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We expect a mild recovery ahead as interest rates and inflation fall.
2023/11/30 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

Retail sales and Manufacturing posted sequential increases, while volatile Mining undid previous gains. Retail sales (including vehicles) increased 0.2% MoM/SA in October, building on the 0.7% MoM/SA rise in September. In annual terms, real retail sales contracted by 6.9% YoY (-5% YoY in September), a milder contraction, for the second consecutive month, relative to the market consensus of -8.8% and our -8.5% call. The better-than-expected retail sales print consolidates the expectation that the private consumption adjustment has concluded. Separately, manufacturing increased by a significant 4.2% MoM/SA (+0.5% in September), consistent with a 9.5% YoY increase (-2.2% in September), once again well above the Bloomberg market consensus (+2.6%) and our +1.7% forecast. The result was largely explained by the 26.2% YoY increase in the manufacture of chemical substances and products, specifically due to an increase in the production of methanol, as a result of the greater availability of raw materials. Volatile mining fell by 5.7% MoM/SA, reverting the increase of the same magnitude in September, driven mainly by lower copper production and ore grades, and leading to an annual fall of 6.8% YoY. As a result, industrial production (grouping manufacturing, mining, and utilities) decreased 0.9% MoM/SA, leading to a 1.1% YoY rise (+1.6% in September). Overall, upbeat sectorial activity data, especially in manufacturing, leads us to revise our IMACEC call up by 0.2pp to +0.7% YoY (to be released tomorrow Friday December 1).
Activity dynamics improved at the margin. Durable retail sales fell 4.8% YoY during the quarter ending in October (-7.2% in 3Q23), while non-durables dropped 7.9% YoY (-8.7% in 3Q23). With this, total retail sales declined by 7.2%, a smaller contraction than the 8.4% drop in 3Q23. On the industrial production front, mining decreased 0.6% (+2.2% in 3Q), while manufacturing increased 2.6% (rebounding from the 1.8% drop in 3Q), thus leading to a total industrial production rise of 1% (up from 0.1% in 3Q23). In seasonally adjusted terms, retail sales contracted 5% qoq/saar (milder than the 8.9% fall in 3Q23), while manufacturing rose by 19% qoq/saar (+4.1% in 3Q23), and mining increased 5.4% qoq/saar (+5% in 3Q23). As a result, overall industrial production increased 11.4% in 3Q23 (+4.5% in 2Q23).


We expect a mild recovery ahead as interest rates and inflation fall. The upside surprise of 3Q23 GDP and more favorable activity dynamics at the start of 4Q23 suggest a smaller activity contraction this year versus our official -0.3% call. We see the economy recovering slightly to 1.5% growth in 2024.