Retail sales increased at the margin, while manufacturing fell sequentially. In annual terms, retail sales contracted 1.7% YoY in May, below the Bloomberg market consensus of -3.0% and our -2.7% call. Core retail sales (excluding fuels and vehicles) increased 0.7% from April (MoM/SA), leading to a 1.7% YoY decline (-3.3% YoY in April). Meanwhile, manufacturing fell by 0.4% MoM/SA, leading to a 3.6% YoY contraction (+4.0% previously), broadly in line with our call of 3.8% YoY contraction, but above market expectations of a 2.7% decline. The data puts an upside bias to our estimate for the monthly activity indicator (1.8% YoY expansion, to be published on Thursday 18). Overall, amid high interest rates and still elevated inflation, retail sales and manufacturing dynamics remain weak given a softening of domestic demand.
Manufacturing continues to trend down, dragged by food, coal and vehicle sectors. During the quarter ending in May, manufacturing fell 3.8% (6.4% drop in the 4Q23). At the margin, manufacturing contracted 3.3% qoq/saar (-1.2% in 4Q23). Manufacturing levels are now just 7.3% above pre-pandemic levels (down from a near 18% peak during 3Q22).
Annual retail sales fall dragged by fuels, apparel, vehicles and motorcycles. In the quarter ending May, retail sales contracted 3.1% (6.2% drop in 4Q23), while core retail sales dropped 2.6% (-4.3% in 4Q23). At the margin, core retail sales increased by 1.8% qoq/saar (-1.1% in 4Q23). Core retail sales now sit 9.9% above pre-pandemic levels (+27% by mid-2022).
Our take: We expect the economy to grow at 1.4% this year (1.2% previously expected; 0.6% in 2023), given better than expected activity dynamics in the last months. However, despite the economy is expected to grow below its potential, inflation remains far from the Central Bank's target, so we expect the board to maintain a cautious stance with a 50bp cut at the next meeting on July 31.
