Itaú BBA - COLOMBIA – Mixed activity in December

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COLOMBIA – Mixed activity in December

February 14, 2019

We expect an activity pick-up this year to 3.3% (2.6% in 2018), aided by a mildly expansionary monetary policy.

Activity at the end of the year came in mixed, with retail sales remaining dynamic, while industrial production surprised to the downside. Retail sales grew 7.0% year-over-year (11.2% in November), below the 8.4% Bloomberg market consensus and our 8.0% forecast. Meanwhile, industrial production contracted 0.8% year over year (+4.7% in November), considerably lower than the Bloomberg market consensus (+4.9%), and our +4.0% estimate. Overall, mixed signals continue to show that the activity recovery is yet to consolidate (as shown by the still-low growth of the coincident activity indicator, ISE, of 2.7% for the 12 months ending in November). Hence, with the negative output gap continuing to widen, while inflation expectations remain broadly anchored, we expect the board to keep monetary policy mildly expansionary for most of this year.

Annual retail sales growth remains strong, likely boosted by low interest rates and low inflation. Vehicle and motorcycle sales continue to drive retail sales with growth of 25.0% (46.4% in November), contributing 2.7 percentage points to the headline gain. December sales likely still benefitted from the biennial auto show. Meanwhile, food and non-alcoholic beverage sales expanded 5.5% (1.1pp contribution). Overall, retail activity in 4Q18 picked up to 8.2% year-over-year (4.8% in 3Q18 and 6.1% in 2Q18). Excluding vehicle sales (one-off boost in 4Q18), retail sales still rose a robust 5.4% compared to 4.0% in 3Q18, while retail sales excluding both vehicles and fuels grew 5.8% (5.6% in 3Q18). In 2018, retail sales picked up to 6.2% (-1.1% in 2017). Nevertheless, at the margin, growth of retail sales (excluding fuel and vehicle sales) slowed to 1.2% qoq/saar (2.7% in 3Q18). The partial recovery of consumer confidence in December following the passing of a more-consumer friendly tax reform than initially expected as well as some strengthening of the Colombian peso will likely favor retail sales ahead.

Meanwhile, oil refining dragged manufacturing down in December. Oil refining contracted 7.6% yoy in the final month of 2018, contributing -1.6pp to the headline decline (-0.8%). So, excluding oil refining, manufacturing grew a mild 0.9% in December (3.2% previously). In 4Q18, manufacturing grew 3.1% year over year, moderating from 3.5% in 3Q18 (4.9% in 2Q18). Excluding oil refining, manufacturing growth came in at 3.4% (2.7% in 3Q18 and 5.3% in 2Q18). In 2018, manufacturing recovered with growth of 2.9% (-0.5% in 2017), led by the 13% rise in oil refining (5.5% in 2017). At the margin, industrial production contracted 6.1% qoq/saar, slowing down from the 3.6% gain in 3Q18 (11.3% in 2Q18). 

We expect an activity pick-up this year to 3.3% (2.6% in 2018), aided by a mildly expansionary monetary policy. However, slowing growth for major trade partners and lower average oil prices mean that risks for our growth forecast are tilted to the downside.

Miguel Ricaurte
Carolina Monzón

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