Brazil's supply-side economy likely contracted by -0.7% mom in May

On the demand side, Brazil's retail sales data released for April and May suggests that consumption is set to contract in Q2 as well. Therefore, Societe Generale expects the consumption to be a net drag on growth for the first time in a long time on a full-year basis (expecting -0.9% consumption growth in 2015). The sharp decline in industrial production (-8.9% yoy) leads us to project an overall supplyside contraction of -3.7% yoy in May. 

"The economy likely also contracted heavily in May on a sequential basis, implying growth in Q2 will likely be considerably worse than in Q1 - consistent with our forecast of a -7.9% qoq (annualised rate) contraction in Q2", says SocGen.

The weakening labour market and lower social security spending are already hurting consumption growth this year while private investment will continue to subtract from GDP. Finally, public spending is set to contribute negatively to demand growth in H2 as the effects.