Talk of the Day
3Q23 GDP expanded +0.1% qoq/sa (2.0% yoy), above our estimate (-0.2% qoq/sa; 1.9% yoy) and the median of market expectations (-0.3% qoq/sa; 1.8% yoy). The main surprises vs. our numbers came from services (1.8% yoy, our estimate: +1.3% yoy), driven by financial services, housing, and retail. Agriculture fell by 3.3% qoq/sa, while the services and the industrial sectors expanded by 0.6% at the margin. On the demand side, the highlight was the acceleration of household consumption to 1.1% in 3Q23 from 0.9% qoq/sa in 2Q23. The external sector also contributed positively, with exports growing 3.0% at the margin while imports declined 2.1%. One more time, gross fixed capital formation (GFCF) was weaker than expected, falling 2.5% qoq/sa (the 4th consecutive fall). According to our estimates, inventories had a negative contribution. With this result, the statistical carryover for the 2023 reached 2.9%. Noteworthy, agriculture and services were revised upwards in the 1H23. In our view, yesterday’s result surprised us positively, with services and consumption above our estimates. Despite that, we see some signs of deceleration of the economy, with the GDP ex-agriculture expanding 0.3% qoq/sa in the 3Q23, coming from 0.7% and 1.0% in the 1Q23 and 2Q23, respectively. For the 4Q23, our preliminary estimation indicates further deceleration, with a GDP ex-agriculture close to stability. Thus, we should maintain our forecast for the GDP this year at 2.9%. **Full story here.
According to FGV, the IGP-DI registered a 0.50% increase in November, slightly below our forecast (0.58%) and market expectations of 0.60%. In annual terms, the index reached -3.6%, from -4.3% in October. The IPA-DI (wholesale price index) registered a 0.63% increase in the month (-6.3% yoy), while the IPC-DI (consumer price index) increased 0.27% mom (+3.6% yoy). Finally, INCC-DI construction costs advanced 0.07% mom (+3.3% yoy).
New non-earmarked loans for corporates pay back strong gain seen in the previous month. New non-earmarked loans retreated 2.8% mom/sa in real terms in October, driven by a 6.0% decrease in non-financial corporations, paying back the strong increase seen in September (+6.3%). For households, loans showed zero growth. In the same comparison, new earmarked loans advanced by 7.1%. The seasonally adjusted delinquency rate decreased 0.1 p.p. to 3.4%. The indicator of non-earmarked loans increased by 0.1 p.p. for non-financial corporations (to 3.5%) and stood virtually stable for households (5.9%). In the same comparison, for earmarked credit, delinquency fell to 1.2% from 1.6% for non-financial corporations and remained unchanged at 1.6% for households. The annual growth of outstanding loans went to 2.3% from 2.9%, in real terms in October. The non-earmarked segment had a slowdown in annual growth, to 0.1% (from 0.9%). The earmarked credit year-over-year growth decelerated to 5.6% (from 5.8%). **Full story here.
Bausili to lead the Central Bank. According to the local press, Santiago Bausili will lead the Central Bank of Argentina when president-elect Javier Milei takes office this Sunday December 10. Bausili worked with Luis Caputo (to be Minister of Economy) in the Macri administration, and they were more recently partners in an economic consulting firm. Bausili is an economist with experience in global banks, and was Finance Secretary during the Macri administration.
The central bank’s financial stability report shows adequate solvency and liquidity ratios for the system, despite the fall in the profitability of credit institutions. During the second half of the year, liquidity and solvency indicators remained above the regulatory minimum. The slowdown in credit dynamics has been broad-based as the effect of tight monetary policy materializes. NPLs are rising, mainly in the household credit segment, while commercial credit has deteriorated in specific sectors. The household financial burden fell to 34.3% in the 2Q23 (from 35% in 1Q23). Stress tests suggest that the sector would be resilient even in extreme scenarios, reflecting the robustness of the system. Net stable funding ratio (NSFR or CFEN in Colombia) is above the regulatory minimum, showing that the levels of short-term and more structural liquidity of credit institutions is elevated. BanRep sees three main sources of risk: the materialization of a credit risk; the increase in geopolitical risk and uncertainty about global financial conditions; and the low profitability of local credit institutions. However, for all scenarios, BanRep observes adequate mitigating factors, such as high provisions, strong balance sheets and adequate solvency and liquidity ratios.
Fiscal Council stresses difficulties in complying with the fiscal rule next year, suggesting an expenditure cut of 1.4% of GDP. The Autonomous Fiscal Council noted that in the short term, the nominal fiscal deficit would sit at 4.4% in 2023, assuming 100% budget execution and complying with the net structural primary balance fiscal rule goal of 1.4% of GDP. Thus, the fiscal balance would result in a net debt reduction from 57.9% of GDP to 55.2% of GDP (close to the long-term net debt anchor of 55%). The main fiscal challenge ahead is programming structural expenditures financed with non-structural and volatile revenues for COP 15 trillion, under the heading of litigation arbitration. Additionally, the Council warns that even though the 2024 budget includes a COP 15.4 trillion payment for the fuel prices fund deficit accumulated in 2023, the amount could move up to COP 20 trillion. In contrast, the ruling of the Constitutional Court on the non-deductibility of royalties could lead to a higher-than-programmed dividend to be distributed by Ecopetrol. All in all, the nominal fiscal deficit could reach 5.1% of GDP, driven by a debt increase between 2pp and 4pp, and failure to comply with the Fiscal Rule (net structural primary balance account). To prevent exceeding the fiscal rule, the Autonomous Fiscal Council calls for an expenditure cut of between COP 23 trillion (1.4% of GDP). Finally, in our view, the slowdown in economic activity beyond the government's expectations is expected to pose additional challenges for next year's fiscal revenue targets.
Firms' inflation expectations remained stable once again in October. According to the Central Bank's Survey of Price Determinants and Expectations (EDEP), the one-year ahead inflation expectations sat at 5%, while the two-year horizon was located at 4%, both measures remaining stable for the third consecutive month. Regarding the factors influencing final prices, firms stated that their sales levels are slightly leading to lower prices, and the process of adjusting profit margin targets deepened. The EDEP survey, launched this year, based on questionnaires sent to firms across sectors throughout the country, complements the monthly Central Bank Analyst and Trader Surveys that have shown two-year inflation expectations anchored at the 3% target for several months.
Day Ahead: INE will publish wage data for October.
Annual inflation eased in November. Monthly CPI increased 0.4% mom in November (from 0.7% year ago and 5-year median of 0.5%), above the market consensus of 0.4% (according to the BCP survey). The main upside pressure came from food excluding volatile fruits and vegetable prices (contribution of 60 bp), partially offset by a reduction in fuel prices. Core CPI x1 (excludes fruits and vegetables, regulated service prices and fuel) stood flat in the month (from 0.3% a year ago and 5-year median figure of 0.4%). On an annual basis, headline inflation stood at 3.2% in November (down from 3.5% in October), while core X1 CPI decreased to 4.5% (from 4.9%). Importantly, both annual headline and total core inflation have moved sideways within the 4%+-2% inflation target range. We maintained our inflation forecast at 3.8% for YE23.
Annual inflation rebounded in November, as expected. Headline inflation increased by 0.34% mom in November (vs. -0.28% in November 2022 and a 5-year median of 0.21%), slightly below expectations of 0.40% (according to the BCU survey). Upside pressure was mainly driven by volatile fruits and vegetables, transportation, furniture’s and recreation. On an annual basis, headline inflation came in at 4.96% in November (from 4.3% in October), still within the central bank's 3%-6% inflation target range. We maintain our year-end inflation forecast at 4.9%, helped by the electricity tariff discount for December (UTE Premia), which usually results in a negative monthly print.