Itaú BBA - COLOMBIA – Strong activity in October

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COLOMBIA – Strong activity in October

December 14, 2018

A negative output gap and contained inflationary pressures mean we expect the Central Bank to stay on hold at its December monetary policy meeting

The activity recovery advanced at the start of 4Q18. Retail sales and manufacturing surprised to the upside in October, with the latter favored by one additional working day compared to last year. Nevertheless, even after adjusting for calendar and seasonal effects, manufacturing activity was solid. Overall, the improving consumption is in line the developments seen in 3Q18. However, a negative output gap endures and inflationary pressures are contained, so we expect the Central Bank to stay on hold at next week’s monetary policy meeting.

Retail sales increased 6.5% in October (5.9% in September), coming in above the Bloomberg market consensus of 5.5% and our call of 5.0%. Car and motorcycle sales (+14.3% yoy, contributing 1.8pp to the headline gain), alongside food and non-alcoholic beverage sales (+5.8%, contributing 1.3pp) lifted sales. Meanwhile, pharmaceutical, medicinal, and book sales mildly contracted (a joint null subtraction to headline growth). Excluding fuel and vehicle sales, retail grew 5.5% (6.8% in September). In the quarter ending in October, retail sales expanded 5.9%, from 4.8% in 3Q18 and 6.0% in 2Q18, while retail sales excluding fuel and vehicles rose 5.9% in the quarter (4.8% in 3Q18 and 6.2% in 2Q18). At the margin, retail sales (excluding fuel sales) grew at 4.2% qoq/saar (similar to the pace in 3Q18 and 2Q18). However, once vehicle sale are excluded, retail sales posts a notable slowdown. Overall, the advancement of retail sales is likely aided by higher real wages (as inflation dropped) and an expansionary monetary policy.

The manufacturing recovery is consolidating. The 5.8% year over year rise in manufacturing (2.9% in September) was led by the production of pharmaceuticals and medicines (+18.2%), beverages (+5.2%) and oil refining (+2.8%). Growth came in above the Bloomberg market consensus forecast of +3.9% and our +3.8% estimate, while after adjusting for seasonal and calendar effects, manufacturing grew 5.9% (4.1% previously). In the quarter ending in October, industrial production rose 4.3%, from 3.5% in 3Q18 (4.9% in 2Q18). Excluding oil refining, activity rose 3.6% in the quarter, from 2.7% in 3Q18 (5.3% in 2Q18). At the margin, industrial production accelerated to 6.0% qoq/saar, from the 4.0% in 3Q18. 

Amid lower oil prices, we expect the recovery of the Colombian economy to remain gradual, despite the stronger-than-expected data for October. We forecast 3.3% growth for 2019.

Miguel Ricaurte
Carolina Monzón

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