Weekly Report 126
Consolidating second-quarter data, the IBGE’s monthly surveys for June reinforced the picture of a weakening economy. In retail sales, performance was well below market expectations, with declines broad-based across segments. In services, the result exceeded market projections, but gains were heavily concentrated in the transportation segment, while all other components posted declines, with particular emphasis on the ongoing downtrend in services to households. Taken together, the aggregated data point to a sharper-than-previously-expected slowdown in Q2 activity. We have therefore revised our quarterly GDP growth forecast to 0.2% QoQ (from 0.4%), updating our annual projection to 2.1%. As highlighted in the previous report, we believe that the combination of a more moderate growth pace and lower inflation projections supports the narrative of an initial rate cut in January 2026. On inflation quality, July’s IPCA data reinforced this view. The headline index rose 0.26% MoM, with the slowdown in the average of core measures driven mainly by industrial goods.
On the fiscal front, the government unveils a package to mitigate the impact of Trump’s tariff hikes. Announced by President Lula and cabinet ministers, the “Plano Brasil Soberano” comprises a broad set of measures to cushion the impact of U.S. tariff increases on Brazilian exporters, combining credit injections, tax incentives, regulatory easing, and stronger trade diplomacy. Altogether, the measures have an estimated fiscal impact of BRL 9.5 billion in 2025–26, with limited direct budgetary effect, though they marginally worsen qualitative perceptions of fiscal accounts.
In the United States, tariff effects have yet to feed into inflation, while retail sales remain supported. July CPI data came in line with market expectations, with the headline up 0.20% MoM and the core up 0.32% MoM, reflecting softer goods prices and stronger services inflation. At the wholesale level, the PPI surprised to the upside, with both headline and core up 0.9%, driven by food, energy, and services, while goods posted more contained gains. On the activity side, July data were weaker than expected for both retail sales and industrial production. Overall, softer activity data and contained inflation figures strengthen our expectation for a first Fed rate cut in September.
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