Itaú BBA - Itaú Activity Surprise Index - Positive surprises in Brazil, disappointing data elsewhere

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Itaú Activity Surprise Index - Positive surprises in Brazil, disappointing data elsewhere

July 4, 2017

The Itaú Activity Surprise Index retraced in June, dragged by negative surprises in Mexico, Chile and Peru.

Our Itaú Activity Surprise Index retraced to 0.13 in June (from 0.22 in May), as the Mexico, Chile and Peru subindices fell back into negative territory. Construction investment and oil production dragged down Mexican industrial production. In Chile, commercial activity disappointed the most, while Peru’s GDP proxy fell short of expectations owing to the labor market deterioration and negative wealth effects caused by El Niño. On the other hand, Brazilian data releases surprised to the upside, but the economic growth outlook remains subdued.

The Itaú Activity Surprise Index compares trends in economic activity indicators released during the month to what analysts had been expecting for them. It is a GDP-weighted average of separate indexes for Brazil, Mexico, Chile, Colombia and Peru. An above-zero reading means favorable surprises. Below zero means disappointment. The index is a three-month average in order to avoid excess volatility. Surprises in activity often trigger revisions in GDP growth estimates.

Brazil's index stood stable at 0.34 in June (0.35 in the previous month), amid positive surprises in high-frequency activity indicators and labor market figures. Core retail sales (excluding vehicles and construction material) advanced 1% mom/sa in April, well above expectations (mkt: -0.7%), but the surprise was not broad-based. Likewise, industrial production expanded 0.6% mom/sa in April, topping the median of market estimates (0.1%). Additionally, the March production reading was upwardly revised, further supporting the surprise index 3-month trailing average. The nation-wide unemployment rate also registered a positive surprise: it receded to 13.3% in May, below the median of analysts’ forecasts (13.6%). We forecast GDP growth of 0.3% this year and 2.7% in 2018, in line with a gradual recovery amid slower reforms. Progress in reforms (particularly the pension bill) could have led to a stronger recovery next year. Conversely, a full stop in reforms could further delay the economic rebound, leading to slower annual growth.

Mexico's index fell to -0.09 in June from 0.19 in May. Industrial production was the main negative surprise: production contracted by 4.4% year over year in April, surprising market expectations of a milder 2.1% drop. Private consumption also disappointed, as retail sales grew 1.4% year over year – below the consensus’ forecast of 2.3%. We kept our GDP growth forecasts for 2017 and 2018 at 2% and 2.1%, respectively. The uncertainty surrounding trade relations with the U.S., higher inflation, tighter monetary policy and fiscal consolidation will pose headwinds to growth.

Chile's index went back to negative territory in June (-0.22), after up ticking in May (0.11). Commercial activity disappointed the most, as retail sales contracted 0.4% yoy in April - well below the +3.0% forecast according to the Bloomberg market consensus. April’s Imacec also posted a negative surprise: the GDP proxy grew 0.1% yoy, whereas the market was expecting a 0.7% expansion. Overall, activity remained weak as the start of 2Q, as the effects from the mining strike are still being felt. Looking forward, the economy will likely show some improvement through the remainder of the year as the mining drag subsides. The modest but continual improvement in confidence also bodes well for some investment and consumption recovery ahead.

Colombia's index edged up to -0.28 in June from -0.47 in May, owing to the moving average dynamics. At the margin, private consumption and labor market data matched median market expectations, whereas industry disappointed. Industrial production for the month of April dropped 6.8% yoy, worse than the 5.1% contraction predicted by professional forecasters. The weak activity evolution poses a downside risk to our below-consensus 1.6% GDP growth forecast for this year.

Peru's index deteriorated to -0.16 in June from 0.00 in May. The GDP proxy for the month of April grew only 0.2% year-over-year, well below the market’s median expectation (1%). It is important to stress that calendar effects (less business days due to the Easter) played a large role, subtracting 1.5 p.p. from headline GDP growth. Be that as it may, growth remains subdued, as labor market conditions have deteriorated, and the property damage caused by El Niño implies negative wealth effects for households. We expect Peru’s GDP growth to slow down to 2.9% (from 3.9% in 2016), affected by temporary shocks.

Find our surprise indexes on Bloomberg:


Brazil: ITMRBI

Mexico: ITMRMI


Colombia: ITMRCOLI


Find our surprise indexes on Broadcast:


Brazil: ITSBR

Mexico: ITSMX

Chile: ITSCH

Colombia: ITSCO


Methodology Note

Our Itaú Surprise Index LatAm compares trends in economic activity indicators to what analysts had been expecting for them each month. The index considers the month that each indicator is released. Previously, the index was built considering the month that each indicator referred to. For instance, February’s industrial production released on March will be incorporated to March’s surprise index (before: February’s index).

The index is a GDP-weighted average of separate indexes for Brazil, Mexico, Chile, Colombia and Peru. An above-zero reading means good surprises. Below zero means disappointment. The index is a three-month average in order to avoid excess volatility.

We build the surprise index for each country using all activity indicators for which consensus estimates are normally provided in the Bloomberg survey. The weight of each indicator in the index depends on its importance for the economy. For example, GDP numbers enjoy a higher weight than consumer confidence and PMIs.

We use the deviation of the actual print from the consensus estimate (surprise), subtract the result from the historical average deviation and then divide the result by the standard deviation of the surprise. This methodology provides a better sense of how important was the surprise in each month.

The weight of each country in the aggregated LatAm Surprise Index depends on the size of its GDP. Brazil has the highest weight, followed by Mexico.

It’s worth noting that, due to revisions in the economic indicators and as lagged results are published (example: GDP), the surprise indexes may be revised.

Indicators on which the index is built:

Brazil: Caged Payrolls, Unemployment Rate, Exports, Imports, Retail Sales, Industrial Production, GDP, IBC-Br monthly GDP.

Mexico: Manufacturing PMI, Service PMI, Consumer Confidence, Investment, Industrial Production, Retail Sales, IGAE monthly GDP.

Chile: Manufacturing Production, Retail Sales, Unemployment Rate, Imacec monthly GDP.

Colombia: GDP, Industrial Production, Retail Sales, Unemployment Rate.

Peru: Monthly GDP, Unemployment Rate.


Luka Barbosa
Eduardo Marza


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