1. Pine Economic Diary: Parsimonious recovery
September 10, 2012
BRAZIL
COPOM Minutes
The COPOM minutes, published last week, gave important indications of the monetary policy
committee’s views of what lies ahead, which, combined with our analysis of the statement,
increase the chances of new cuts in the Selic rate. However, as we will see in the following
points, the decision will depend (even more) on the domestic and international situation in
the short term:
(i) The risks of an inflationary trajectory in the medium term remain reined in; the
committee believes the recent temporary pressures on agricultural commodity prices
should reverse and, in association with its unaltered view of repressed global activity,
should keep the international outlook disinflationary for a longer time. Therefore, in
its estimates for 2013, inflation remains stable in relation to the previous meeting
although above the center of the target. As a result, the minutes reaffirm the view
that the IPCA accumulated over 12 months should change course in the direction of
the target trajectory although in a “non-linear way”. This means the likelihood is that
the IPCA accumulated in 12 months, above the center of the inflation target (4.5%), is
rising but should start to converge once again towards the center of the target during
the first half of 2013.
(ii) The recovery of domestic economic activity remains gradual and still based on a
hope: the Copom highlighted the moderate domestic demand and the lack of
uniformity among the sector of the “contracted” recovery from the expansionist
monetary and fiscal initiatives. However, the prospects for economic activity in this
and upcoming semesters would be favorable in the Central Bank’s base scenario. It is
worth recalling that the Central Bank chairman himself, Alexandre Tombini,
reiterated the possibility of GDP growth of 4.0% in 4Q12 on an annualized comparison
over the previous quarter. It is worth noting that the Copom decision still depends
both on the domestic data showing a high rate of activity and inflation as well as
weakness on the global front which operates as a contender for the recovery of
aggregate domestic demand, particularly in gross private investment.
In short, in the absence of a stronger upturn in domestic activity, particularly without any
acceleration of domestic production to be reflected in quarterly GDP growth above 1.0% in
2H12, there would be nothing to stop an even greater cycle in the fall of the Selic. However,
the minutes reinforce the choice of cuts of 25 bp (the famous “ maximum parsimony”) should
the extension be necessary. Therefore, we believe the Copom’s initial option is to maintain
the Selic at 7.50% at the next meeting, which remains our projection for December 2012
and during 2013. Further cuts in the Selic depend precisely on the strength of the recovery
of the Brazilian economy and stability on the international front. Any disappointment with the
two variables could lead to additional downward revisions of real GDP growth in 2012 and
2013 (our estimates point to 1.5% and 3.3%, respectively) and the convergence of the Selic to
7.0% in December 2012.
Retail sales (PMC) – July
On Thursday, the IBGE statistics agency will release the retail sales figures for July. We
expect an increase of 0.30% in the monthly growth rate (in seasonally-adjusted terms) in the
restricted sales, well below the median of expectations (1.0%) and the increase registered in
June. We expect the amplified retail sales to show some slowing in the ‘Vehicles,
Motorcycles, Parts and Pieces’ component after the strong month of sales following the cut in
the IPI tax.
Our figures for July are based on the following facts:
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2. A sharp rise of 2.4% in the retail activity indicator, according to Serasa, which
contrasts with the following indicators:
A drop of 3.4% in the growth rate of real sales in seasonally-adjusted terms
(discounting the IPCA variation and in seasonally-adjusted terms in the period)
by supermarkets, according to the figures from the trade association, ABRAS;
A new fall in consumer confidence, both in the FGV figures (-1.5%) and the
survey by the retail trade association FECOMÉRCIO (-1.6%);
No growth in distribution of cardboard boxes, accessories and corrugated paper,
according to the trade association, ABPO;
In terms of amplified retail sales and those that depend on the growth rate of
consumer credit, the steep rise of 27.4% in June in auto and light commercial
vehicles was reversed in July with a fall of 3.8%, according to the dealers’ trade
association FENABRAVE.
In any case, we are maintaining our expectation of moderate growth rates for the coming
months as a result of the countercyclical measures adopted by the government (tax
exemptions and lower interest rates, in particular), the ongoing increase in the real payroll
and subsequent expansion of credit (despite the slowdown to nominal rates of 15% a year) and
the prospect of a fall in default by individual borrowers.
Central Bank’s activity index (IBC-Br) – July
If the Monthly Retail Survey confirmed our estimate for restricted retail sales, the IBC-Br for
July, to be released during the week, should show a slight increase of 0.2% over the previous
month (in seasonally-adjusted terms), corresponding to an increase of 2.00% over the same
period of 2011. As a result, the three-month moving average should remain at 0.3%.
Along with the estimated rise of 0.3% in the PMC, we are considering the increases of 0.26%
and 1.25% in manufactured goods production and input typical of the homebuilding industry;
in contrast, the energy load in July shrank by 0.51% according to the national grid operator,
the ONS.
The closure of the indicators for July leads us to estimate real GDP growth in 3Q12 (q/q in
seasonally-adjusted terms) of between 0.7% and 1.3%, still above the expansion seen in 2Q12
but consistent with the weak real expansion of 1.5% in 2012. In fact, if there was zero growth
in August and September, the IBC-Br would point to an expansion of at least 0.7%.
Marco Antonio Maciel Marco Antonio Caruso
Chief economist Economist
Banco Pine Banco Pine
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3. Time Country Indicator Date PINE Consensus Previous
Estimate
Monday, 09/10/2012
Euro Zone Investor Confidence Sep/12
Brazil IPC-S (first four weeks) Sep/12
Brazil Weekly Trade Balance 09/Sep
USA Consumer Credit Jul/12
Tuesday, 09/11/2012
Brazil IGP-M (first preview) Sep/12
USA Trade Balance Jul/12
Brazil Consumer Credit Demand Indicator Aug/12
Wednesday 09/12/2012
Euro Zone Announcement of banking -
supervision proposal
Euro Zone German Court judges participation -
in the ESM
Brazil IPC-S (first four weeks) Sep/12
Euro Zone Industrial Production -
USA Mortgage Applications (weekly) 07/Sep
Brazil PIM: Employment and Wages Jul/12
- World Agriculture Supply and -
Demand (estimate)
USA Export/Import prices Aug/12
USA Wholesale inventories Jul/12
Thursday 09/13/2012
- Leading indicators Jul/12
Brazil PMC: Retail Sales Jul/12
Brazil PMC: Retail Sales Jul/12
USA PPI: Producer Price (% m/m) Aug/12
USA PPI: Producer Price (% y/y) Aug/12
USA PPI: Core Aug/12
USA Jobless Claims 08/Sep
USA FOMC meeting -
USA Monthly Fiscal Result Aug/12
USA B. Bernanke press conference -
Friday 09/14/2012
Euro Zone Consumer Prices Aug/12
Euro Zone Meeting of Euro Zone Finance -
Ministers
USA CPI: Consumer Prices (% m/m) Aug/12
USA CPI: Consumer Prices (% y/y) Aug/12
USA CPI: Core Aug/12
USA Retail Sales Aug/12
USA Industrial Production Aug/12
USA Use of Installed Capacity Aug/12
USA Consumer Confidence (preliminary) Sep/12
USA Corporate Inventories Jul/12
Brazil A. Tombini takes part in a public -
hearing at the Senate
Brazil IBC-Br (% m/m) Jul/12
Brazil IBC-Br (% y/y) Jul/12
Euro Zone Announcement of budget cuts in -
Greece
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