Surging Brazil Economic Optimism Gets a Harsh Reality Check

Matthew Malinowski

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Brazil’s retail sales grew at half the pace expected by analysts in November, capping a month of disappointing data that throws cold water on optimism surrounding the recovery of Latin America’s largest economy.

Sales rose just 0.6% from the month prior despite Black Friday sales, the national statistics agency reported on Wednesday, following industrial production and service sector numbers that also missed forecasts. The results fly in the face of analyst growth forecasts, which have been increasing steadily in recent weeks.

Read More: ‘Sobering’ Month for Brazil Industry Signals Uneven 2020 Growth

Swap rates tumbled on Wednesday as investors pondered whether Latin America’s largest economy needs more monetary stimulus to sustain an incipient recovery. The central bank has cut the benchmark interest rate to a record low amid tame inflation, while President Jair Bolsonaro’s administration is forging ahead with market-friendly reforms. At the same time, nearly 12 million people are unemployed and consumer confidence has been slow to pick up.

“Today’s numbers substantially undershot market expectations, highlighting that the economy is not out of the woods yet,” said Andres Abadia, Senior International Economist at Pantheon Macroeconomics and a top Brazil retail forecaster in Bloomberg surveys. “Coupled with the weakness of the industrial sector and services closely linked to manufacturing, this supports our view that further monetary stimulus is needed.”

November in Brazil is traditionally marked by aggressive retail advertising and Black Friday promotions, similar to those in the U.S. Still, only four of eight retail sectors surveyed that month expanded from October, according to the national statistics agency.

Sales of food, beverages and tobacco products at hypermarkets and supermarkets -- which account for nearly half of the index -- were unchanged on the month. Broad retail sales -- which include cars, car parts and construction materials -- unexpectedly dropped by 0.5% from October, compared to the economists’ median estimate for a 0.4% gain.

Frustrated Expectations

Analysts surveyed by Brazil’s central bank expect gross domestic product to expand 2.3% this year, roughly double the pace seen in 2019. It’s also better than forecasts for other major Latin American economies, including Mexico, Argentina and Chile.

November’s retail result adds to signs that Brazil’s economic performance will be uneven this year. Since mid-2018, retail sales have improved faster than industrial production, according to UBS, which cited factors including improved credit conditions.

After cutting the benchmark Selic to an all-time low of 4.5% in December, the central bank struck a more cautious tone, emphasizing that future policy moves will be made with caution. The next rate-setting decision will be Feb. 5.

The effect of low rates is visible not only in the divergence between retail sales and industrial output, but also within the different retail sectors, said Adriana Dupita, a Latin America economist at Bloomberg Economics. Credit-driven segments such as automobiles and home appliances are outperforming others.

Read More: BRAZIL REACT: Retail Sales Data to Fuel Bets on Final Rate Cut

“In our view, the November reading is consistent with an economy that is gradually picking up, not booming,” Dupita said. “We acknowledge that the poor industrial print and central bank’s vagueness in its latest policy communication leave room for another rate cut at February’s meeting. For now, we believe the chances of a pause slightly outweigh those of a cut.”

(Recasts first paragraph, adds comments from economists.)

--With assistance from Rafael Mendes.

To contact the reporter on this story: Matthew Malinowski in Brasilia at

To contact the editor responsible for this story: Walter Brandimarte at

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