Brazil’s retail sales likely to have declined in April; consumption to remain low in 2016

Brazil’s retail sales growth is likely to weaken again in April. In the last few months, growth of Brazil’s retail sales has been better, despite the general trend and the overall situation of the economy, especially the labor market. There is likelihood that the high spending by the Brazilian government in the first quarter aided retail sales as well, even though it is not validated by the overall consumption data for the first quarter.

Apart from the recent fluctuations, the seasonally adjusted series affirms the severe decline of retail sales figures. Actually, the seasonally adjusted data indicate negative growth in month-on-month terms in retail sales in March, reversing the huge gains registered in February. Retail sales are expected to decline 7.2 percent y/y; however, the seasonally adjusted series are likely to grow 0.6 percent m/m, aiding consumption to expand slightly on month-on-month terms in the second quarter, said Societe Generale in a research report.

Brazil’s investor confidence continues to be subdued in spite of the recent stabilization after the administrative changes and increase in commodity prices. Under this investment context, the labor market is likely to continue declining in the coming few years that will negatively impact wage growth and disposable income.

Furthermore, the fiscal compulsion is expected to ultimately impact social security spending while growing unemployment affects credit demand growth. High inflation has also led to a drop in real consumption spending. These factors are expected to remain a drag on consumption.

“We expect overall consumption to contract by 6.3 percent in 2016, and again by 2.9 percent in 2017," added Societe Generale.

Significant investment and growth momentum are required to help reverse the private consumption’s present downward path.