Consumer, Cyclical Brazilian Apparel Retailers - Coronavirus - Cutting estimates

In March, UBS Economists lowered estimates for Brazilian GDP & household consumption. Brazilian Institute of Geography & Statistics (IBGE) is not reporting unemployment levels, but we estimate that it could reach 12.5% in 2020.

23 Apr 2020

UBS Economists' estimates for household consumption and GDP % year over year growth – pre-COVID-19 lockdown (February 2020 vs. post-COVID-19 lockdown (April 2020)

Source: BCB and UBS Estimates

The figure charts year over year growth of household consumption alongside GDP. The time period is from 4Q16 to 4Q21E, and includes estimates for 1Q20 through 4Q21. According to our estimates in the chart, consumption will fall but rebound sharply after the pandemic-related lockdown is over.

Incorporating COVID-19 impact on the apparel sector growth

COVID-19 is resulting in ~91% month over month weekly sales decline in the apparel sector since mid-March. UBS Economists cut 2020 estimates for household consumption growth to -1.5% (from +1.9%), which would imply a -4.6% apparel sales (from +1.9%) based on our retail sales regression model. The current crisis caused the Brazil risk-free rate to increase 80bps to 4.5% and apparel stock prices to  fall ~50% YTD. Government measures are progressing, but lockdown extension is still in discussion.

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