Itaú BBA - Itaú Surprise Index LatAm - A leg up from Mexico and Brazil

Macro Vision

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Itaú Surprise Index LatAm - A leg up from Mexico and Brazil

julio 4, 2016

While Mexico was aided by calendar effects, Brazil presented substantial improvement vis-à-vis last month.

Our Itaú Surprise Index LatAm registered 0.12 in June, up from 0.00 in May. The index had a significant boost from Mexico and Brazil. Data for the former, however, was once again distorted by calendar effects. Brazil, which had underperformed the most in May, displayed considerably better results in the month relative to expectations. Most other countries in the region had negative performances.

Our Itaú Surprise Index LatAm 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 good 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 registered 0.05, up from last month’s -0.22. April’s industrial production release pulled the index up, expanding 0.2% and beating expectations by a large margin (market: -0.9%). Compared to April 2015, the indicator fell 7.2% yoy. Half of the 24 activity segments posted gains, a result consistent with stable industrial production. May’s industrial production came in line with expectations and should be incorporated into the next report. Rising business confidence and inventory adjustments are set to continue in the next months, which is consistent with a recovery of industrial production in the second half of the year. The 1Q16 GDP number came as a positive surprise, but using our adjustment (which considers the standard deviation of data), the contribution to the index was nil. The GDP figure was characterized by a widespread contraction on the supply side and a significant decline in household consumption on the demand side. Activity data so far released, including the IBC-Br monthly activity indicator for April (which came in line with expectations) suggests another GDP contraction in 2Q16. We expect quarterly GDP to stabilize only next year. Employment data for the month of April contributed positively to the index, with the unemployment rate dotting 11.2% (mkt: 11.4%) and with less job destruction than expected, though the outlook for unemployment remains negative. Real wages are still contracting, and activity remains weak, spelling further labor market deterioration. Lastly, retail sales came in line with expectations. For the next few months, we see industrial production undergoing recovery, but the outlook for employment and consumption remains weak.

Mexico’s index dotted 0.46 in June, from 0.38 in the previous month, and was the main reason the for the aggregate index’s positive result in the month. However, calendar effects continue to distort results, and activity data released in the month remains weak. Industrial production grew more than twice as much as the market expected (1.9% yoy vs. the market’s 0.8% expectation), however when adjusted for calendar effects, the index deteriorated substantially. Retail sales rose 10.6% yoy in April, above the market’s (8.0%), yet sales were distorted by a shift in department store promotions and a positive calendar effect. The IGAE monthly activity index gained 3% yoy in April, slightly above expectations, but had a neutral result on our adjusted index. Looking at the data beyond seasonal & calendar effects, the IGAE grew at a soft 0.7% year-over-year pace, recording its first month-over-month contraction in more than 7 years. This year, we expect the Mexican economy to grow by 2.5%, the same growth rate recorded in 2015.

Chile’s index registered -0.34 in June, down from last month’s 0.26. Compared to 1Q16, most activity indicators are decelerating sequentially. The monthly activity indicator (Imacec), grew only 0.7% yoy in April, well below market expectations (1.9%). Mining and manufacturing pulled activity down in the month of April. Retail sales grew by a mild 0.6% yoy, below the market’s 3.5% estimate. We expect lower GDP growth this year than last year (1.8% vs last year’s 2.1%). Activity is being hindered by less fiscal support, low commodity prices, a loosening labor market and weak private sentiment.

Colombia’s index recorded -0.13, down from 0.12 last month. The three-month moving average is being largely affected by May’s negative result, as indicators released in June surprised to the upside. Calendar effects related to the Easter holiday benefited activity in April after contributing negatively to growth in the previous month. Manufacturing grew 8.4% yoy while consensus had 7.0%. Oil refining is still the driving force behind manufacturing. Retail sales recovered, rising 5.4% yoy in April, above the 4.0% forecasted by the market. Furthermore, the unemployment rate stood at 9.0% in April, better than the market’s 9.3%, though we expect the unemployment rate to increase going forward. In spite of resilient data, we expect activity to slow down to 2.3% this year from 3.1% last year.

Peru’s index came in at -0.17, worse than April’s -0.13. The monthly GDP index for April slowed down to 2.5% in April from 3.7% in March, below market expectations, at 3.5%. We take April’s slowdown with a grain of salt, due to an unfavorable base effect from the fishing industry. The unemployment rate for May came in at 7.1% - above market expectations (7%), and the rate recorded in the same month last year. Overall, we believe the economy will continue to benefit from the mining sector expansion, and we still expect GDP growth to accelerate to 3.8% in 2016 from 3.3% in 2015.

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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