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Consumption slowing amidst currency weakening and
higher interest rates. While the IBGE growth data did not
elaborate on the trajectory of global supply and demand, other indicator
releases show that consumption has also slowed. In June, IBGE’s national
retail sales index dropped 1.0% over the same month last year, the third
consecutive decline. The Trade Federation of the State of São Paulo (FCESP)
reports that consumer confidence dropped again in August to 89.9 (zero
represents highly pessimistic sentiment; 200 very optimistic). The
continued decline in consumer confidence is due to fears that the current
economic deterioration, particularly the currency weakening and higher
interest rates, will have detrimental impacts on personal income and
credit conditions. The observed moderation has prompted panellist to
revise downward their forecasts for consumption growth.
Investment
slowing. The most recent trade data show that investment, as
measured by capital good imports slowed in July. Capital good imports
increased just 1.8% in July over the previous month, following the 16.5%
contraction in June. When compared to the same month last year, capital
good import growth slowed to just 0.3%, the lowest growth rate since June
last year. Even though industrial output of capital goods grew at a
healthy 12.2% in June compared to the same month last year, growth has
been slowing markedly since March. In fact, from April to June capital
goods production has declined every month. This month’s Consensus
Forecast indicates that participants expect investment growth to drop
further in the last four months of the year. Investment is expected to
pick up next year; however, as energy rationing is eased and interest
rates come down again.
Growth forecasts receive another downward
revision. The weak second quarter showing and prospects for
further economic weakening have prompted participants to undertake a
significant adjustment to their growth forecast for this year. The
Consensus remains below the government’s revised figure of 2.2%. While
growth should pick up next year, participants expect the economy to expand
only moderately.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Brazil. For more details please click here.
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