Brazil:  Encouraging start of Q4, time for cautious optimism

Brazil: Encouraging start of Q4, time for cautious optimism

December 12 2019

Three encouraging news came in from Brazil this week and bode well for the modest acceleration we forecast for next year. First, retail sales grew +0.1% m/m in October which brings the y/y growth to +4.2%, up from +2.2% in September. Overall, the outlook is improving for consumers, amid a low inflation environment (boosting real wages) and declining interest rates as monetary policy eases, helping the credit cycle. Yet, there remain some hindrances to a full-fledged ramping up of consumers: the unemployment rate remains high (11.6%) and consumer confidence still has to recover. The second news is the fourth consecutive policy interest rate cut of Banco do Brasil by 50bps to 4.50%, the lowest rate on record. It did not close the door to further cuts in 2020, but signaled a more cautious data-dependent approach; and it could start hiking only in 2021. The third news is the decision of ratings agency S&P to revise the country’s outlook to positive from stable, which could signal a future sovereign rating upgrade.

Economist for Latin America, Spain and Portugal