September 11, 2019 / 1:17 PM / 3 months ago

UPDATE 1-Brazilian consumers go shopping as July retail sales smash forecasts

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By Jamie McGeever

BRASILIA, Sept 11 (Reuters) - Brazilian retail sales in July chalked up their biggest rise so far this year, government statistics agency IBGE said on Wednesday, smashing forecasts and signaling that the economy started the third quarter on a solid footing.

Against a backdrop of interest rates at their lowest levels ever and falling, the lower house of Congress approving the government’s landmark pension reform bill and the economy slowly picking up steam, Brazilian consumers went shopping in July.

Volumes of sales excluding cars and building materials rose 1.0% from June, the biggest monthly increase since November, as seven out of the eight segments tracked by the IBGE showed an increase on the month.

Economists in a Reuters poll had expected a fall of 0.1%.

Retail sales grew 4.3% from the same month last year, IBGE said. That was more than double the 1.95% increase forecast in the Reuters poll, although the figure was boosted by the base effect from a rare year-on-year decline the previous July.

“The economy is recovering more slowly than expected, but it is recovering. August’s figures will certainly be worse, given the exchange rate volatility that month, but it’s a work in progress,” said Jason Vieira, chief economist at Infinity Asset Management in Sao Paulo.

The biggest drivers of July’s rise were supermarket, food and drink, and tobacco sales - the biggest overall weight - which rose 1.3%, while other personal and household goods rose 2.2% and furniture and household appliances rose 1.6%, IBGE said.

The only segment to register a fall in sales was office, computer and communication equipment, which fell 1.6% in July.

July’s figures bring retail sales back up to June 2015 levels, the IBGE said, although they remain 5.3% below the record heights reached in October 2014.

The central bank has already cut interest rates to a record low 6.00% and is widely expected to reduce them again next week. Figures last month showed that the economy grew by 0.4% in the second quarter, twice the rate economists had expected and putting to bed fears that recession was looming.

The most recent economic data point to continued growth in the third quarter. On Tuesday, as the government raised its 2019 economic growth forecast slightly to 0.85%, Economy Ministry officials said the worst for the economy is now behind it.

But economists also note that low official interest rates still do not equate to cheaper credit for consumers, and that stubbornly high unemployment and weak wage growth mean a rosy outlook for retail sales is far from assured. (Reporting by Jamie McGeever Editing by Jonathan Oatis)

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