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Tight monetary policy will support activity adjustment.
31/05/2023 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

Activity indicators were mostly weak in April, with retail sales and manufacturing falling sequentially, while volatile mining rebounded. Retail sales (including vehicles) fell 1.0% MoM/SA, as reduced savings, high inflation and tight monetary policy consolidate a correction from peak levels registered around mid-2021. In annual terms, retail sales dropped 10.7% YoY (deeper than the Bloomberg market consensus of -9.2% and our -8.5% call). Manufacturing fell 6.4% YoY in April (5.6% down in March; dragged by chemical production amid a raw material shortage to produce methanol), a greater fall than the Bloomberg market consensus (-3.1%) and our -3% forecast. After a 6.5% sequential drop in March, mining bounced back in April with a sequential increase of 7.0% MoM/SA, returning production to February levels. In annual terms, mining rose 2.5% YoY (8.7% fall in March), given improved ore-grade. As a result, industrial production (grouping manufacturing, mining and utilities) increased 2.5% MoM/SA, leading to a milder annual contraction of 2.0% (6.0% fall in March). Overall, the monthly GDP proxy will likely post an annual contraction of 1.2% YoY (June 01 release; 1.9% YoY fall in March), with a mining rebound in the month partially offsetting weaker retail and manufacturing data.


Activity indicators continue to contract significantly in the rolling-quarter. Durable retail sales fell 8.5% YoY (6.3% decline in 1Q23), while non-durables dropped 9.6% YoY (10.1% fall in 1Q23). Total retail sales fell 9.3% during the quarter (similar to the drop in 1Q23). On the industrial production front, weaker manufacturing (down 5.2% YoY down; -3.6% in 1Q) and poor mining activity (1.9% YoY decline) led to 3.2% YoY total industrial production fall (2.3% down in 1Q23).


Activity fell sequentially during the quarter. Manufacturing dropped 1.1% qoq/saar (following a transitory boost in 1Q23), and mining fell 10.5% qoq/saar, leading to a 5% qoq/saar contraction for overall industrial production in April. On the other hand, retail sales contracted 2.2% qoq/saar, somewhat milder than the previous drop (-5%), but continuing to trend down.


The lagged effect of tight monetary policy and reduced household savings will support a further consumption adjustment during the remainder of the year. We expect a GDP contraction of 0.4% this year (2.4% last year).