🔆BUYSIDEBRAZIL | WEEKLY REPORT Domestic activity loses momentum amid escalating trade tensions – 07/17
✅ In Brazil, the week was marked by the release of the main activity indicators for May, reinforcing the view that economic momentum continued to weaken throughout the second quarter. Sectoral surveys came in weaker than expected across both services and retail, while the IBC-Br pointed to a virtually stagnant economy. Overall, the latest indicators confirm that monetary tightening continues to weigh on domestic activity and support our expectation of a continued slowdown over the remainder of the year. Accordingly, we maintain our forecast of 0.1% QoQ SA GDP growth in the second quarter.
✅ On the trade policy front, escalating tensions between Brazil and the United States returned to the spotlight following the confirmation by the U.S. government of an additional 25% tariff on Brazilian imports under the Section 301 investigation. The final regulation clarified that the new tariff will be cumulative to the existing 12.5% universal tariff already applied to Brazilian products, raising the effective tariff to 37.5% for goods not covered by the exemptions. In response, the Brazilian government announced that it will initiate the procedures required for the potential use of the Economic Reciprocity Law, which authorizes retaliatory measures against unilateral trade restrictions. Although the legislation allows for measures such as retaliatory tariffs and other trade restrictions, its implementation involves consultation and negotiation procedures aimed at minimizing adverse effects on the domestic economy.
✅ On the international front, U.S. economic data pointed, at the margin, to a more favorable inflation backdrop alongside a gradual cooling in economic activity. Both the CPI and the PPI surprised to the downside in June, largely reflecting the sharp decline in energy prices following the retreat in international oil prices throughout the month. On the activity side, industrial production posted only a marginal increase in June, signaling a loss of momentum following stronger readings in previous months. Overall, incoming data surprised positively at the margin, although the renewed escalation of tensions in the Middle East and the recent rebound in oil prices continue to pose upside risks to the outlook for energy prices and inflation in the months ahead.
