Retail sales increased from February to March, while manufacturing contracted, with overall activity during 1Q24 still sluggish. Retail sales fell by 5.6% YoY in March (-1.8% in February), below the Bloomberg market consensus of -3.5% and our -3.0% call. Core retail sales (excluding fuels and vehicles) increased 0.9% from February (MoM/SA), leading to a 2.8% YoY decline (-1.1% YoY in February). Meanwhile, manufacturing contracted 0.4% MoM/SA (building on the 0.5% drop in February), leading to an 11.1% YoY decline (-2.1% previously), larger than the Bloomberg market consensus of -7.5%, but in line with our 11.0% drop. Retail sales and manufacturing activity have remained weak in 1Q24, while primary sector activity has surprised favorably, leading to our 0.2pp upward revision to this year’s GDP growth call (to 1.2%).
Manufacturing levels dropped from 4Q23. Manufacturing fell 6.0% YoYin 1Q24, similar to the 6.4% decline in 4Q23. At the margin, the speed of the manufacturing adjustment accelerated to -3.1% qoq/saar (-0.9% in 4Q23). Manufacturing levels are now 7.5% above pre-pandemic levels (down from a near 18% peak during 3Q22).
Sequential retail sales trend down. During 1Q24, real retail sales contracted 3.9% YoY, milder than the 6.2% drop in 4Q23, while core retail sales fell 2.7% (-4.3% in 4Q23). At the margin, core retail sales contracted 2.0% qoq/saar (0.7% drop in 4Q23). Core retail sales now sit 10% above pre-pandemic levels (+27% by mid-2022).
Our take: We expect 1Q24 GDP, to be published on May 15, to rise by 1.0% YoY, with risks tilted to the downside given the weak activity prints in March.We expect BanRep to continue with a 50-bp cut at the next monetary policy meeting in June, however, in the event of an accelerating disinflation process and converging inflation expectations, pressure to step up the rate cut pace would build.
