Itaú BBA - Itaú Surprise Index LatAm - LatAm fares moderately well in April

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Itaú Surprise Index LatAm - LatAm fares moderately well in April

mayo 3, 2016

Aside from Brazil, all LatAm countries scored positive results. The index has been mostly above zero since December/15.

Our Itaú Surprise Index LatAm advanced to 0.09 in April, reverting from -0.04 in March. Colombia placed first for the seond consecutive month, boasting favorable retail sales results in February. Brazil is solo in negative terrain, although close to neutrality. The LatAm index has been mostly positive since last December/15, a turnaround from the negative trend observed since 2014.

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 -0.03, up from last month’s -0.09. The improvement stems from positive surprises in April (aside from employment figures), although the data continue to show weak economic activity. Industrial production fell sharply in February (-2.5%), coming close to expectations in year-over-year terms. Diffusion across industrial activities suggests that the February result was dragged down by a few sectors, such as auto production. Confidence in the industrial sector increased in April, along with an increase in capacity utilization and a decline in inventories. These signs indicate that industrial production should approach stability ahead. The IBC-Br monthly economic activity index for February contracted 4.5% yoy, beating the market’s -5.0% estimate. The drop was led by industrial production’s contraction and underscores forecasts of a shrinking Q1 GDP. Looking at demand, core retail sales advanced 1.2% mom/sa in February, but remain at low levels and on a negative trend. Nonetheless, year-over-year sales beat the market’s -5.6% estimate, contracting 4.2%. Though we expect a reversal in March vis-à-vis February, better than expected supermarket sales leads us to believe retail sales will undergo only a minor contraction in March. In the labor market, data continues to feel the effects of a weak economy: March unemployment struck 10.9%, worse than consensus’ 10.7%. Moreover, the month saw a net loss of 119k formal jobs (the market expected 95k jobs destroyed). Overall, domestic activity is still being negatively affected by uncertainty in the domestic scenario. With fiscal reforms, improving confidence could open room for a recovery, in our view.

Mexico’s index dotted 0.25 in April, from 0.00 in the previous month. The index was boosted by the fact that indicators released in April pertaining to the month of February were influenced by calendar effects (the leap-year effect). The IGAE monthly GDP gained 4.1% yoy in February, topping the market’s 3.0% forecast. Adjusted for calendar effects, growth came at a more moderate 2.8% yoy. Industrial production surpassed market expectations, growing 2.6% yoy (market: 1.4%), but adjusted for working days, growth registered a milder 0.8%. From a demand standpoint, consumption has been the main driver of growth, while investment has been hit by the impact of a weaker exchange rate on the purchases of machines and equipment and fiscal expenditure cuts. This trend is reflected in the data: February retail sales came in stronger than expected, growing 9.6% yoy (market: 5.1%), strong even when adjusted for calendar effects, and year-over-year investment disappointed, growing 0.1% in January (market: 1.0%). Despite calendar effects, a rebound in activity indicators has eased concerns that the Mexican economy is decelerating rapidly. We expect the economy to grow 2.5% this year, the same pace recorded in 2015.

Chile’s index registered 0.16 in April, advancing from last month’s -0.05. Overall, activity indicators came close to expectations, but retail sales did not fare soundly. The month’s positive performance was driven by previous months’ results. The Imacec index of economic activity registered a growth rate of 2.8%, favored by the leap year effect and beating the market’s 2.4%. Manufacturing rose 2.7% year over year in March (market at 1.5%), lifting performance in the quarter with growth of -0.1% (-2.0% in 4Q15). Some manufacturing sectors are likely benefiting from the past depreciation of the currency. On the other hand, retail sales grew 1.4% year over year in March, disappointing the market’s 3.9% forecast. We expect the Chilean economy to grow 1.8% this year, below the 2.1% recorded in 2015 and resulting in the third consecutive year of below-potential growth.

Colombia’s index recorded 0.32, up from 0.20 last month. The country ranked 1st in the surprise index for the second consecutive month, Retail sales increased 4.6% year over year in February, above market consensus’ estimate of 2.7%. When vehicles sales are removed, retail sales rose 5.7% (3.7% in January; 4.3% in the quarter). The unemployment rate hit 10.2%, only slightly better than market estimates, at 10.3%, as the labor market is showing signs of loosening. Colombia’s index has mostly remained in positive territory year-to-date.

Peru’s index came in at 0.10, from 0.00 in March. Activity grew 6.0% year over year in February (above market consensus’ 5.1%), led by mining related activity and reversing the temporary slowdown in January (+3.4%). Double digit growth in copper production is pulling activity up, while fishing activities returned to contraction as the fishing season came to an end. The unemployment rate in Lima for the 1Q16 came in at 7.2%, above the 7.0% expected by the market, and the 7.0% recorded in 2015’s corresponding period. This is the highest 1Q16 unemployment rate since the 8.7% recorded in 2012 as the labor market shows some signs of gradual loosening. Peru’s index has fared well in the recent past, in the positive range since September 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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