BMI View: As a result of increasing credit costs and inflation, we expect that most Brazilian retail subsectorswill experience a slight contraction in 2015 as households restrict spending. Nevertheless, thecountry looks set to remain an attractive place for investment as incomes are expected to rise, bolstering thenumber of households falling into the middle-class bracket. Moreover, the countries promise to driveinflation into a long-term period of decline in 2015 supports our view that total household spending willshow positive year-on-year growth in 2016.
Across all but three sub-sectors of the retail market we monitor, total household spending will contract inyear-on-year terms in 2015. This is expected as a result of consumer confidence reaching its lowest levelsince the 2008 financial crisis as households focus on paying back rising credit costs amongst high inflationrates. This is expected to be a short-term trend with positive growth of total household spending forecast toresume across all sub-sectors of the retail market in 2016. The Bank of Brazil announced in January 2015that 'it will do what's necessary so that inflation this year enters into a long period of decline, which willbring it to the 4.5% target in 2016', this is supportive of BMI's view that household spending will resumegrowth in line with this timescale. Spending on communications, education and clothing & footwear areforecast to experience positive growth in 2015 and are set to experience the greatest growth rates in 2016.