Itaú BBA - Itaú Activity Surprise Index - Uneven improvement

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Itaú Activity Surprise Index - Uneven improvement

enero 3, 2017

Results were mixed, but the net effect was positive.

Our Itaú Activity Surprise Index came in at 0.09 in December, up from -0.01 in November. Results were mixed, but the net effect was positive, with improvements from Brazil, Mexico and Colombia.

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’sindex scored 0.05 in December, improving from November’s -0.04, mainly due to the exclusion of September’s poor results from the moving average. An upward surprise in December’s exports provided lift, coming in at USD 16.2  billion when the market expected USD 14.9 billion. October’s IBC-Br index also surprised to the brighter side. Onto negative surprises, the labor market continued showing no signs of improvement: in November, there was a net loss of 117 thousand jobs (consensus: -72k). Economic activity continued to deteriorate, with industrial production declining 7.3% year-over-year (market: -6.9%), and retail sales dropping 8.2% year-over-year (though coming in slightly better than estimates, at -8.5%).Coincident indicators for November – such as vehicle production, import volume and highway vehicle traffic – rose, pointing to an expansion in industrial production in the month (to be released this week). In the face of better fundamentals, we expect marginal stability in 4Q16 GDP, after seven consecutive declines, and positive quarterly GDP figures in 2017.

Mexico’sindex registered 0.20 in December, from 0.06 in November, sustaining robust results. The index was brought up by retail sales, which expanded 9.3% year-over-year in October – above market expectations (7%). Notably, Mexico’s consumer spending continues to be underpinned by tight labor market conditions, dynamic consumer credit and solid remittances from abroad. We expect the “Trump shock” to materialize into a number of headwinds that would moderate the growth rate of consumption, such as the slowing of real wages as a result of higher inflation. We expect Mexico’s growth rate to slow to 2.1% in 2016 (from 2.6% in 2015), further decelerating to 1.8% in 2017.

Chile’sindex fell to -0.14 from November’s 0.01 on mixed activity results, as industrial production is dragging activity down, while private consumption related activity remains firm. Manufacturing production saw a 2.1% decline in November vs. the market’s -1.5% estimate, hindererd by the effects on the fishing harvest from a volcano eruption, but also showing overall weakness in the majority of production divisions. Conversely, retail sales increased 5.0% year-over-year, well above the market consensus of 2.8% - once again characterized by a strong vehicle sales. In spite of the improved performance of private consumption, activity will likely remain at low levels in 4Q16. We expect GDP growth of 1.5% in 2016, from 2.3% in 2015, with a mild recovery to 2.0% in 2017.

Colombia’sindex marked 0.26, up fromNovember’s -0.22 – this was due to the exclusion of a very weak September result from the moving average. Overall, data released in December was tilted to the weaker side. The month’s main negative surprise came from industrial production - manufacturing increased 0.4% year-over-year (3.9% in September), below the 2.0% forecasted by market consensus. Meanwhile, retail sales dropped 0.7% year-over-year in October, slightly better than the -1.0% forecasted by the market, but still subdued. As activity continues to disappoint, we acknowledge a downside risk to our expectation of a recovery to 2.5% in 2017, alongside the added impact that the tax reform could have on consumption.

Peru’sindex deteriorated to -0.09 in December, down from 0.21 in November. GDP growth slowed down in October, hit by the fiscal drag (in an effort to meet the fiscal deficit target for 2016) - the GDP proxy expanded by 2.1% year-over-year in October – below market expectations (3.9%). We still expect an acceleration of GDP growth, from 3.3% in 2015 to 3.8% in 2016 and 4.0% in 2017. For Peru, the negative impact of the U.S. election on emerging markets is cushioned by the rise of copper prices (Peru’s top export commodity).

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
Lourenço Paiva


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