Itaú BBA - COLOMBIA – Weak activity in 1Q17

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COLOMBIA – Weak activity in 1Q17

May 12, 2017

We expect GDP growth of 1.4% in 1Q17

Activity indicators for the month of March are in line with disappointing economic performance in the first quarter of 2017. The month was aided by favorable by calendar effects, lifting the headline series. Nevertheless, activity remained weak beyond calendar and seasonal effects. Activity in 1Q17 likely grew at the lowest rate since the global financial crisis, keeping the central bank’s concern for an excessive slowdown elevated and in line with further monetary easing ahead.

Industrial production growth slowed in 1Q17 and was even weaker once the principal oil-refining driver is excluded. Activity in March surprised both the market and our 2.5% forecast, with growth of 4.8% (-3.4% in February). However, once corrected for seasonal and the favorable calendar effect (two extra working days), industrial production fell 2.3%. In the 1Q17, industrial production grew a mild 0.4%, down from 1.7% in 4Q16 and contracted 1.1% if oil refining is removed. Oil refining, excluding blending, grew 7.7% in the quarter, down from growth of 12.9% in 4Q16 (29.5% in 3Q16). The slowdown is no real surprise, considering that it has been a year since operations resumed at the Cartagena Refinery. Overall, the weakness is widespread with 58% of the product classes posted a contraction in the quarter (45% in 1Q16). At the margin, industrial production contracted 7.3% qoq/saar (+4.1% in 4Q16).

Retail sales came in line with our expectation in the month of March, leading to a notable slowdown in the quarter. Retail sales grew 1.9% year over year in March (-7.2% in February), close to our 2.0% forecast and exceeding the 1% Bloomberg market consensus. Activity in March was lifted by household durable goods sales, contributing 1.6 percentage points to the total headline gain. In the quarter, retail sales declined 2.4% year over year (+3.7% in 4Q16), pulled down by fuel and vehicle sales. Once both are excluded, retail sales contracted 1.4% (+2.3% in 4Q16). The implementation of the increased sales tax could explain weaker activity in the quarter. A significant 80% of the retail divisions registered contractions in the quarter, a notable rise from 13% in 1Q16. Adjusting for seasonal and calendar effects, retail sales excluding fuel sales, fell 13.1% qoq/saar, from +21.2% qoq/saar in 4Q16.

The weak performance from activity indicators is in line with GDP growth slowdown to 1.8% this year, from 2.0% in 2016. Low oil investment, a loosening labor market, historically low private sentiment and a still-tight monetary policy stance will curb growth this year.



Miguel Ricaurte

Vittorio Peretti

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