Brazilian Indicators Signaling Economic Recovery in 2017

Indicators Signaling Economic Recovery in 2017

Retail sales in Brazil started the year in much better shape than previously thought, April government data showed, after an extraordinary upward revision for the January results offset a small drop in February. Retail sales volumes excluding cars and building materials in Brazil fell 0.2 percent in February from January after seasonal adjustments, statistics agency IBGE said. In January, sales rose 5.5 percent from the previous month, after being originally reported to have dropped 0.7 percent. “The January figure was revised by a magnitude rarely seen,” wrote Alberto Ramos, head of Latin America economic research at Goldman Sachs, in a report. “According to the revised figures, rather than retrenching, retail sales were booming in January.” The surprisingly good performance of Brazil’s commerce in the beginning of 2017, despite record-high unemployment and double-digit interest rates, underpins hopes that the economy is about to exit its worst recession ever.

Inflation

Inflation fell to lowest level since August 2010. Consumer prices in March increased 0.25% over the previous month, which was below February’s 0.33% rise. The slowdown came on the back of lower prices for transportation and communication goods. Inflation continued to drop, falling to an over six-year low of 4.6% (February: 4.8%), in line with market expectations. Inflation is now within the Central Bank’s target band of 2.5%-6.5%. Panelists participating in the LatinFocus Consensus Forecast see inflation closing 2017 at 4.4%, which is down 0.1 percentage points from last month’s forecast. For 2018, the panel also expects inflation of 4.4%.

Interest rates

Brazil’s central bank made its deepest cut to interest in nearly eight years on April 13th and signaled it might continue its aggressive easing to revive the economy. In a unanimous vote, the central bank’s 9-member monetary policy committee, known as Copom, decided to reduce its benchmark Selic rate by 100 basis points to 11.25 percent, its lowest level in nearly two years. That marked the biggest reduction since June of 2009 and followed cuts at the last four meetings.

GDP Growth

A Central Bank indicator that measures economic growth registered that the country’s economy accelerated by 1.31% in February when compared to January, surpassing expectations. The IBCBr indicator, which was created to try and predict the GDP (Gross Domestic Product), had predicted a 0.55% increase. Economists believe that the economy is beginning to stabilize as certain sectors start to recover.

Sources: Reuters, folha São Paulo, Focuseconomics