Itaú BBA - COLOMBIA – Strong activity in November

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COLOMBIA – Strong activity in November

January 18, 2019

Low oil prices and slowing growth for major trade partners are headwinds to the recovery process

The activity recovery continued in November. Retail sales came in strong, partly aided by a temporary boost in auto sales, increasing 10.8% yoy (6.4% previously), well above the Bloomberg market consensus of 7.1% and our call of 6.8%. Sales remained robust once vehicle sales are excluded. Meanwhile, manufacturing grew at a brisk 4.7% pace (5.4% in October), led by oil refining, surpassing the Bloomberg market consensus of 4.3% and was just below our 5.0% estimate. Given the strong data, we expect the coincident activity indicator to expand 3.6% yoy in November (up from 2.3% in October), around potential and thereby halting the widening of the output gap. Besides the positive activity news, inflation remains under control, inflation expectations are anchored and the external environment still risky. Thus, we envision the central bank keeping rates stable in the near term.

The biennial auto show led to car sales being the driving force behind retail performance in the month. Vehicles sales grew 43.4% yoy (contributing 5.5pp to the headline gain), which alongside telecommunications equipment (+15.5%, 1.4pp contribution) lifted the headline figure. Meanwhile, the main drag in the month came from vehicle part sales (-1.7%, -0.1 pp contribution). Removing vehicle sales, retail sales growth was a milder but still robust 6.0% (5.4% in October). In the quarter ending in November, retail sales grew 7.8%, from 4.8% in 3Q18 reaching the highest rate since early 2015. Even after excluding fuel and vehicles, retail sales rose 6.3% in the quarter, up from 4.8% in 3Q18. Activity is also improving at the margin, as retail sales (excluding fuels and vehicles) accelerated to 5.4% qoq/saar from 2.8% in 3Q18.

Oil production is driving manufacturing activity. Oil refining activity grew 11.6% yoy (aided by a low base of comparison; 2.6% previously), contributing 2.1pp to the 4.7% manufacturing gain. Excluding oil refining, manufacturing growth was a more contained 2.2% (4.2% previously). Beverage production was also an important force (+8.8%, contributing 1.0 pp). The main growth drags in the month came from chemical production (-7.7% yoy) and sugar production (-14.0% yoy) jointly subtracting 0.5pp from the headline gain. In the quarter ending in November, manufacturing rose 4.4%, from 3.5% in 3Q18. Excluding oil refining, manufacturing activity rose 2.5% in the quarter, broadly stable from 3Q18. At the margin, industrial production grew 1.7% qoq/saar, decelerating from the 3.4% in 3Q18. 

We expect the activity recovery to continue, aided by low inflation and a mildly expansionary monetary policy. Our growth forecast is 3.3% for 2019, up from 2.6% expected for last year. However, low oil prices and slowing growth for major trade partners are headwinds to the recovery process. 

Miguel Ricaurte
Carolina Monzón

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