Brazil’s retail closed 2016 with a record of losses in the face of sharp declines in sales, especially supermarkets, a movement marked by weak demand and economic recession. Last year, retail sales fell 6.2% over 2015, when the industry ended with a fall of 4.3%. It is the worst result of the historic series that began in 2001, marking two consecutive years of losses, the IBGE (Brazilian Institute of Geography and Statistics) reported on 14th February.

The country’s retail sector has been facing years of recession and shaken confidence, with rising unemployment strongly affecting demand. In December alone, the activity declined by 2.1% over November. The worst result came on January, a drop of 4.9% compared to the same month of the previous year.

The biggest weight came from sales of hypermarkets, supermarkets, food products, beverages and tobacco, which fell 3.1% in 2016 after falling 3% in December, due to the loss of real income and the increase in food prices at home, According to IBGE.

“Over 2017, we can say that the domestic scenario has improved partly because of inflation that has already begun to decline and interest rates that were decreasing, but the labor market, which has a relevant weight to demand, remains fragile,” said Isabella Nunes, an economist at IBGE. Reuters survey indicated expectation of 1.95% decline in retail sales in the monthly comparison and 4.5% over a year earlier.

In 2016, the eight activities that make up the restricted retail showed a decline, with six having the strongest declines in their historical series.

“Consumption and trade were impacted throughout 2016 by factors that inhibit consumption, such as inflationary pressure, rising interest rates and weakening labor markets throughout the year,” Isabella added. The activity of Furniture and household appliances decreased by 12.6% in 2016, while sales of other articles of personal and domestic use fell by 9.5%.

IBGE also reported that the expanded retail sales volume – which includes vehicles and construction materials – fell 8.7% in 2016, also the strongest loss in the historical series. This result mainly reflects the 14% drop in sales of Vehicles, motorcycles, parts and pieces in the face of a slowdown in financing, a high interest rate and a restriction on the family budget.

With demand weakened, inflation has been showing decompression at the beginning of the year, but this may not be enough to boost retail in the face of high unemployment. On the other hand, confidence, considered essential for the improvement of the economy, shows signs of improvement. Consumer confidence ascertained by the Getulio Vargas Foundation (FGV) rose in December as expectations advanced.

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