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After a weak 3Q23, activity dynamics continue to trend down.
2023/12/15 | Andrés Pérez M., Vittorio Peretti, Carolina Monzón & Juan Robayo



Core retail sales and manufacturing contracted in October. Retail sales fell 11% YoY in October (down 9.2% in September), well below the Bloomberg market consensus of -8.0% and our call of a 7.5% drop. Core retail sales (excluding fuels and vehicles) fell by 1.1% from September to October (SA; +0.4% in the previous month), leading to a 7.5% YoY decline (-3.5% previously). Meanwhile, manufacturing contracted 0.9% MoM/SA (+1.5% in September),resulting in a 5.9% YoY drop (-7.0% previously), deeper than the Bloomberg market consensus (-5.7%), while broadly in line with our -6.0% call. The weak activity performance puts a downside risk to our monthly coincident activity indicator estimate (0.4% YoY expansion, to be published on December 18; +0.3% YoY expansion in September). While activity is adjusting more evidently, inflation remains in double-digit terrain and medium-term inflation expectations are far from the target, setting the bar high for the start of the easing cycle this month. However, recently weaker than anticipated activity data, the credit slowdown, sequential job destruction in recent months, and the high ex-ante-one-year real interest rate suggest the beginning of the easing cycle is likely on the table in the December monetary policy meeting.

 

The downturn in manufacturing persists. During the quarter ending October, manufacturing fell 7.1% YoY (7.6% drop in the 3Q23). At the margin, manufacturing contracted 5.0% qoq/saar (6.7% fall in 3Q23). Manufacturing levels are now 8.8% above pre-pandemic levels (down from a near 18% peak during 3Q22).
 

The retail sales fall deepened. In the quarter ending October, retail sales contracted 10.1% (9.2% drop in 3Q23), while core retail sales fell 5.5% (-4.2% in 3Q23). At the margin, core retail sales contracted 4.4% qoq/saar, down from the -6.3% in 3Q23. Core retail sales now sit just 10.4% above pre-pandemic levels (+24% by mid-2022).

 

After the weak data print observed in the 3Q23, activity dynamics continued to trend down in 4Q23. We expect the economy to decelerate to 1.0% this year, down from 7.3% in 2022, and remain below potential at 1.2% in 2024.