Brazil’s retail sales likely declined in March

Brazil had registered a noticeable rebound in retail sales in February that grew 1.2% m/m, the strongest since July 2013. On an annual basis, retail sales growth had rebounded to -4.2% y/y from January’s print of -10.6% y/y. As Brazil’s employment has been declining sharply in the past months and consumer sentiment remaining at quite low levels, inflation moderation is unlikely to rebound the trajectory of retail sales in the near term, according to Societe Generale.

For the past six months, the average growth of retail sales was -7% y/y. Brazil’s retail sales growth are expected to have reached -6.8% y/y in March and are likely to have declined further to -7.3% y/y in Q1 2016, noted Societe Generale. The pace of decline suggests significant risks on the downside to the first quarter growth forecast.

Brazilian investor confidence continues to be subdued for several reasons, whereas government finances are quite weak currently when there is a heightened requirement for counter-cyclical fiscal spending. Therefore, the Brazilian labor market is likely to keep worsening in the following few years. This will impact disposable income and wage growth. Furthermore, social security spending will ultimately be impacted by the fiscal compulsion, while credit demand growth is being affected by growing unemployment. Consumption spending has declined also due high inflation.

“We currently expect real consumption to decline by 5% this year and by a further 3.1% in 2017”, said Societe Generale.