Brazil's retail sales had declined in 2015 by 4.3% and the rate of slowdown continued to rise throughout 2015 with sales dropping 6.9% y/y in Q4, as compared with Q3's 5.7% y/y drop. Retail sales in December were mainly bad, erasing most of the sequential growth in October and November, leading to no growth in Q4. Retail sales in January 2016 is expected to decline 7.4% y/y and 0.2% m/m that should be in line with further drop in consumption growth in 2016.

Investment confidence continues to be weak for several different reasons while the finances of government are growing fragile when the requirement for counter-cyclical fiscal spending is huge. Labor market, under this situation, is likely to continue deteriorating for the next couple of years, therefore hurting disposable income and wage growth. Furthermore, the fiscal compulsion has begun impacting social security spending while monetary tightening and increasing unemployment is impacting credit growth.

Lastly, high inflation has also majorly been responsible for lower consumption spending. The above mentioned factors are expected to keep consumption lower. There are significant risks on the downside to the 2016 consumption growth forecast of -3.3%. In order to reverse the current downward trajectory in private consumption, significant investment and growth momentum is required.