Brazil retail sales: The worst is yet to come

Macro

Christopher Dembik

Head of Macro Analysis

Summary:  This afternoon, we are looking at Emerging Markets, and especially Brazil. Retail sales at constant prices in Latin America's largest economy are out at minus 1.3% YoY in March. This is the worst print since the 2015-16 recession. We expect a double-digit decrease in retail sales in April due to the spread of the virus and the implementation of lockdown measures at state-level.


The “measly cold”, as it was characterized by president Jair Bolsonaro, is starting to hit hard the Brazilian economy. Even before the outbreak really began to spread in Brazil, retail sales were weak on the back of the sluggish economic recovery. In March, the headline was out at minus 1.3% YoY – the worst level since the 2015-16 recession. Looking into further details, food sales by hypermarkets and supermarkets jumped by 11.1% YoY – a similar positive trend has been seen in almost every other country affected by the coronavirus. The other sales have significantly dropped with textiles and clothes sales experiencing the biggest drop on record at minus 39.6% YoY, and computer and communications equipment sales falling minus 23.2% YoY.

These figures are horrific, but it will get worse in the coming months as the impact of the coronavirus on the broad economy will become more visible. The recent release of vehicles sales in April, at minus 77.3% - an historically unprecedented plunge – gives us a clue of what is coming ahead.

Compared to the rest of the world, Brazil was affected very late by the coronavirus pandemic. The first cases identified by the WTO date back to the beginning of March, but it was not until April that the pandemic began to spread rapidly across the country to reach more than 162,000 confirmed cases as of today. The country has not managed to flatten the coronavirus curve yet, which means that the health crisis is likely to worsen in the coming months, especially due to the president’s reluctancy to implement lockdown measures. The government has been slow to take the right measures, questioning publicly the merits of lockdown and asking Brazilians to get back to work. Fortunately, in April, some states have decided to act to contain the spread but, as it is still insufficient, we have seen over the past few days major Brazilian cities, such as São Luis and Fortaleza, implementing stricter rules and forbidding people from going outside except to obtain groceries or medications.

These necessary measures will have a major impact on the economy at least until the end of Q2. There is a high 0.90 correlation out of one between retail trade confidence (published by the Getulio Vargas Foundation) and retail sales. Therefore, we expect that retail sales will likely drop by a double-digit in April on the back of higher pain from coronavirus outbreak. Data for April is due on June 16. There is no question but that that Brazil has probably entered its worst recession since independence in 1822.

Disclaimer

Saxo Capital Markets (Australia) Pty Ltd prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Combined Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Pty Ltd ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide and Product Disclosure Statement to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as CFDs and Margin FX products may result in your losses surpassing your initial deposits. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.
Please click here to view our full disclaimer.