Goldman Cuts Brazil GDP Call as Retail Fall Exceeds Forecast

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Brazil’s retail sales in May fell more than forecast by all but one analyst, prompting Goldman Sachs Group Inc. to predict a deeper recession in 2015. Swap rates fell.

Sales fell 0.9 percent after a revised 0.5 percent decline in April, the national statistics agency said in Rio de Janeiro. That was worse than the median 0.3 percent dip estimated by 33 economists surveyed by Bloomberg.

The fourth consecutive drop reflects the impact of higher joblessness, accelerating inflation and near record-low consumer confidence in Latin America’s largest economy. The slowdown in families’ spending, which has been the motor of economic growth for the last decade, has been exacerbated by policy makers raising borrowing costs to damp price increases.

High levels of family debt, a tighter credit market, a boost in some taxes and an increase in tariffs, such as buses and electricity, is further hurting consumers, according to Goldman Sachs Group Inc.’s chief Latin America economist Alberto Ramos.

“People are more defensive, they are more uncertain about the outlook for the economy and their own lives,” Ramos said by phone. “Their inclination to spend on big-ticket items like an automobile, a flat screen television, or even an expensive vacation has been reduced.”

Swap rates on the contract due January 2017 fell 0.04 percentage points to 13.52 percent at 11:02 a.m. local time in Sao Paulo. The real gained 0.4 percent to 3.1230 per U.S. dollar.

Credit Restraint

“We have been saying for such a long time that the Brazilian economy was losing steam, and now the economy is dropping and we’re seeing a more widespread process,” Flavio Serrano, senior economist at BESI Brasil, said by phone.

Sales of food, beverages and tobacco at hypermarkets and supermarkets fell 1.1 percent after a 1.8 percent increase in April. That reflects a decline in income, according to Serrano. A restraint of credit was responsible for furniture and appliances sales falling 2.1 percent, he said.

In a bid to stem consumer price increases, the central bank has raised borrowing costs in the face of recession. After six straight increases to Brazil’s key rate, the Selic sits at 13.75 percent -- its highest since January 2009. Economists surveyed weekly by the bank estimate it will reach 14.5 percent by year-end as the economy contracts 1.5 percent.

Goldman Sachs today revised downward its outlook for gross domestic product in the second quarter, citing weaker-than-expected retail data in April and May as well as the “very weak signal” from other indicators including unemployment, real wages and confidence.

Deeper Recession

The bank is now expecting a 1.5 percent drop, from 1.25 percent decline previously, following a 0.2 percent contraction in the first quarter. The bank also expects a 1.4 percent recession in 2015, down from 1.2 percent previously, Ramos said in an e-mail.

Retail sales in May fell 4.5 percent from the previous year, versus a median forecast of 3.7 percent decline. That follows a revised 3.3 percent slide last month.

The broader retail index, which includes cars and construction materials, tumbled 10.4 percent from a year ago, versus a median estimate for a 9.1 percent drop. That marks its 12th straight drop, and tied the worst rate on record.

“We do not expect a recovery of retail sales anytime soon,” Bruno Rovai, Brazil economist at Barclays Plc, said in a note. “The labor market deterioration should continue for the next few quarters, consumer sentiment remains in the doldrums and the tightening of monetary conditions does not support the credit market.”