Brazil registers an all-time high trade surplus in 2017

Good export performance, supported by higher commodity prices and huge crops, as well as imports at low levels, ensured an all-time high trade surplus.

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The trade balance posted a strong surplus for a third consecutive year. The trade surplus stood at USD 5.0 billion in December, beating our expectation (USD 4.5 billion) and market consensus (USD 4.2 billion). Exports totaled USD 17.6 billion, rising modestly by 0.9% mom/sa. Meanwhile, imports totaled USD 12.6 billion, increasing 8.3% mom/sa. Compared to December 2016, exports increased 21.4% and imports expanded 20.2%. In December, the surplus reached USD 5.0 billion, as USD 17.6 billion in exports topped USD 12.6 billion in imports. The trade balance posted a USD 67.1 billion surplus in 2017 — USD 19 billion more than in 2016 (when it reached USD 47.7 billion) and an all-time high in the historical series.

Throughout 2017, good export performance, supported by higher commodity prices and huge crops, as well as imports at low levels (despite the year-over-year increase), ensured an all-time high trade surplus.However, the recovery in domestic demand and lower commodity prices (on average) tend to produce weaker readings in the next years. December figures already point in that direction.  Our forecasts for the trade surplus are USD 55 billion in 2018 and USD 50 billion in 2019. ** Full story here.
According to Focus survey, year-end Selic expectations remained flat at 6.75% for 2018 and increased to 8.25% for 2019 (from 8.00%). Median IPCA inflation expectations did not change for the three years horizon (2017-2019), staying at 2.78% for 2017, 3.96% for 2018 and 4.25% for 2019. GDP growth projections increased by 2bps for 2017 and 2018, to 1.0% and 2.7%, respectively. In contrast, analysts downgraded their 2019 GDP growth forecasts as the median declined to 2.80% from 2.89% in the last survey. The exchange rate depreciated slightly to BRL 3.34/USD for 2018 (from 3.32), while it has remained flat for 2019 (at BRL 3.40/USD).

Orange Book: Recovery continues, inflationary pressures contained. The activity recovery continues to spread among sectors. In our conversations with clients, the automotive sector is the main highlight, but we have also seen positive reports in the textile, airlines and steel sectors. Most sectors have plans to increase Capex compared to 2017, but investments have been more concentrated on purchases of machinery and equipment than on construction. The unemployment rate at high levels and low inflationary inertia are factors that allow lower wage readjustments. Several sectors are already changing their structures in order to comply with the new labor law, but others are awaiting greater legal clarity before implementing actions consistent with the new legislation.
** Full story here.


The minutes of the December monetary policy meeting reveal the board unanimously decided to keep the policy rate on hold at 2.5%, given the latest economic data had not deviated from the baseline scenario of the recently published Inflation Report (IPoM). Nevertheless, more easing is not ruled out with some in the board vocally in favor of including a clear easing bias. At the meeting, the relevant options presented by the technical staff remained no rate move or a 25bps rate cut. Going forward, the consolidation of the activity recovery will be key to ensure the convergence of inflation to the 3% target in the medium-term and maintain the stay-on-hold baseline scenario.

We expect the central bank to keep the policy rate stable at 2.5% for most of this year. Yet, if the activity rebound underwhelms (delaying the narrowing of the output gap), the strengthening of the Chilean Peso persists and some inflation expectations stay suppressed, we cannot rule out additional rate cuts. ** Full story here.

The national statistics agency (INE) will publish the private consumption activity indicators for November tomorrow at 10:00 AM (SP time). We expect the commercial activity index to have increased 2.2% from last year, with retail sales growing 3.6%.


Weak labor market dynamics persist, supporting the continuation of the easing cycle by the central bank in 2018. In November, the national unemployment rate picked up to 8.4%, from 7.5% one year ago. The deterioration of the indicator followed from the urban unemployment rate increasing to 9.6%, well above the 8.7% print last year and a more substantial rise versus the market consensus of 9.2% (Itaú: 9.3%). In the quarter ending in November, employment growth slowed to nil, from 1.1% in 3Q17 and 2.0% in 2Q17, resulting in the unemployment rate lifting to 8.7%, 0.6pp higher than one year ago.

Our expected 2.5% activity growth for 2018, from the 1.6% anticipated for 2017, will in part depend on an improvement in the labor dynamics, especially in urban areas. The recent evolvement of the labor market poses a risk to this scenario. ** Full story here.

The DANE will publish exports for the month of November tomorrow at 1:00 PM (SP time). We expect exports to come in at USD 3,172 million, a 15.7% annual expansion, boosted by oil exports. The Bloomberg market consensus expects a USD 3,152 million figure.


The central bank will release its monthly expectations survey tomorrow. In the last publication, analysts once again raised their inflation forecasts for 2017 (to 23.5% from 23%) and for 2018 (to 16.6% from 16.0%). For the next 12-months, the market expected 17.5% (slightly above the 17.3% posted in the previous survey). The central bank kept the reference rate unchanged in December to help keep inflation expectations anchored ahead of the wage bargaining season in 1Q18.

Fuente: ITAU

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