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News | Question of the Week, WC 9nd Sept
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Question of the Week, WC 9nd Sept

Q: Brazil's Retail Sector Started Q3 Solidly; will the Uptrend Continue?

A. Private consumption is holding up relatively well and the near-term outlook remains upbeat, thanks to low interest rates, stable and low inflation, and a marginal improvement in labour market conditions.  Retail sales volumes jumped 1.0% month-to-month in July, well above market expectations for a modest 0.2% increase.  The adjusted year-over-year rate rose to 3.2%, from 1.4% in June and Q2 as a whole.  Broad retail sales, which include autos and construction materials, rose a solid 0.7% month-to-month, also well above expectations, and pushing the year-over-year rate to its fastest pace since May 2018. The details of the report were also solid, as sales in seven of the eight core segments rose, led by an 2.2% month-to-month increase in sales of “other items for personal and domestic use”, a 1.6% increase in sales of furniture and domestic appliances, and a 1.3% gain in food sales at supermarkets.

 Overall, this was a solid start to the second half of the year, and Q3 as a whole looks positive.  Credit conditions have improved significantly in the current cycle, and in the labour market, the unemployment rate is edging lower, the employed population is rising, and the real wage bill is also positive, growing in year-over-terms despite a modest downtrend since mid-last year.  We think all these positive drivers will continue in the near term.  Moreover, the authorisation for workers to withdraw some funds from their unemployment savings accounts—FGTS and PIS-Pasep Fund—will also support spending over the next three-to-six months. We expect sales to do well over the coming months, but the nervousness apparent in consumers' confidence surveys makes us hesitate before forecasting a sustained accelerating trend.  Consumer confidence remains low, as shown in our chart, and we continue to expect people to remain cautious in the near term. 

 

Andres Abadia, Chief LatAm Economist

Pantheon Macroeconomics

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Posted: 13th Sep 2019

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