LatinNews Daily Report - 12 July 2012

ECONOMY | Selic cut as retail sales slump. As widely expected, the central bank on 11 July cut the benchmark Selic interest rate by 50 basis points to a record low of 8.0% citing the deflationary external environment. Annualised inflation slowed to 4.92% in June and accumulated inflation was just 2.32% in the first half. The consensus is now for a year-end Selic rate of 7.5%, rising back to 8.5% at end-2013.  In a sign that domestic consumption is coming rapidly off the boil, retail sales fell the most in three years in May (-0.8%), as indebted Brazilian households tighten their belts. More notably, the labour market has begun to weaken, led by the embattled manufacturing and automotive sectors. According to the association of machinery manufacturers, Abimaq, over 6,000 machinists have been laid off to date this year. On 4 July the automotive firm Volvo AB announced 208 job cuts at its Curitiba truck plant to adjust output “to the current market reality”. Mercedes-Benz laid off 1,500 workers in May. GM is in talks with unions to reduce output at its São Jose dos Campos factory. Just under 14,000 new formal jobs were created in May, down 45% on the same month a year earlier.

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