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Contractionary monetary policy and elevated inflation help cool activity

Amid a contractionary monetary policy and elevated inflation, activity indicators fell beyond expectations in August. Retail sales contracted 10% YoY in August (8.2% down in July), deeper than the Bloomberg market consensus and our call of an 8.0% drop. Core retail sales (excluding fuels and vehicles) fell 0.9% from July (MoM/SA), offsetting the +0.8% gain in the previous month, and resulting in a 5.5% YoY decline (-3.8% YoY in July).  Meanwhile, manufacturing contracted 0.9% MoM/SA, leading to an 8.6% YoY decline (-7.2% previously), well below the Bloomberg market consensus of a 5.7% drop, while closer to our -8.1% call. The weak performance of the activity indicators puts a downside risk to our estimate for the monthly coincident activity indicator (+0.3% YoY expansion, to be published on October 18; +1.2% in July). Even though activity is slowing more evidently, a gradual disinflation process and a more risky global environment lower the odds of an October rate cut.


Manufacturing weakness was widespread in August. During the quarter ending August, manufacturing fell 6.9% YoY, down from the 4.8% drop in the 2Q23. At the margin, manufacturing contracted 10.2% qoq/saar (7.6% fall in 2Q23). Manufacturing levels are now 8.1% above pre-pandemic levels (down from a near 18% peak during 3Q22).


The retail sales decline was mainly dragged by vehicles, motorcycles and fuels sales. In the quarter ending August, retail sales contracted 10.1% (8.1% drop in 2Q23), while core retail sales dropped 6.8% (-5.6% in 2Q23). At the margin, core retail sales contracted 11.3% qoq/saar, down from +10.6% in 2Q23. Core retail sales now sit just 9.6% above pre-pandemic levels (+24% by mid-2022).


After the weak data print observed in the 2Q23, activity dynamics have continued to deteriorate through 3Q. We expect the Colombian economy to grow 1.0% this year (down from 7.3% in 2022) and post a below potential and consensus 1.4% next year.

Andrés Pérez M.

Vittorio Peretti 

Carolina Monzón

Juan Robayo