Brazil’s retail sales likely declined in May; consumption growth unlikely to recover in near term

In the first quarter, the rate of Brazil’s retail sales deceleration was quite the same, as compared to the fourth quarter of 2015. Retail sales is expected to have dropped 1.1 percent on sequential basis or  6 percent on year-on-year basis in May, after remaining almost unchanged in April at -6.7 percent year-on-year, noted Societe Generale in a research report.

The rate of contraction of retail sales is in line with the overall personal consumption spending contracting at a rate of around 5 percent annually. Given that the labor market is likely to continue deteriorating, there is very small chance of this trend to reverse significantly in the near term, according to Societe Generale.

Investor confidence continues to be subdued in spite of recent recovery after the changes in administration and increase in commodity prices.

Under this scenario, the labor market is likely to continue declining in the near term to medium term. This is expected to affect wage growth and disposable income.

Furthermore, the fiscal compulsion is anticipated to impact social security spending, whereas increasing unemployment hurts growth of credit demand. Consumption spending has also been affected majorly by high inflation. These factors are expected to be a drag on consumption.

“We expect overall consumption to contract by 5.0 percent in 2016, and again by 2.8 percent in 2017. Substantial investment and growth momentum will be needed to reverse the current downward trajectory in private consumption”, added Societe Generale.