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Consumer confidence deteriorates further in Colombia

July 18, 2019

Pessimism has reigned for consumers in 9 of the last 10 months.

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Consumer confidence continued to deteriorate in June. Pessimism has reigned for consumers in 9 of the last 10 months, showing that a weak labor market is likely hurting the indicator, despite the still-dynamic retail activity. Think-tank Fedesarrollo’s consumer confidence gauge came in at -6.3 pts (0 = neutral), well below the 15.5 pts recorded one year earlier (-5.0 pts in May). The annual deterioration was driven by weaker expectations (-5 pts vs +24.6 pts in June 2018), as the one year ahead expectations dropped sharply. Meanwhile, the economic conditions component retreated to -8.2 pts, from +1.9 pts one year ago, as consumers do not see the current scenario as an opportune time to purchase appliances and household goods. This could foreshadow a deterioration in durable consumption ahead. Households also show little disposition to purchase real estate, which could point to weak construction in 2Q19 (following the contraction in construction in 1Q19). Compared to June 2018, consumer sentiment decreased in five major cities, dragged mainly by Bogotá. The latter could be explained by the closure of an important highway that connects the east of the country and the capital, leading to transitorily higher food inflation. Overall, pessimistic consumers, a weak labor market and headwinds from the global scenario would lead to sluggish growth this year (2.6%, in line with 2018), supporting additional monetary easing by Banrep towards yearend.


We published our Orange Book yesterday, a report summarizing anecdotal information on current economic conditions received from key contacts, market experts and other sources outside Itaú. Companies reported that the year began with good confidence levels and decent pace, but this situation quickly changed into a sharp economic activity and expectations slowdown, still in the first quarter, in a trend that did not reverse much (and even worsened in some cases) until June. However, in the last weeks, the expectations path changed again, eventually outlining a "crooked V" shape during the first semester of the year. Our contacts attribute this movement mainly to the progress on the pension reform front. However, this move has not yet triggered increased consumption, much less investment and hiring, decisions. ** Full story here.

Day Ahead: President Jair Bolsonaro will hold a ceremony at 4:00 PM to celebrate the government’s first 200 days. According to local media, the president may announce new measures to stimulate the economy during the event. 


Macro Scenario: The drop in the inflation rate due to a stronger currency and a more favorable external environment make room for a 25-bp point cut in the reference rate ahead. We revised our exchange rate projection down to PYG 6,250/USD (from PYG 6,350/USD previously) for the end of 2019. While we maintain our inflation forecast of 4% for this year, we see downside risks. On economic activity, national accounts data confirmed the decline in GDP in 1Q19. According to leading indicators, activity will remain weak in 2Q19 – we maintain our growth forecast for 2019 at 1.7%. ** Full story here.


Macro Scenario: The primary elections on June 30 defined the candidates for the presidential election in October. Daniel Martínez (Frente Amplio), Luis Lacalle Pou (Partido Nacional) and Ernesto Talvi (Partido Colorado) will be the main contenders. On economic activity, we forecast GDP growth of 0.5% this year and inflation of 7.5% by year-end. The fiscal front poses the greatest challenges, since the consolidated fiscal deficit is expected to increase to 3.2% of GDP in 2019, from 2.9% at the end of 2018. ** Full story here.


Day Ahead: At 7:00 PM, the central bank will publish the decision of its first monetary policy meeting following the surprise 50bp rate cut to 2.5%. Structural parameter updates provided the board with sufficient justification to lower the policy rate. The board’s working assumption going forward is for stable rates for the coming quarters, before starting a gradual normalization process next year. We expect stable rates at this meeting. Survey results of both analysts and traders also show support for holding the policy rate this month. However, we believe the effects of an unresolved trade war on Chile’s economy would be larger than that outlined in the central bank’s scenario, and this would pave the way for further interest rate cuts later this year (survey results also include more easing ahead).

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