TV airtime during the campaign. The latest opinion polls prior to the
announcement placed him in fourth place.
Brazil’s growth forecast was chopped for a third consecutive month as
the truckers’ strike, a less supportive global backdrop and higher oil
prices dent the country’s outlook. FocusEconomics panelists now see the
economy growing 1.7% this year, down 0.2 percentage points from last
month’s forecast. A market-friendly outcome to October’s election remains
critical to ensuring a sustainable recovery; however, this is far from certain.
Next year, GDP is seen growing 2.5%.
Inflation jumped from 2.9% in May to 4.4% in June due to the goods
shortage caused by the truckers’ strike. June’s reading is near the Central
Bank’s target of 4.5%. Inflation is seen ending 2018 at 4.0% and 2019 at
4.2%.
The Central Bank decided to leave the SELIC rate unchanged at a recordlow
6.50% on 1 August as risks to the inflation outlook remain broadly
balanced. Our panel sees the Bank raising interest rates going forward
amid higher inflation and rising global interest rates. The Consensus is for
the rate to end 2018 at 6.72% and 2019 at 8.05%.
The real strengthened in recent weeks, recovering some of the losses seen
in April. On 3 August, the real ended the day at 3.71 per USD, up 4.8%
from the same day last month. A seemingly viable centrist candidate has
helped boost sentiment for the real, along with a broader gain in emergingmarket
currencies. Our panel expects the real to strengthen somewhat by
year-end and come in at 3.70 per USD. In 2019, the real is seen ending
the year at 3.65 per USD. REAL SECTOR | Industrial production soars in June after truckers’ strike
ends
Industrial production returned to growth in June, recording the largest
expansion in over a decade. Industrial output soared 13.1% month-on-month
in seasonally-adjusted terms, contrasting May’s 11.0% decrease. The print,
however, still surprised to the downside coming in below market expectations
of a 14.0% increase. All sub-sectors of the index posted strong rebounds as
the economy got back on its feet after a nationwide strike by the truckers’
union, Abcam, over diesel price hikes ended at the start of June. The strike
had caused widespread disruptions throughout the country, paralyzing key
economic sectors.
In annual terms, industrial production rose 3.5% in June, contrasting May’s
6.5% decrease. Annual average growth also improved, coming at 3.3% in
June, above May’s 3.0%.
The analysts surveyed by FocusEconomics for this month’s LatinFocus
Consensus Forecast see industrial production growing 3.0% in 2018, which
is down 0.2 percentage points from last month’s estimate. In 2019, industrial
output is expected to grow 3.6%.
Our panel of analysts sees the economy growing 1.7% next year, which is
down 0.2 percentage points from last month’s forecast. For 2019, the panel
projects that growth will accelerate to 2.5%.
REAL SECTOR | Economic activity plummets in May
In May, economic activity plunged 3.3% from the previous month in seasonallyadjusted
terms, according to the Central Bank’s monthly indicator for economic
activity (IBC-Br, Indice de Atividade Economica do Banco Central). The result
contrasted April’s 0.5% expansion and marked the worst drop on record. A
nationwide truckers’ strike which halted economic activity was chiefly behind
the downturn.
On an annual basis, economic activity fell 2.9% in May, contrasting April’s
3.7% rise. Annual average growth in economic activity fell from 1.5% in April
to 1.1% in May.
REAL SECTOR | Manufacturing PMI rises into expansionary territory in
July
Conditions in Brazil’s manufacturing sector improved in July, recovering after
the truckers strike dented economic momentum in June. The manufacturing
Purchasing Managers’ Index (PMI) rose from 49.8 in June, the worst result
since March 2017, to 50.5 in July. As a result, the PMI lies above the crucial
50-threshold and in expansionary territory.
The rebound in the index was attributed to renewed growth in output, new
orders and employment. That said, the upturn in new orders was modest and
constrained by falling orders from abroad. Meanwhile, business confidence
dipped to a nine-month low amid concerns over the political and economic
environment. Regarding inflation, the depreciation of the real caused price
pressures to rise sharply in July.
REAL SECTOR | Retail sales drop in May
Retail sales (excluding cars and construction) fell 0.6% from the previous
month in seasonally-adjusted terms in May, contrasting April’s revised 0.7% expansion (previously reported: +1.0% month-on-month). The result marked
the first contraction in five months.
All subcategories of the index deteriorated in May, with sales of fuels and
lubricants, and books, newspapers and stationary recording the sharpest
declines. A nationwide truckers strike that took place at the end of the month
likely also affected the result.
On an annual basis, retail sales increased 2.7% in May, a sharp improvement
from April’s 0.6% rise. The trend, however, was stable in May, and annual
average growth came in at April’s 3.7%.
Panelists participating in this month’s LatinFocus Consensus Forecast expect
retail sales to increase 2.9% in 2018, which is unchanged from last month’s
forecast. For 2019, the panel sees retail sales growing 3.4%.
OUTLOOK | Consumer confidence recovers slightly in July
The consumer confidence index published by the Getulio Vargas Foundation
(FGV, Fundaçao Getúlio Vargas) rose a seasonally-adjusted 2.6% from the
previous month in July, increasing to 84.2 from 82.1. The uptick was driven
by consumers’ less pessimistic assessments of both the current and future
economic situation.
The FGV confidence index spans a range from 1 to 200 points, where 100
points is considered neutral. Despite the minor improvement in July, the index
remained entrenched in negative territory.
Panelists surveyed for this month’s LatinFocus report see private consumption
2.2% in 2018, which is down 0.1 percentage points from last month’s estimate.
For 2019, the panel sees private consumption rising 2.9%.
OUTLOOK | Business confidence slips into pessimistic territory in July
Business sentiment in Brazil weakened in July, with the Getulio Vargas
Foundation’s (FGV, Fundaçao Getúlio Vargas) business confidence index
falling to 99.6 points from 100.1 points in June. As a result, the index is
now below the 100-point threshold and that businesses expect economic
conditions to deteriorate.
According to the FGV, the deterioration in July was driven by a more downbeat
outlook on the future economic situation.
Panelists participating in the LatinFocus Consensus Forecast see fixed
investment rising 3.4% in 2018, which is down 0.1 percentage points from last
month’s forecast. In 2019, participants expect fixed investment to gain steam
and record a notable 4.7% expansion.
MONETARY SECTOR | Inflation jumps in June
Consumer prices rose 1.26% in June over the previous month, the sharpest
increase since January 2016. The result was above May’s 0.40% rise. Higher
prices were seen in almost all subcategories of the index due to goods
shortages as a result of the truckers strike that began at the end of May.
Inflation jumped from 2.9% in May to 4.4% in June, the highest reading since
March 2017. As a result, inflation is now near the Central Bank’s target of
4.5% plus or minus 1.5 percentage points. Annual average inflation inched up
from 2.8% in May to 2.9% in June. In a scenario based upon market expectations, the Central Bank sees inflation
ending 2018 at 4.2% and 2019 at 3.8%. FocusEconomics participants see
inflation closing 2018 at 4.0%, which is unchanged from last month’s forecast.
For 2019, the panel expects inflation to come in at 4.2%.
MONETARY SECTOR | Central Bank holds SELIC rate at 6.50%
At its 31 July–1 August meeting, the Central Bank of Brazil’s Monetary Policy
Committee (Comité de Politica Monetaria, COPOM) unanimously decided
to keep the benchmark SELIC interest rate at its record low of 6.50%. The
decision matched market analysts’ expectations. The Central Bank paused
the long and aggressive easing cycle that began at the end of 2016 at its May
meeting.
The Bank’s accompanying statement echoed the previous meeting’s and
stressed that risks to the inflation outlook remain balanced in both directions,
justifying the decision to hold the SELIC rate unchanged. On the one hand, low
inflation expectations and economic slack could prompt inflation to surprise on
the downside going forward; on the other hand, a lack of economic reforms
or a further deterioration in the outlook for emerging market economies could
drive price pressures up. While inflation did spike in June this was due to the
truckers’ strike, and the Bank stated that it expects the high inflation to be
temporary and that underlying price pressures are still moderate. Moreover,
the weak state of Brazil’s economy justifies an accommodative monetary
policy stance.
The Bank revised up its inflation expectation for 2019 but left this year’s
unchanged, seeing year-end inflation of around 4.2%. Next year, the Bank
sees inflation ending 2019 at 3.8% (previously: 3.7%), assuming the SELIC
rate concludes the year at 8.00% and the real at 3.70 per USD. However,
overall, the statement struck a broadly neutral tone, stating that future
decisions will depend on incoming data, inflation expectations and the
balance of risks. That said, the weakening of the real is likely to stoke upward
pressures, and the currency is expected to remain under pressure going
forward due to election-related uncertainty in Brazil and a tightening cycle by
the U.S. Federal Reserve.
FocusEconomics participants expect the SELIC rate to end the year at 6.72%
and end 2019 at 8.05%.
EXTERNAL SECTOR | Current account surplus narrows in June
Brazil’s current account balance came in at a surplus of USD 435 million in
June, below the USD 1.3 billion surplus registered in the same month last
year.
The narrower current account surplus was primarily due to a lower trade
balance, which came in at USD 5.9 billion in June (June 2017: USD 7.2
billion). Soaring import growth was chiefly behind the lower trade balance,
after a truckers’ strike had disrupted economic activity in May. Foreign direct
investment came in at USD 6.5 billion in June, above June 2017’s USD 4.0
billion.
The 12-month accumulative current account deficit widened in June to USD
13.9 billion from May’s USD 13.0 billion deficit. June’s result represented
approximately 0.7% of GDP. FocusEconomics participants expect a current account deficit of 0.9% of GDP
in 2018. For 2019, the panel sees the deficit worsening to 1.5% of GDP.Por Focus Economics - https://www.focus-economics.com/ - desde Barcelona
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