Brazil’s retail sales likely rebounded a bit in Feb, but points downside risk to consumption growth in Q1

In January, pace of slowdown of Brazil’s retail sales sharpened unexpectedly in January. Labor market and overall sentiment continue to indicate towards weak growth in consumption in the coming quarters but growth in retail sales is expected to have rebounded in February, rising 0.3% m/m, even if it continued to be under pressure on a trend basis, according to Societe Generale.

However, the risk is still skewed on the downside as the deterioration of labor market accelerated in February, noted Societe Generale. In 2015, retail sales dropped 4.3% and the pace of slowdown continued to increase throughout 2015 with sales declining 6.9% y/y in the fourth quarter as compared with a drop of 5.7% y/y in Q3. Retail sales have performed poorly in the last few months. Furthermore, the January’s data increases the downside risks to the consumption growth and overall economic growth for Q1, added Societe Generale.

Investment sentiment continues to be in a bad shape for several reasons, while government finances are even frailer. Labor market, under this situation, is likely to worsen in the coming few years, therefore impacting disposable income and wage growth. Furthermore, the fiscal compulsion has begun impacting social security spending, while increasing unemployment and tightening of monetary policy is affecting credit growth. All the factors mentioned above are expected to keep consumption figures in a bad shape, noted Societe Generale.

“We currently project real consumption to decline by 5% this year and by a further 3.1% in 2017. Substantial investment and growth momentum will be needed to reverse the current downward trajectory in private consumption”, added Societe Generale.