Brazil's GDP growth rate likely to fall in 2015 but small recovery in 2016

There is a sharp decline in Brazil's industrial production to -8.9% yoy in May. Due to the fall in industrial production, Societe Generale projects the overall supplyside contraction of -3.7% yoy in May, and estimates the supply-side economy likely contracted by -0.7% mom in May. Therefore, the bank forecasts, growth in Q2 will likely be considerably worse than in Q1,  and it may post -7.9% qoq (annualised rate) contraction in Q2. 

Similarly, on the demand side, April and May releases on retail sales suggest that consumption is set to contract in Q2 as well. As a result, Societe Generale expects 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 weakening labour market and lower social security spending are already hurting consumption growth this year while private investment will continue to subtract from GDP. 

Due to the contraction in supply and demand side, the economy in 2015 is likely to experience its worst contraction since 1990. Societe Generale anticipates a  -1.6% contraction of GDP this year and a small recovery in 2016.