Itaú BBA - COLOMBIA – Activity recovery advances in October

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COLOMBIA – Activity recovery advances in October

December 14, 2020

With the economic reopening enduring at the backend of 2020, the continuance of the activity recovery is expected ahead.

The activity improvement continued in October with both manufacturing and retail increasing from September. The consolidation of the economic reopening following the lifting of the mandatory quarantine in September is favoring the activity advancement. Retail sales grew 3.0% yoy in October, close to the Bloomberg market consensus of 3.5% (Itaú: 5%). The result was an improvement from the 0.8% drop recorded in the prior month and the 43% decline at the worst of the crisis in April. Meanwhile, manufacturing contracted 2.7% yoy, larger than the Bloomberg market consensus expectation of a 1.5% drop (also our call), and similar to the 2.9% fall recorded in September (35.8% peak in April). Overall, we expect the monthly coincident activity indicator (ISE) to contract by a milder 3.5% yoy in the month, recovering from the 7.3% drop recorded in September.

Food and beverage sales led the retail sales return to positive ground in October (together contributing 2.8pp to the headline result), likely benefitting from the school recess. Additionally, apparel, footwear and pharmaceutical sales posted double-digit growth, together contributing 1.8 pp, while car sales limited the headline gains. Once vehicle and fuel sales are excluded, retail sales increased 7.2% yoy, improving from the 2.3% rise in September, and consistent with the consumer confidence recovery process and labor market gains. In the quarter ending in October, retail sales contracted 5.1%, a significant improvement from the 10.2% and 27.8% drops in 3Q20 and 2Q20, respectively, amid removal of mobility restrictions as the year unfolded. Core retail sales (excluding vehicles and fuels) were roughly flat from last year (3.8% decline in 3Q20 and 15.3% drop in 2Q20). At the margin, core retail sales gained 3% from September, resulting in a quarterly rise of 48.5% (annualized). Going forward, the reopened economy, along with signs of job recoveries underway and the last VAT-free day, favor retail sales advancing further in 4Q20.

Meanwhile, manufacturing retained similar dynamics to previous months, leading to production being now only 3% below pre-pandemic levels. Manufacturing in the month was boosted by sugar processing (21.8%) and home electronics production (15.2%), together contributing 0.8pp to the headline result, with the latter likely boosted in anticipation of the VAT-free sales day in November. Meanwhile, the main drags were oil refining, apparel, and metallic production (subtracting 1.7pp), with 67% of categories still declining in annual terms. In the quarter ending in October, manufacturing shrunk 5.3% yoy, moderating from the 7.2 drop in the 3Q20 and 24% cycle low in 2Q20. At the margin, manufacturing increased 3.3% from September, the sixth consecutive monthly rise. Activity in the quarter increased 57.3% qoq/saar (62.2% drop in 2Q20). Recovering electricity demand suggests the manufacturing rebound would persist during the final months of the year.

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With the economic reopening enduring at the backend of 2020, along with the significant monetary and fiscal stimulus in place, the continuance of the activity recovery is expected ahead. We expect growth of 5% next year, bouncing back from a 7% decline forecast for 2020.

Miguel Ricaurte
Carolina Monzón



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