Manufacturing increased sequentially in May, while core retail sales contracted at the margin. Retail sales contracted 5.1% YoY in May (6.9% down in April), between the Bloomberg market consensus of -5.7% and our -4.1% call. Core retail sales (excluding fuels and vehicles) fell 2.7% YoY (-2.1% in April), contracting sequentially by 0.7% MoM/SA from April, below the +0.5% in the previous month. In contrast, manufacturing rose sequentially by 0.5% MoM/SA, leading to a 3.4% YoY decline (-6.4% previously), a smaller-than-expected contraction with respect to the Bloomberg consensus and our call (-4.8%). The data is consistent with a 0.3% YoY contraction for the coincident indicator in May (-0.8% in April), to be released on Tuesday July 18. With the slowdown in activity unfolding, and a gradual decline in inflation expected going forward, we believe that the central bank concluded its hiking cycle at 13.25%. Risks to a slower disinflation path due to the El Niño phenomenon set a high bar for rate cuts this year.
Downturn in manufacturing persists. During the quarter ending in May, manufacturing contracted 3.9% YoY (0.5% drop in 1Q23). At the margin, manufacturing contracted 4.8% qoq/saar (8.5% fall in 1Q23; 4.9% drop in 4Q22). Manufacturing now sits around 11.9% above pre-pandemic levels (down from a near 18% peak during 3Q22).
Retail sales continued to lose momentum.
In the quarter ending in May, retail sales contracted 6.3%, from -2.2% in 1Q23, while core retail sales fell a milder 4.2% (1.7% down in 1Q23; 0.6% contraction in 4Q22. Core retail sales sit 13.9% above pre-pandemic levels (+24% by mid-2022).
We expect GDP growth of 1.3% this year, down from 7.3% in 2022.