(Bloomberg) -- Brazil is losing one of its most reliable growth drivers as the coronavirus pandemic deals an unprecedented blow to consumer demand, according to a set of leading indicators for the retail sector.
Consumers in March cut spending on everything from big-ticket purchases including vehicles to smaller items such as food and drinks, according to data provider Serasa Experian, which said overall declines were the biggest in decades. That’s put official retail data published Tuesday showing an increase in sales in February into the rear-view mirror.
Since mid-March, the pandemic has upended consumer spending that accounts for roughly two-thirds of gross domestic product in Latin America’s largest economy. In the past, retail sales powered growth on the back of greater credit access and a growing and more confident middle class. Now, the crisis is shuttering outlets from clothing stores to bars and exacerbating already high unemployment.
“With people staying at home more and many brick-and-mortar stores closed, the consumption of goods automatically falls, especially of non-essentials such as vehicles and construction materials,” said Serasa Experian economist Luiz Rabi.
Long gone are days when electronics and televisions flew off the shelves as retail sales posted year-on-year gains that reached the double digits. While not nearly as vibrant as the start of the last decade, consumption showed strength in 2019 with a streak of seven straight monthly retail increases boosted by record-low interest rates.
Still, the outbreak of the virus, which has killed more people in Brazil than anywhere else in Latin America, sent consumer confidence tumbling in March to its lowest level since the country emerged from recession in early 2017. Vehicle sales dropped to the lowest in two years, car maker association Anfavea reported on Monday.
Serasa Experian’s gauge of commercial activity recorded the biggest monthly fall in March since the start of the index in 2000. Data collected by payment company Cielo showed nominal retail sales were off 22.4% during the same period amid a 47.8% plunge in services such as travel and 36.1% decline in durable goods such as clothing.
Clothing retailer Marisa Lojas is one of the many chains that’s seen a sudden fall in consumer demand. The company saw a 50% drop in foot traffic at its open stores, CFO Adalberto Santos said on an earnings call last month that was held just before the company decided to temporarily close all of them.
When asked about 2020 sales forecasts, Santos said making predictions amid such uncertainty was difficult. “Any numbers or anything we say here will be just guessing,” he said according to the transcript of the call. “So I’d rather not say anything.”
Indeed, whereas 2020 growth estimates above 2% were nearly consensus in January, banks such as JPMorgan Chase and Bank of America Merrill Lynch are now forecasting gross domestic product to contract between 3% and 4%. Brazil’s Economy Ministry is officially expecting no growth this year.
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Complicating matters is the slow arrival of government aide for workers amid the current crisis, according to Adriana Dupita, a Latin America economist at Bloomberg Economics. Put together, workers’ struggles coupled with the closing of stores mean there’s no way to avoid a direct hit to consumption in upcoming months.
“Even if people were allowed to shop, they would not have money to pay,” Dupita said. “All coincident indicators point to a double-digit plunge in retail sales in March, and the picture is even gloomier for April.”
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