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Activity is contracting from last year.
02/06/2023 | Andrés Pérez M., Vittorio Peretti & Carolina Monzón

Core retail sales increased sequentially in April, but high interest rates will like dent consumption ahead. Retail sales contracted 6.9% YoY in April (7.1% down in March), deeper than the Bloomberg market consensus of a 5.6% drop, while closer to our -6.5% call. Core retail sales (excluding fuels and vehicles) contracted 2.1% YoY (-7.6% in March), increasing 0.6% from March (SA), partly unwinding the 0.7% drop in the previous month. Meanwhile, manufacturing contracted by 2.0% MoM/SA, leading to a 6.4% YoY decline (-2.0% previously), a milder fall than the Bloomberg consensus (-3.1%) and our call (-3.0%). High inflation and interest rates will likely keep private sentiment weak and dent purchasing power. With inflation having peaked, we believe the central bank hiking cycle concluded at 13.25%, but there is no room for rate cuts in the short-term.


Manufacturing levels are now 11.1% above pre-pandemic levels, retreating from the near 18% peak during 3Q22. During the quarter ending April, manufacturing contracted 2.8% YoY (0.5% drop in 1Q23). At the margin, manufacturing contracted 7.6% qoq/saar (8.8% fall in 1Q23; 4.8% drop in 4Q22). 


In the quarter ending in April, retail sales contracted 4.8% YoY, from -2.2% in 1Q23. Core retail sales fell a milder 3.3% (1.7% down in 1Q23; 0.6% contraction in 4Q22). At the margin, core retail sales increased 0.7% qoq/saar (building on the +0.1% in 1Q23). Core retail sales sit 13.6% above pre-pandemic levels (+24% by mid-2022).  



We expect GDP growth of 1.3% this year, down from 7.3% in 2022.