Itaú BBA - COLOMBIA – Activity gradually advanced in November

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COLOMBIA – Activity gradually advanced in November

January 18, 2021

Despite the downside activity surprise, we still expect GDP to drop 7% in 2020.

During November, activity continued to improve at the margin, but at a slower-than-expected pace. The consolidation of the economic reopening in the month, along with incentives such as a VAT-free day favored the activity advancement. Retail sales grew 4.1% yoy in November, improving on the 3.0% rise in October (43% peak fall in April), but came below the Bloomberg market consensus of 5.6% (Itaú: 10%). Activity was pulled up by home electronics and equipment, along with video and audio equipment, while vehicle and fuel sales dragged activity down in the month. Meanwhile, manufacturing fell by 0.2% yoy, underwhelming the Bloomberg market consensus expectation of a 1.0% rise (Itaú: +3.5%), but the mildest decline since the start of the pandemic (2.6% drop in October and 35.9% peak fall in April). Growth was dragged down by oil refining, apparel, and basic metallic production, while manufacturing of non-metallic mineral goods, chemical and pharmaceutical products, electronics and cleaning products partially countered the fall. With the continued improvement at the margin, the monthly GDP coincident indicator (ISE) posted a 3.4% contraction, moderating from 4.5% in October (20.5% peak drop in April). Overall, economic activity sits around 4% below pre-pandemic levels (22% percent below in April 2020).

Retail activity is driving the economic recovery. In the quarter ending in November, retail sales rose 2.2% yoy, a significant swing from the 10.2% drop in 3Q20 (27.8% decline in 2Q20). Meanwhile, core retail sales (excluding fuels and vehicles) increased by a swifter 6.9% yoy (6.5% drop in 3Q20). On the industrial front, manufacturing dropped 1.9% in the quarter, milder than the 7.2% decline in 3Q20 (-24.1% in 2Q20), despite oil refining remaining a steady drag. ISE shrunk 5.0% yoy in the quarter, but improved from the 9.0% drop in 3Q20 (-15.8% in 2Q20).

At the margin, the ISE rose 1.2% from October to November, the sixth monthly gain in the past seven months. The VAT-free day was likely behind the 4% MoM rise for core retail sales, which led to a 78.1% increase in the quarter (annualized), similar to the recovery pace recorded in 3Q20. Meanwhile, a milder 1.4% MoM increase for manufacturing resulted in a momentum slowdown to 40.6% qoq/saar during the quarter, from 112.7% in 3Q20. Consequently, ISE increased 28.7% qoq/saar, from 39.5% in 3Q20.



Despite the downside surprise, we continue to estimate a 7% GDP decline last year. Looking ahead, the implementation of tighter mobility restrictions during the back end of December and January mean an interruption of growth momentum in 1Q21. Nevertheless, higher oil prices, the sustained stimulus from monetary policy, and the implementation of the vaccination plan support a recovery afterwards. We expect 5% growth this year.

Miguel Ricaurte
Carolina Monzón



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