Brazilian consumers pulled back on retail spending in May. Core retail sales fell 1 percent from both from a year prior and the previous month, a result that was far worse than expected. According to Reuters, markets were expecting May 2023 retail figures to be 1.95 percent higher than May 2022.
Year-to-date, the sector is up a meager 1.3 percent. Over 12 months, growth was 0.8 percent. May’s decline was larger than expected, as the market projected something close to stability. (The clothing segment, down more than 18 percent annually, led the losses.)
“With high interest rates, credit has been affected, which is an important factor in the results,” said Cristiano Santos, research manager at the Brazilian Institute of Geography and Statistics. “The drop came despite the fact that May is the month of Mother’s Day,” which is one of the biggest dates for retailers.
Mr. Santos says scarce credit and high household debt forced consumers to make choices, despite a decline in inflation. In April, consumers spent heavily at supermarkets, a segment that accounts for half of the retail monitoring, but the same behavior was not repeated in May.
“It’s a kind of rebound effect, where the consumer’s choice seemed to be to spend less in that category and more in others,” he says. Faced with the dilemma of spending on retail or services, consumers often chose the latter.
Even broad retail sales (including vehicles and construction materials) fell 1.1 percent. On an annual basis, however, the sector was up 3 percent, thanks to a slight increase in vehicle sales.
There are some bright spots. The upward trend in car sales should continue, as the government launched a program in June to jolt Brazil’s auto industry with new credit lines, tax breaks, and incentives for the nationalization of goods. In fact, many analysts expected a drop in car sales, believing that consumers would wait for the discounts to kick in, but that didn’t happen.
On Monday, the Brazilian government will launch a debt renegotiation program for families struggling to make ends meet. The initial focus will be on low-income people, with the potential to remove more than 1.5 million people from bad payers’ databases. This should free up many families’ budgets for consumption.
The government estimates that as many as 70 million people could benefit from the initiative, which could breathe new life into the retail sector.
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