Downward trend in Brazil's retail sales and consumption likely continued in May

In April, retail sales fell -0.4% mom on seasonally-adjusted basis. 

Retail sales were down -3.5% yoy in April following the -0.8% yoy (-6.6% qoq at an annualised rate) contraction in Q1 that led to an overall contraction of -0.9% yoy (-5.9% qoq at an annualised rate) in private consumption. Together, April and May number/estimates imply that while retail sales are falling at sharper pace in Q2 as per the trend (yoy). 

"It likely will fall at a slower pace on a sequential basis - leading to our forecast of a smaller decline in consumption in Q2. We expect another yoy decline of -2.3% in sales in May, although it likely rose slightly on a seasonally-adjusted and sequential basis (0.3% mom)", said Societe Generale in a report on Monday.

In recent quarters, growth in retail sales and private consumption has been flat at best compared with the normal growth of 6.3% and 3.9% seen during 2012-13 (and much worse compared with cyclical peaks of 8.8% and 5.6% observed in 2010-11). Sadly, the shape and outlook of the labour market in particular and the overall economy in general offer little hope of a near- to medium-term revival in consumption. 

The labour market is expected to continue deteriorating over the next few quarters and this is bound to hit wage growth, income and private consumption. Further to this, the government's proposal to keep social security spending in check - in a bid to improve fiscal balances - will also hurt consumption growth over the next several quarters. Substantial investment and growth momentum will be needed to reverse the current downward trajectory in private consumption, adds SocGen.