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We expect activity to remain weak in the short term.
2023/08/31 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

Retail, manufacturing, and mining fell sequentially from June to July. Real retail sales (including vehicles) fell 0.4% MoM/SA as the adjustment in private consumption continues. In annual terms, retail sales contracted by 10.1% YoY, below Bloomberg market consensus and our -9.5% call; -13.2% in June), and dragged by vehicles and apparel. On the other hand, manufacturing fell 1.1% MoM/SA, building on the 0.6% contraction in June and corresponding to a 3.9% YoY fall (-5.4% in June), sharper than the Bloomberg market consensus (-3.2%) and our -3% forecast. Manufacturing was pulled down by food processing, specifically fish related. In the aftermath of the large sequential rise in June, mining fell by 1.9% MoM/SA, leading to an annual increase of 0.6% YoY (in line with June). As a result, industrial production (grouping manufacturing, mining and utilities) contracted 1.3% MoM/SA, leading to a 1.7% YoY fall (2.3% drop in June). Overall, widespread non-mining contractions in manufacturing and retail sales, along with weak mining dynamics will keep sequential activity downbeat. We have a downside bias to our +0.9% YoY call for the July monthly GDP proxy (IMACEC, to be released tomorrow; 1% YoY contraction in June). The positive annual print is muddled by less demanding base effects from last year’s extension of school vacation, and the IMACEC is expected to revert to a negative print in August.


Activity registered large drops during the quarter ending in July. Durable retail sales fell 16.2% YoY (-17.1% in 2Q23), while non-durables dropped 9.6% YoY, similar to the fall in 2Q23. Total retail sales fell 11.3% during the quarter (11.5% drop in 2Q23). On the industrial production front, mining continued to fall on a quarterly basis (-2.8%; -2.3% in 2Q), while manufacturing decreased 3.5% (-4.5% in 2Q), thus leading to a total industrial production fall of 2.9% (3% down in 2Q23).


Quarterly sequential activity dynamics remain weak. Manufacturing dropped 5.8% qoq/saar (-8.3% in 1Q23), and mining fell 2.3% qoq/saar, leading to a 3.4% qoq/saar contraction for overall industrial production in July. On the other hand, retail sales contracted 9.7% qoq/saar, the sharpest sequential drop since the January quarter.


We expect activity to remain weak in the short term bottoming out in 3Q23. A prolonged contractionary monetary policy, along with still downbeat business sentiment should prevent a significant recovery in activity performance during the rest of this year. We expect a GDP contraction of 0.5% this year.