Itaú BBA - COLOMBIA – Slow activity start to 2Q19

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COLOMBIA – Slow activity start to 2Q19

junio 14, 2019

Weak activity in the first third of the year suggests the impact of weakening global growth could be filtering through to the Colombian

Activity indicators at the start of 2Q19 confirm the growth recovery path is challenging. Manufacturing dropped 1.3% yoy (+3.2% in March), closer to our call of a 2.0% contraction than to the Bloomberg market expectation of a 1.7% expansion. The decline was only partly due to a notably high base of comparison and unfavorable calendar effect. Meanwhile retail sales increased 4% yoy (5.3% in March), below both the Bloomberg market consensus of 4.5% and our 4.2% call. The weaker performance leads us to expect growth of the coincident activity index (ISE) to slow down to 1.9% yoy in April (2.6% in March).

Even after adjusting for seasonal and calendar effects, manufacturing posted a negative annual variation (-0.1%) for the first time this year. Double-digit declines of sugar processing and chemical production led the weak print with a combined contribution of -1.4pp to the headline decline (-1.3%). However, there was widespread weakness among the categories. In the quarter, manufacturing growth slowed to 1.6% (3.1% in both 4Q18 and 1Q19). At the margin, manufacturing is accelerating to 5.9% qoq/saar, recuperating the 6.6% drop in 4Q18. 

Food and beverage sales contributed 1.6pp to headline retail growth (4%), remaining the key driver. After excluding the volatile fuel and vehicle sales, retail growth moderated to 4.6% yoy in April, from 6.9% in March, while growth in the quarter was broadly stable at 6.4%. At the margin, growth of retail sales (excluding fuels and auto sales) accelerated to 13.6% qoq/saar, the fastest pace since 2Q14 (1.4% in 4Q18). However, momentum is unlikely to be sustained considering headwinds from consumer confidence returning to pessimistic territory, the labor market deterioration and the Colombian peso’s sharp depreciation.

Weak activity in the first third of the year suggests the impact of weakening global growth could be filtering through to the Colombian economy. We see GDP growth of 2.6% this year, broadly unchanged from last year. In our scenario, a widening output gap and controlled inflation would lead the central bank to implement monetary stimulus ahead.
 

Miguel Ricaurte
Carolina Monzón



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