Brazil Q2 GDP unlikely to fall

The June monthly GDP proxy for Brazil contracted by 0.6% m/m sa is consistent with the 1.0% m/m sa contraction of industrial production and the 0.8% m/m sa drop in broad retail sales. In q/q terms, the monthly GDP proxy marks a 1.9% contraction in Q2, larger than the -0.9% print in Q1 and underscoring the strong economic contraction under way in Brazil. The Q2 real GDP is likely to post at -1.2% q/q sa, from -0.7%, on the back the incoming data. In y/y terms,  Q2 real GDP is unlikely to fall by 0.9%, which would be the fifth consecutive negative print in this metric.

Q2 real GDP, set to be published on 28 August, should be all about the fragility of domestic demand. Household consumption likely declined 1.3% q/q sa, from -1.5% in Q1, being the first consecutive drops since H2 12, reflecting the rise in unemployment and the contraction in disposable income, adds Barclays. The strong cut in fiscal spending during the period should have led government consumption to decline 1.6% q/q sa, from -1.3% in the previous quarter. 

"The biggest hit should have been felt in the investment component, which is likely to have shrunk by 7.5% q/q sa, returning to 2009 levels. Put together, domestic demand should contribute negatively to headline growth by 2.7pp in Q2. By contrast, the 3.5% q/q sa increase in exports coupled with the 7.4% contraction in imports, should lead to a 1.5pp positive contribution to headline GDP from net exports. Overall, the Q2 report is expected to crystallize the pattern of quarterly growth in H2, with the fragility of domestic demand being only partially offset by net exports", estimates Barclays.