Despite high interest rates but low unemployment, the retail situation was on the sidelines again in August, with retail contraction intensifying and GDP growth slowing in the third quarter. Finance Minister Fernando Haddad told Reuters in an interview that the economy has stagnated and the economic environment in the third quarter was very poor. Due to external challenges such as long-term interest rate hikes in the United States and the Israeli-Palestinian conflict, the urgency of the internal reform agenda is also greater.
In July, the retail industry grew by 0.7%, while the broad concept decreased by 0.3%. According to data from the Monthly Business Survey (PMC), among the seasonally adjusted series, retail sales in August decreased by 0.2% month on month and 2.3% year-on-year compared to July. In expanding retail sales (including cars and motorcycles, components, building materials, etc.), sales decreased by 1.3% from July to August (excluding seasonal effects).
Out of the 10 product categories surveyed, 5 showed shrinkage: other personal and household items (-4.8%), books and stationery (-3.2%), furniture and household appliances (-2.2%), as well as textiles, clothing and footwear (-0.4%), and building materials (-0.1%). On the other hand, the following categories all grew: vehicles and parts (3.3%), supermarkets, food, beverages and tobacco (0.9%), fuels and lubricants (0.9%), computer and communication equipment and supplies (0.2%), medicine and perfume supplies (0.1%).
The temporary measure prohibiting federal tax incentives for state subsidies on company expenses was announced at the end of August, but no progress has been made since then. Therefore, the federal government has decided to convert an important fiscal adjustment measure into a bill and vote on it this year. But Congress did not reach a consensus with the government.
According to Haddad's assessment, if this bill is not approved, it is expected that the basic deficit will be zero next year (2024). But market agents still refuse to believe in the forecast and the government's financial plan. According to the latest Prisma financial bulletin, it is expected that the loss next year will be 84.3 billion reais.
Hadad stated that the government is currently working on another proposal. This proposal establishes active debt securitization - negotiating tax credits with the private sector, providing discounts for debt financing, and the government receiving resources in advance. This project will initiate a new round of resource repatriation for Brazilians overseas. Income tax reform will only be proposed by the government after Congress completes the consumption tax reform (tax reform). The reform is still being processed in the Senate and should be returned to the House of Representatives, which may delay the proposal of income reform until 2024.
Compiled by Bianca
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