Latam Talking Points – Brazilian GDP expands 0.1% in 4Q17 and 1.0% in 2017

GDP expanded 0.1% qoq/sa in 4Q17, in line with our estimate (0.1%) and below the median of market expectations (0.3%).

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GDP expanded 0.1% qoq/sa in 4Q17, in line with our estimate (0.1%) and below the median of market expectations (0.3%). Year-over-year growth reached 2.1%. The seemingly-weak reading at the margin suggests a slowdown vs. the previous three quarters of the year (1Q17: 1.3%, 2Q17: 0.6%, 3Q17: 0.2%). However, GDP components and other indicators suggest a favorable scenario. Household spending advanced for a fourth consecutive quarter, by 0.1% in 4Q17. Investments increased for a third consecutive quarter, by 2.0%. Monthly activity indicators — such as industrial production, retail sales, service sector real revenue, and net formal job creation — show that growth became more widespread during 2017. Confidence indicators are also going up, in a dynamic that continues in early 2018.
Importantly, weaker GDP growth in seasonally-adjusted terms in the second half of 2017 is related to the accounting treatment of the huge crop in the first half. Consequently, GDP readings for the beginning of the year were much higher than underlying growth, while the opposite took place in the second half. GDP increased 1.0% in 2017 vs. 2016, the best annual pace since 2013.

We forecast 3.0% growth in 2018, with additional tailwinds from falling interest rates and improved household and corporate balance sheets.Importantly, the sustainability of these two drivers depends on confidence that reforms will make progress, particularly the pension reform. The global environment is also key to the Brazilian scenario. We expect strong growth, especially in advanced economies, along with a gradual withdrawal of monetary stimuli. Our preliminary forecast for Brazilian GDP growth in 1Q18 is 1.0% qoq/sa and 2.4% yoy. ** Full Story here.

The trade surplus reached $4.9 billion in February, matching our expectation and market consensus. Over 12 months, the trade surplus was stable, at $67 billion, but the seasonally-adjusted annualized quarterly moving average expanded to $69 billion from $64 billion, lifted by the pro-forma export transaction of an oil-drilling rig. Excluding this atypical transaction, this indicator showed stability in the trade surplus vs. January. Exports totaled $17.3 billion, rising 2.4% mom/sa, while, imports were virtually stable, increasing 0.6% mom/sa to $12.4 billion. Compared to February 2017, exports increased 11.9% and imports climbed 13.7%. Exports increased 11.9% yoy, adjusting for the number of working days. On a seasonally-adjusted monthly basis, exports climbed 2.4. Imports advanced again in year-over-year terms, by 13.7%. On a seasonally-adjusted monthly basis, total imports increased slightly, by 0.6%.

February figures showed a stronger trade surplus at the margin.Notwithstanding a robust monthly reading, we maintain our expectation of smaller trade results in 2018 and in the following years, in line with an increase in imports due to the rebound in economic activity. Excluding the rig, the quarterly moving average of the trade surplus would have shown stability at the margin. ** Full Story here.


Peru’s CPI inflation came in below median market expectations for a six consecutive month, amid a negative output gap and a normalization process of food prices (after last year’s El Niño) that has not ran its course yet. The CPI posted 0.25% month-over-month in February, undershooting our forecast (0.35%) and median market expectations (0.28%, as per Bloomberg). The result was lower than the 10-year median variation for February by 7bps. The inflationary pressure was driven by higher energy prices and the seasonality of education services given the beginning of the school year in. Annual headline inflation moved further below the Central Bank’s 2 percent target, while the core measure stood unchanged. Headline inflation decreased to 1.18% year-over-year in February (from 1.25% in January), getting closer to the lower bound of the 1pp tolera nce rang e around the 2% target. Meanwhile, core inflation remained constant at 1.97% year-over-year.

We expect annual headline inflation to fall to 0.4% in March – because of a base effect associated to El Niño (which caused food prices to spike in the same month of last year) – and then firm up to 2.2% by the end of 2018. This base effect is quite big because food prices account for almost 40% of the CPI and El Niño caused them to spike by 2.1% month-over-month in March 2017. Nevertheless, we expect annual inflation to increase gradually during the rest of the year when base effects will play in the opposite direction. Moreover, the pick-up of activity should also help to remove downward pressure from core prices. ** Full Story here.

The Central Bank of Mexico’s February survey shows a slight increase of inflation expectations and economists foreseeing a 25-bp rate hike in 2Q18. Median expectations of annual inflation increased slightly for most tenors – 2018 (4.13%, from 4.06% in the previous survey), next 12 months (3.96%, from 4.02%), 2019 (3.58%, from 3.52%), 2020 (3.50%, from 3.49%), and average of the next 5-8 years (3.44%, from 3.40%) – which is surprising considering that inflation surprised to the downside in January and the first half of February. In fact, Inflation has begun 2018 with more favorable dynamics (falling diffusion indexes, lower seasonally adjusted annualized prints, among other evidence) beyond the reversal of the energy prices base effect. Turning to the exchange rate, median USDMXN expectations moved to stronger levels for year-ends 2018 (18.62, from 18 .85) and 2020 (18.60, from 18.70) and stood unchanged for 2019 (18.5) possibly associated to the positive news flow on NAFTA renegotiation. Regarding activity, median GDP growth forecasts increased for 2019 (2.4%, from 2.35%) and 2020 (2.6%, from 2.5%) and were roughly constant for 2018 (2.30%, from 2.28%). Finally, on monetary policy median expectations of the next Central Bank rate move are a 25-bp rate hike in 2Q18 (to 7.75%). However, the expectation of the reference rate for year-end 2018 was unchanged at 7.5% (and increased to 7%, from 6.75%, for 2019).

Day Ahead: The Ministry of Finance (Hacienda) will announce January’s fiscal balance throughout the day. We expect the fiscal deficit indicators to continue narrowing, as the fiscal consolidation plan enters its final year (aiming at an ambitious 0.9% of GDP primary surplus). Moreover, the increase of oil prices likely boosted government revenues in January.


Day Ahead: The Central Bank will release its monthly expectations survey trhoughout. In the latest publication, analysts raised their inflation forecasts for 2018 (to 19.4% from 17.4%) and for 2019 (to 13.5% from 11.6%). Further increases are possible given the recent CPI prints.

Day Ahead: The national statistics agency (INE) will publish the private consumption activity indicators for January at 9:00 AM (SP Time). We expect the commercial activity index to have increased 5.0% from last year, with retail sales growing 5.5% (consensus: 5.0%).


Day Ahead: The institute of statistics (DANE) will publish exports for the month of January at 12:00 PM (SP Time). We expect exports to come in at USD 3,290 million (consensus: USD 3,427 million).

Fuente: ITAU BBA

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