Talk of the Day
According to the Brazilian Central Bank, the IBC-Br Activity Index advanced 1.4% mom/sa in December, slightly above our call and the median of market expectations (1.2% and 1.0%, respectively). Relative to the same month in 2016, the IBC-Br rose 2.1% (Itaú: 2.4%; Bloomberg: 2.2%). In 2017, the indicator went up 1.0% (as compared to 2016), in line with our call for Brazilian GDP growth over the same period. The result is stronger than our monthly GDP proxy (PM-Itaú) for December (up 0.5% mom/sa). Moreover, the indicator went up 1.3% qoq/sa in 4Q17, conflicting with our view for GDP sequential growth in the quarter (we forecast 0.1%). Nonetheless, the monthly results since January (2016) were revised between -0.2% and 0.6% and may be reviewed further ahead, reducing the spread between our tracking and the IBC-Br quarter-over-quarter figure.
According to Focus survey, the IPCA inflation expectation for 2018 fell again to 3.81% from 3.84%. For 2019 and 2020, median inflation expectations remained at 4.25% and 4.00%, respectively. In turn, GDP growth expectations for 2018 rose again (to 2.80%, from 2.70%). The market still sees 3.00% growth next year, but revised marginally downwards its expectation for 2020 (to 2.65%, from 2.69%). Year-end Selic expectations did not change for the three-year horizon (2018-2020): at 6.75% for 2018, and 8.00% for 2019 and 2020. The exchange rate stood flat at BRL 3.30/USD for 2018, and at 3.39/USD for 2019. Conversely, the median projection for year-end 2020 depreciated to 3.47/USD, from 3.45/USD.
Day Ahead: The fiscal accounts for January will be released sometime during the day. The Treasury posted a primary deficit of 3.9% of GDP in 2017, 0.3% lower than the official target of 4.2%. Minister Dujovne reaffirmed the next steps are to reduce the primary deficit to 3.2% of GDP this year. In our view, the target can be achieved through recent changes in the pension system, continued efforts in slashing subsidies and higher tax collection due to the expected economic recovery.