Retail and manufacturing came in above expectations in May, posting sequential increases from April, while volatile mining fell significantly. Retail sales (including vehicles) increased 0.3% MoM/SA, partly offsetting the 1% fall in April, despite reduced savings, high inflation and tight monetary policy, but in line with surprising employment creation dynamics and real wage growth. In annual terms, retail sales dropped 10.5% YoY (milder than the Bloomberg market consensus of -11% and our -11.5% call; 10.6% drop in April). Manufacturing increased 0.4% MoM/SA leading to a 1.2% YoY fall in April (6.6% down in April), milder than the Bloomberg market consensus (-3.4%) and our -3.5% forecast. Manufacturing was pulled down by chemical production, while machinery and equipment performed favorably. After a large sequential rebound in April, mining fell in May with a sequential decline of 6.9% MoM/SA. In annual terms, mining contracted 9.2% YoY (2.5% rise in April). As a result, industrial production (grouping manufacturing, mining and utilities) fell 2.8% MoM/SA, leading to a 4.5% YoY fall (2.1% drop in April). While manufacturing and retail were better-than-expected, the large mining drag means the monthly GDP proxy will likely contract 1.2% YoY (July 03 release; 1.1% YoY fall in April).
Activity indicators are contracting significantly in the rolling-quarter. Durable retail sales fell 9.6% YoY (6.3% decline in 1Q23), while non-durables dropped 9.7% YoY (10.1% fall in 1Q23). Total retail sales fell 10.7% during the quarter (9.2% drop in 1Q23). On the industrial production front, poor mining (5.4% YoY decline) and still weak manufacturing (down 4.6% YoY; -3.6% in 1Q) led to 4.3% YoY total industrial production fall (2.3% down in 1Q23).
Quarterly sequential activity dynamics remain weak.
Manufacturing dropped 5.1% qoq/saar (following a transitory 7.9% boost in 1Q23), and mining fell 19.9% qoq/saar, leading to a 10.8% qoq/saar contraction for overall industrial production in May. On the other hand, retail sales contracted 4.0% qoq/saar, somewhat milder than the previous drop (-5%), but still weak overall.
Tight monetary policy and reduced household savings are expected to sustain weak activity ahead. Nevertheless, improved employment, along with the positive real annual wage growth, would boost the real wage bill and potentially moderate the expected activity downturn. We expect a GDP contraction of 0.4% this year (2.4% last year).