Itaú BBA - COLOMBIA – A mixed activity bag to start the year

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COLOMBIA – A mixed activity bag to start the year

March 14, 2019

With activity indicators continuing to point at GDP growth below potential, stable rates is likely to persist for some time.

Activity at the start of 2019 came in mixed, with retail sales slowing by more than anticipated, while the headline industrial production surprised to the upside (although weakness at the margin persisted). Overall, with activity indicators continuing to point at GDP growth below potential and low inflationary pressures, stable rates in a mildly expansionary territory is likely to persist for some time.  

Despite the annual slowdown, retail sales growth continued to improve at the margin. Total retail sales increased 3.0% yoy (7.1% previously), below the Bloomberg market consensus of 4.3% and our 4.0% forecast. The slowdown was primarily due to the fading of the impulse from vehicle sales (due to the biennial auto show at the backend of last year). Once vehicle and fuel sales are excluded, retail sales posted growth of 4.6% (5.2% in December). In the quarter ending in January, total retail sales expanded a still elevated 7.2% (8.2% in 4Q18 and 4.8% in 3Q18), while sales excluding fuel and vehicles was 5.5% (5.8% in 4Q18 and 4.8% in 3Q18). At the margin, retail sales (excluding fuel and vehicle sales) accelerated to 3.9% qoq/saar, from 1.8% in 4Q18 and 2.5% in 3Q18. Recovering consumer confidence in December and January could be positive for retail sales momentum, despite a still weak labor market.

Manufacturing in January was lifted by beverage production, possibly due to somewhat higher temperatures in some regions amid a mild El Niño. The manufacturing series was updated by statistics agency with an enhanced focus on regions. The 3.0% yoy increase in January (-0.8% previously) exceeded the 2.6% Bloomberg market consensus and our 1.5% call. While beverage production lifted activity (+8.5% yoy and 1.0pp contribution), oil refining was the main drag (-5.7% and -0.4pp contribution). In the quarter ending in January, industrial production grew 2.3% yoy, moderating from 3.1% in 4Q18 and 3.5% in 3Q18. At the margin, industrial production contracted 8.7% qoq/saar, decelerating from the 6.3% drop in 4Q18 (+3.9% in 3Q18). Low oil prices (relative to 2018) and a sluggish global economy are risks to manufacturing performance this year, partly countered by consolidating domestic demand.

We expect activity to improve this year with growth of 3.3% (2.7% last year) aided by a still-expansionary monetary policy, recovering consumer and business sentiment and growing signs of an investment improvement (as capital goods imports pick up).

Miguel Ricaurte
Carolina Monzón

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