Just a few months ago, we warned Brazil's economy was on the verge of collapse as the fiscal situation was deteriorating rapidly. It appears, judging by the most recent data from the oil-rich nation, that we were right. Broad retail sales have now declined for five consecutive months with the seasonally adjusted broad retail sales index now at the same level as early 2012. Core retail sales declined 3.5% YoY during April (weakest print since Aug 2003) and broad retail sales declined by an even larger 8.5% YoY (lowest on record), and as Goldman warns, the outlook for private consumption and retail sales in the near term remains very weak.
Via Goldman Sachs,
The core retail sales measure (excluding autos and building materials) missed market consensus (+0.7% mom sa) by surprisingly contracting 0.4% (mom sa) in April. In addition, the March figure was revised slightly down from -0.9% mom sa to -1.0% mom sa. Similarly, broad retail sales contracted 0.3% mom sa in April, and the March figure was revised down from -1.6% mom sa to -1.8% mom sa.
Broad retail sales have now declined for five consecutive months at an average monthly rate of 1.6% mom sa per month. The seasonally adjusted broad retail sales index is now at the same level as early 2012.
In annual terms, core retail sales declined 3.5% yoy during April (weakest print since Aug 2003) and broad retail sales declined by an even larger 8.5% yoy.
Given the weak April print the carry-over for sequential 2Q2015 growth is now at a very weak -1.2% qoq sa for core, and -1.9% qoq sa for broad retail sales.
The outlook for private consumption and retail sales in the near term remains very weak owing to moderating credit flows by both private and public banks, high levels of household indebtedness, decelerating job creation and real wage growth, rising interest rates, higher taxes, higher utility and transportation tariffs, and very depressed consumer confidence.
KEY NUMBERS (April):
Core/Control Retail sales: -0.4% mom sa (-3.5% yoy) versus consensus forecast of +0.7% and GS forecast of +0.8%.
Broad retail sales: -0.3% mom sa (-8.5% yoy) versus consensus forecast of -0.5% and GS forecast of +0.2%.
- Core/control retail sales (excludes autos and building materials) surprisingly contracted 0.4% mom sa in June (consensus expectations were for a 0.7% increase).
- The decline of (core) retail activity in April was driven by weak prints in office and communication equipment (-12.2% mom sa), clothing & footwear (-3.8% mom sa), furniture and appliances (-3.1% mom sa), and other articles of personal and domestic use (-5.1% mom sa).
- Broad retail sales contracted 0.3% mom sa in April, and the February figure was revised down to -1.8% mom sa from the original -1.6% mom sa. The sale of building materials declined 1.2% mom sa April (fourth consecutive monthly decline), while sales of autos and autoparts expanded 4.4% mom sa (partly offsetting the -5.2% mom sa variation seen in March).
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As we noted previously, in short - the entire economy is now on the verge of total collapse. This is what happened in a few bullet points:
- The fiscal picture has deteriorated very sharply since 2011 at both the flow (fiscal deficit) and stock (gross public debt) levels. The primary and overall nominal fiscal surpluses at year-end 2014 were at levels last seen in the late 1990s.
- The steady decline of the public sector savings rate is leading to a wider current account deficit despite weaker growth and low investment. In fact, the twin fiscal and current account deficits are now tracking at a combined, very troublesome 10.9% of GDP, the worst picture in 15 years (since August 1999). Repairing the severely unbalanced macro picture would require a deep, structural and permanent fiscal and quasi-fiscal adjustment and a significantly weaker BRL.
- The new economic team faces, among other things, the very significant challenge of repairing the severely deteriorated fiscal picture.
- The steady erosion of the fiscal stance pushed net and gross public debt up. Furthermore, fiscal and quasi-fiscal activism undermined the effectiveness of monetary policy, contributed to keep inflation very high and drove the current account deficit to a very high level despite weak growth.
Good Luck Brazil.. and so much for BRICS-based global growth...