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Activity indicators continue to lose momentum.
2023/09/01 | Andrés Pérez M., Vittorio Peretti, Carolina Monzón & Juan Robayo

Activity indicators continue to contract significantly at the start of 3Q23 as high interest rates and still elevated inflation take their toll. Retail sales fell by 8.2% YoY in July (12.0% down in June), below the Bloomberg market consensus of -7.8% and our -7.0% call. Core retail sales (excluding fuels and vehicles) grew sequentially (1.1% Mom/SA), partly offsetting the large decline in June, and led to a milder fall of 3.7% YoY (-11.0% in June). Meanwhile, manufacturing contracted 1.2% MoM/SA, leading to a 7.2% YoY decline (-4.9% previously), deeper than the Bloomberg market consensus of a -5.0% and our -4.5% call. The performance of the activity indicators puts a downside risk to our estimate for the monthly coincident activity indicator (1.4% YoY expansion, to be published on September 18; +1.7% in June). While activity is showing clear signs of weakness, a slowing disinflation process leads us to expect that rate cuts will only start in October and with 25bps.


Manufacturing continues to trend down. During the quarter ending in July, manufacturing fell 5.1% YoY, down from the 4.8% drop in the 2Q23. At the margin, manufacturing contracted 7.2% qoq/saar (7.4% fall in 2Q23). Manufacturing levels are now 9.2% above pre-pandemic levels (down from a near 18% peak during 3Q22).  


Downturn in retail sales persists. In the quarter ending in July, retail sales contracted 8.4% (8.0% drop in 2Q23), while core retail sales contracted 5.9% (-5.5% in 2Q23). At the margin, core retail sales contracted 11.3% qoq/saar, down from +10.8% in 2Q23. Core retail sales now sit 9.5% above pre-pandemic levels (+24% by mid-2022). 


After the weak data print registered in the 2Q23, activity dynamics continue to weaken at the start of 3Q. We expect the Colombian economy to grow 1.0% this year (down from 7.3% in 2022).