Itaú BBA - Weaker-than-expected activity in Colombia

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Weaker-than-expected activity in Colombia

April 23, 2019

At the margin, activity lost momentum, expanding a mild 1.0% qoq/saar, below the 3.1% recorded in 4Q18.

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The coincident activity indicator (ISE) for the month of February came in below expectations. The original series grew 2.7% yoy, below the market consensus (2.8%) and our 2.9% expectation, but accelerated from 2.5% in January (revised up from 2.2%). In the quarter ended in February, ISE moderated to 2.1% yoy from 2.8% recorded in 4Q18 (2.7% in 3Q18). Meanwhile, the rolling 12-month growth was 2.8%, similar to the 2.7% recorded in 2018. Once adjusted for calendar and seasonal factors, activity showed a null monthly variation (-0.2% one year ago), but expanded 2.8% yoy (2.5% in January). At the margin, activity lost momentum, expanding a mild 1.0% qoq/saar, below the 3.1% recorded in 4Q18. Overall, we expect activity to improve this year, with growth of 3.3%, aided by the still-expansionary monetary policy, low inflation and the recovery in private sentiment. Nevertheless, a sluggish global economy is a key downside risks to our forecast.

Despite a lower-than-expected trade balance deficit in February, external imbalances continued to deteriorate. The USD 581 million deficit, which came in below the Bloomberg median estimate (USD -716 million) and our forecast (USD -683 million), was wider than the USD 489 million deficit recorded one year ago. The corresponding 12-month rolling trade deficit continues to widen from the USD 7.1 billion recorded in 2018, to USD 7.8 billion at the end of February. Additionally, our own seasonal adjustment shows the deficit was wider in the quarter ending in February, at USD 10.5 billion annualized (9.9 billion in 4Q18), as weak oil energy exports offset the moderation in import growth. Total imports (FOB) gained 8.2% from last year, after expanding 10.4% in January, the slowest pace since April last year. Total exports grew 6.2% yoy in February, up from the 7.8% drop in January. The weakening global economy and the gradual activity recovery have hampered the outlook for external accounts. We see the 2019 current account deficit at 4.0% of GDP (3.8% in 2018). With internal demand improving and a broadly stable real exchange rate, a meaningful correction of the deficit is unlikely.
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The BCB released its weekly survey with market participants, with lower GDP growth expectations for 2019 and 2020. According to the survey, the median forecast for GDP growth declined 24bps for 2019 (to 1.71%) – consistent with a slowdown of economic activity at the margin – and 8bps for 2020 (to 2.50%, now in line with our call). For 2021, growth expectations remained stable at 2.50%. The median of IPCA inflation forecasts for 2019 receded 5 bps (to 4.01%), after increasing 16bps in the previous week. For 2020 and 2021, the median of the inflation forecasts remained flat at 4.00% and 3.75%, respectively. The year-end Selic rate did not change for the three years horizon (2019-2021): at 6.50% for 2019, 7.50% for 2020 and 8.00% for 2021. The median of the forecasts for the exchange rate depreciated slightly: to BRL 3.75/USD for 2019 (from 3.70), to BRL 3.80/USD for 2020 (from 3.78), and to BRL 3.82/USD for 2021 (from 3.80).

Day Ahead: According to local news, the Lower House’s Constitutional and Justice Committee is expected to vote the pension reform report today.


Treasury registered a lower primary deficit in March. The federal government ran a primary deficit of ARS 13.0 billion, compared with a deficit of ARS 20.8 billion reported in March 2018. We estimate that the 12-month rolling primary deficit fell to 2.0% of GDP, from 2.4% of GDP in February 2019. The nominal deficit, which includes interest payments, was 4.9% of GDP, down from 5.4% in February. The federal government ran a surplus of ARS 10.3 billion in the first quarter of the year, exceeding the target of a surplus ARS 6.0 billion for that period (or a deficit of ARS 2.3 billion, once that target is adjusted by the increased social expenditures allowed under the agreement with the IMF). We expect the government to deliver further reduction in the fiscal deficit this year. However, we note an upward risk to our forecast of a deficit of 0.5% of GDP, after the government decided to freeze electricity tariffs for the rest of the year.
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Day Ahead: At 10:00 AM, INEGI will announce March’s unemployment rate, which we expect to came in at 3.4% in the period.

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