Brazil’s retail sales growth likely dropped in December, to remain a drag on growth throughout 2018

Retail sales in Brazil are expected to have reversed in December after recorded sharp growth in November. Following a brief rebound in June, retail sales had dropped at an annual rate of 5.5 percent to 6 percent in the September quarter before deteriorating again in October. Sales had then rebounded considerably in November, coming in above expectations. This could not be totally explained by seasonal factors.

With the still worsening labor market, the main reason for sales could be decelerating inflation. If this is so, sales growth might slightly counter the effect of the worsening labor market and the government’s tightening of the purse strings on social security spending. However, sales growth is expected to have reversed slightly in December. According to a Societe Generale research report, retail sales are likely to have dropped 1.7 percent sequentially and 4.8 percent year-on-year, even if the trend is expected to rebound in the future.

The rate of the decline in sales suggests that household consumption shrank in the fourth quarter. Lower inflation and interest rates are expected to aid in countering the impacts of the deterioration of the labor market and lower social security spending in the medium term.

But the overall private consumption growth and retail sales are expected to continue to weigh on the economic growth throughout 2018, added Societe Generale. In order to reverse the downward trajectory in consumption and employment, significant investment momentum would be required.