Brazil Macro View: About that February retail sales drop ...

Retail sales in Brazil fell in February, for the first time in six months. Experts say this signals a slower economic recovery and lends support for the central bank?s? strategy of further interest rate cuts.

?The economy, which had been growing below potential, isn?t showing significant strength in the first quarter either,? Leonardo Sapienza, chief economist for Banco Votorantim SA told Bloomberg.

Itau?s aurelio Bicalho shared his opinion in a note to clients:

?The contraction was driven by supermarkets, clothing and vehicles. We evaluate this weakness as short-lived. Early data for March already point to a new expansion in core retail. Furthermore, fundamentals are positive for the rest of the year. The reduction in real interest rates to historically-low levels, the increase in fiscal transfers, good labor-market conditions and consumer confidence rebounding to the highest level in the series suggest strong expansion in the consumption of goods throughout 2012.?

Broad retail sales retreated 1.1% in February MoM SA and increased 2.5% YoY. The result was worse than our expectation (-0.4% and 3.5%, respectively)??We see the retreat in retail sales in February as a temporary movement??Consumer confidence is also improving.?

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