The economy is gaining momentum despite political uncertainty. GDP growth accelerated in the third quarter thanks to faster household consumption and a smaller fall in investment. Available data for the fourth quarter points to another pick-up in activity, although growth is not yet firing on all cylinders. Retail sales rebounded in November, and exports grew by double digits in December; however, consumer confidence edged down in the same month. In the political arena, the government postponed a vote on the crucial pension reform bill to February, to have more time to generate support for the bill. The move underscores the difficulty President
Michel Temer is having in pushing through badly needed, but unpopular, measures to put government finances on a sustainable path. Legislation is expected to come to a standstill in the spring, as the October 2018 elections approach; the economy needs a reform-minded president to address lingering macroeconomic imbalances. Former President Luiz Inacio Lula da Silva, who opposes Temer’s policies, is currently leading in early polls, but it is uncertain if he will be eligible to run due to corruption charges.
The recovery is seen gaining speed this year, thanks to higher household spending and investment growth. Politics and a lack of reforms are the largest risks to Brazil’s economic trajectory, and are clouding the country’s outlook. FocusEconomics panelists see the economy growing 2.5% in
2018, which is up 0.1 percentage points from last month’s forecast. In 2019, growth is seen edging up to 2.6%.
Inflation was 2.9% in December, the lowest end-of-year reading since 1998 (2016: 6.3%). The Central Bank continued with its easing cycle, cutting the SELIC rate by 50 basis points to 7.00% on 6 December. Our panel expects inflation to rise modestly this year and end 2018 at 4.0%,
and 2019 at 4.1%.
REAL SECTOR | Economic activity stabilizes in October In October, economic activity rose 0.3% 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 matched September’s revised reading (previously reported: +0.4% month-onmonth)
and overshot market analysts’ expectations of a softer 0.2% rise. On an annual basis, economic activity rose 2.9% in October, which was notably above September’s 0.7% expansion. Meanwhile, the trend continued to improve and the annual average variation in economic activity swung from
minus 0.5% in September to plus 0.2% in October, the best reading since December 2014.
Our panel of analysts sees the economy growing 2.5% next year, which is up 0.1 percentage points from last month’s forecast. For 2019, the panel projects REAL SECTOR | Industrial production growth slows in November
In November, industrial production grew 0.2% over the previous month in seasonally-adjusted terms, down from the revised 0.3% increase (previously reported: +0.2% month-on-month) registered in October. The result marked the third consecutive month of industrial production growth in Brazil.
Behind the slight slowdown, was a contraction in the production of consumer goods, while capital good output ground to a halt. However, output of intermediate goods swung to expansion in November.
In annual terms, industrial production rose 4.7% in November, which was below October’s 5.5% increase. The annual average variation in industrial production accelerated from 1.6% in October to 2.1% in November, the best result since March 2014.
The analysts surveyed by FocusEconomics for this month’s LatinFocus Consensus Forecast see industrial production growing 3.5% in 2018, which is up 0.2 percentage points from last month’s estimate. In 2019, industrial output is also expected to grow 3.2%.
REAL SECTOR | Manufacturing PMI falls slightly in December from November’s nearly seven-year high
Conditions in Brazil’s manufacturing sector weakened slightly in December. The Markit manufacturing Purchasing Managers’ Index (PMI) fell from November’s 81-month high of 53.5 to 52.4 in December. Despite the fall, the PMI lies above the crucial 50-threshold that separates expansion from contraction in business conditions in the manufacturing sector.
According to IHS Markit, the index’s fall was attributed to slower expansions in output growth and new business inflows. Despite a softening of growth, both indicators pointed to still solid momentum in the manufacturing industry.
In addition, the pace of job creation edged up, to the fastest growth rate in almost five years. For Q4 , the PMI recorded the best reading since Q1 2013, suggesting that the recovery is gaining momentum.
REAL SECTOR | Retail sales rebound in November Retail sales (excluding cars and construction) rose 0.7% from the previous month in seasonally-adjusted terms in November, which contrasted October’s revised 0.7% fall (previously reported: -0.9% month-on-month).
Looking at November’s result in detail, rising sales were seen for six of the eight components of the index, with higher supermarket sales driving the upturn. Meanwhile, sales of clothing and footwear were unchanged from the previous month.
On an annual basis, retail sales increased 5.9% in November, which was notably above October’s 2.6% growth. The trend rose and the annual average variation in retail sales came in at 1.1%, after 0.3% in October.
Panelists participating in this month’s LatinFocus Consensus Forecast expect retail sales to increase 3.1% in 2018, which is up 0.1 percentage points from last month’s forecast. For 2019, the panel sees retail sales growing 3.5%.
OUTLOOK | Consumer confidence eases in December The consumer confidence index published by the Getulio Vargas Foundation (FGV, Fundaçao Getúlio Vargas) decreased a seasonally-adjusted 0.5% from the previous month in December. The index fell from November’s 86.8 to 86.4.
The deterioration was driven by consumers’ more pessimistic views regarding both the current and future economic situations compared to the previous month.
The FGV confidence index spans a range from 1 to 200 points, where 100 points is considered neutral. Despite recent gains, the index still lies deep in pessimistic territory.
Panelists surveyed for this month’s LatinFocus report see private consumption 2.7% in 2018, which is up 0.3 percentage points from last month’s estimate. For 2019, the panel sees private consumption rising 2.8%.
OUTLOOK | Business confidence rises in December Business sentiment in Brazil continued to climb in December, as it recovers from the lows of mid-2015. The Getulio Vargas Foundation’s (FGV, Fundaçao Getúlio Vargas) business confidence index increased a seasonally-adjusted
1.3% from the previous month, rising to 99.6 points from 98.3 points in November. Nevertheless, the index remains below the 100-point threshold that separates pessimism from optimism among businesses.
According to FGV, the rise was driven by firms’ less pessimistic outlooks for the current and future economic situations. Panelists participating in the LatinFocus Consensus Forecast see fixed investment rising 4.5% 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 6.1% expansion.
MONETARY SECTOR | Inflation falls to lowest level since 1998 in 2017 Consumer prices in December rose 0.44% over the previous month, above November’s 0.28% rise. December’s reading overshot analysts’ forecast of a less pronounced 0.30% rise. The increase was largely driven by higher prices for transportation, along with food and beverage products.
Inflation ended 2017 at 2.9% in December, a notch up from November’s 2.8% but notably below 2016’s 6.3%. The reading for 2017 marked the lowest annual inflation rate since 1998. Prices pressures fell notably last year thanks to a solid performance in the real economy and a battered domestic economy.
As a result, the Central Bank missed its target of 4.5% plus or minus 1.5 percentage points and will have to publish an open letter explaining why, according to Brazilian law. Inflation averaged 3.5% in 2017, notably below 2016’s average of 8.7%.
In a scenario based upon market expectations, the Central Bank sees inflationending 2018 and 2019 at 4.2%. 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 4.1%.
MONETARY SECTOR | Central Bank cuts SELIC rate to 7.00% At its 6 December meeting, the Central Bank’s Monetary Policy Committee (COPOM, Comité de Politica Monetaria) decided to cut the benchmark SELIC interest rate by 50 basis points, a smaller cut than at its previous meeting. The
SELIC rate now rests at 7.00%. The committee’s decision matched market analysts’ expectations and marked the 10th consecutive cut as the Central Bank moves to support economic growth.
Favorable inflation data along with an improving economy, the primary factors that drove the decision, have given the Bank space to loosen monetary conditions. Price pressures have remained broadly stable, and inflation rose to just 2.7% in October after remaining at an 18-year low of 2.5% in both August and September. The Bank updated its inflation forecast; it now sees inflation at around 2.9% in 2017, in a scenario where the SELIC rate ends the year at 7.00%. It stressed that there are both upside and downside risks to the inflation outlook, highlighting in particular that it could be affected by delays in the economic reform process and in macroeconomic readjustments.
The Bank’s statement highlighted that a continuation of the easing cycle will depend on the strengthening of the economy going forward, as well as on the evolution of inflation expectations. The SELIC rate has fallen rapidly this year, and the economy has improved substantially, meaning that the need for an aggressive cycle is waning.
FocusEconomics participants see the SELIC rate closing 2018 at 6.79% and 2019 at 7.97%.
EXTERNAL SECTOR | Current account deficit widens in November Brazil’s current account balance came in at a deficit of USD 2.4 billion in November, which was notably above the USD 0.7 billion deficit recorded in November 2016.
The trade surplus came in at USD 3.5 billion in November, which was below November 2016’s USD 4.8 billion. Exports soared 10.4% over the same month of the previous year, while reviving domestic demand cause imports to grow a buoyant 9.3% annually. Foreign direct investment eased in November and came in at USD 5.0 billion.
The 12-month accumulative current account deficit worsened in November, the first deterioration in 11 months. This deficit widened to USD 11.3 billion in November from USD 9.6 billion in October, which had marked the smallest shortfall since March 2008. November’s result marked a deficit of
approximately 0.6% of GDP. FocusEconomics participants expect a current account deficit of 1.3% of GDP in 2018. For 2019, the panel sees the deficit worsening to 1.7% of GDP.
FUENTE: Enviado por FOCUS ECONOMICS - www.focus-economics.com - desde Barcelona -España
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