On Sunday in “Depression Tracker: Brazil Braces For Big Week Of Bad Data,” we warned that this was likely to be a rather harrowing week for anyone hoping to see a light at the end of the tunnel for the trainwreck that is Brazil’s collapsing economy.
Specifically, we previewed three data points, i) the IBC-Br monthly real GDP indicator, ii) IPCA-15 inflation, and iii) the IBGE October labor market report. The latter two prints are due tomorrow. We got the GDP tracker today. It was not pretty.
The the central bank’s output proxy showed real activity falling 0.5% m/m, the fourth straight month of declines. Here’s Goldman’s full breakdown:
In annual terms, the monthly indicator of activity declined by a large 6.1% yoy in September and on a 12-month cumulative sum basis, real GDP contracted 2.8% yoy, close to the lows reached in 3Q2009.
According to the IBC-Br, the statistical carry-over for growth in 2015 dipped to -3.6% (i.e., if the economy remains flat throughout 2015 at the September level real GDP will record a 3.6% contraction on average during the year).
According to the central monthly real GDP indicator, which has been an imperfect indicator of the National Accounts quarterly GDP, real GDP declined 1.4% QoQ sa during 3Q2015 (adding to the-2.1% qoq sa variation recorded during 2Q2015). Hence,real GDP has now declined by four consecutive quarters. Finally, the carry-over for 4Q real GDP is at -0.6%, that is, were GDP to remain flat during Oct-Dec at the September level, real GDP would decline 0.6% qoq sa during 4Q2015.
Barclays simply called it "free fall mode", noting that "today’s result is due to the strong contraction in industrial production (-1.3% m/m sa) and retail sales (-1.5% m/m sa)."
Finally, here's FT, quoting Capital Economics:
Economic activity fell by 6.2 per cent in September from the same period a year earlier.
That's the biggest year-on-year drop on record, according to Capital Economics, and points to a third quarter contraction of nearly 5 per cent.
Edward Glossop at Capital Economics said he expects Brazil's third quarter GDP numbers "to be terrible". He added:
"Conditions are unlikely to have improved much at the start of Q4. October's PMI data suggest that the slump in industry deepened, while the further deterioration in labour market conditions over the past couple of months suggests that consumption remained under pressure."
Q3 data is due on December 1.
Bear in mind that this comes against a backdrop of worsening inflation. As we noted on Sunday, Goldman sees IPCA-15 inflation coming in at 0.87%. The implication: inflation would print somewhere in the neighborhood of 10.3% y/y (the worst in more than 10 years) and you when you put that together with everything noted above you get a stagflationary nightmare.
Truthfully, this is an unmitigated disaster of epic proportions and it just keeps getting worse. Until now, Goldman's Alberto Ramos has been the undisputed king when it comes to producing lists of the country's economic problems that are so long they induce riotous laughter. Well watch out Alberto, BofAML's David Beker may be coming for your spot:
Leading activity indicators are persistently posting negative prints throughout the year, despite already being at record low levels, corroborating our call for a 3.3% yoy contraction in 2015. Tightened credit markets, high household indebtedness level, rising inflation and the ongoing labor market loosening should continue to drive purchasing power and confidence levels down, preventing a rebound in the near term. Accordingly, industrial production declined 10.9% yoy in September, posting the 19th consecutive negative print and returning to production levels from a decade ago. At the same time, retail sales contracted for the sixth time in a row in year-over-year terms, reaching a negative 6.2% yoy print. All in, these results indicate that activity indicators should continue to decline next year, reflecting a deeper and longer economic recession, with economic activity only starting to recover in late 2016.