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Sequential dynamics deteriorating

Core retail sales and manufacturing contracted at the margin. Retail sales increased 0.1% yoy in February (down from 1.2% in January), below the Bloomberg market consensus of a 0.8% expansion and our 3.0% call. Core retail sales (excluding fuels and vehicles) expanded a mild 0.6% YoY (2.8% in January), contracting 0.9% (SA) from January to February (+2.9% previously). Meanwhile, manufacturing contracted by 0.1% MoM/SA, building on the 1.0% contraction in January, and the sixth consecutive sequential decline. In annual terms, manufacturing rose by 0.4% (in line with April), falling between our 0.5% call and the -0.2% Bloomberg consensus. Chemicals, paper and plastic production were key drags in the month. Overall, the data is consistent with a 2.0% YoY increase for the coincident activity indicator in February (5.8% in the previous month), to be released next Tuesday.


Manufacturing continues to trend down. During the quarter ending in January, manufacturing increased 0.4% YoY, moderating from the 3.4% expansion in 4Q22. At the margin, manufacturing contracted 0.1% from January (-1.0% previously), resulting in an -11.1% contraction qoq/saar, deeper than the 4.8% contraction in 4Q22 (+3.7% in 3Q22). Manufacturing now sits around 13.1% above pre-pandemic levels (down from a near 18% peak during 3Q22).


Retail sales are losing momentum. In the quarter ending in February, retail sales contracted 0.3%, from +0.5% in 4Q22, while core retail sales grew 0.2% (0.7% contraction in 4Q22; +6.3% in 3Q22). At the margin, core retail sales contracted 5.9% qoq/saar, (following on from the 7.0% in 4Q22). Core retail sales sit 13.8% above pre-pandemic levels (+24% by mid-2022).  


Our 2023 growth forecast is 0.6%, slowing from the 7.5% increase in 2022. High interest rates, a slowing global economy and elevated policy uncertainty support the activity slowdown this year. While inflation is yet to turn the corner, activity is showing signs of adjusting and medium-term inflation expectations have been trending down, the latter being factors that could support the Board holding rates at 13% later this month (although we cannot rule out another 25bp hike). A key factor behind that decision will be the result of the central bank analyst survey later today, with a focus on the evolution of inflation expectations.

Vittorio Peretti 

Carolina Monzón