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GDP growth for this year will likely exceed our 2.3% call.

Andrés Pérez M. & Vittorio Peretti


The monthly GDP proxy (IMACEC) fell 1.2% over twelve months in October, falling for the second consecutive month (0.3% drop in September), as the economy gradually falls from unsustainable levels. The 1.2% yoy decline came in between our -1% call and the Bloomberg market consensus of a 1.5% drop. Activity increased 0.5% from September to October (SA), a third consecutive positive print, but boosted by a significant sequential improvement in mining (+6.4% mom/sa). Excluding mining, activity contracted 0.4% from September.

A more gradual activity correction than initially expected, with 2022 GDP exceeding the upper bound of the central bank’s 1.75-2.25% range, along with still high inflation expectations and a wide CAD will likely result in the central bank signaling in next week’s IPoM that rates cuts are unlikely before 2Q23.

The economy contracted 0.4% year over year during the quarter ending in October. GDP growth was down from +0.3% in 3Q and +5.4% in 2Q22. Non-mining activity declined 0.1% (+1.1% in3Q and 7.2% in 2Q). Services (excluding commerce) was the only component to post an annual increase, but its pull continued to diminish (+3% yoy in the quarter versus 4.6% in 3Q and 11% in 2Q). The drag from commerce remained steady at 9.6% contraction, while manufacturing contracted 4.4% (3.9% drop in 3Q).

With three sequential gains in August and October, activity increased 0.6% qoq/saar, partially improving from the 4.7% decline in 3Q. Non-mining activity rose 0.9% qoq/saar (-3.6% in 3Q; -1.4% in 2Q).

The fiscal drag continued in October, as expected.​ Real fiscal expenditures declined by 29.9% yoy. Even though revenues fell in October, the steep expenditure decline allowed for an improvement in the cumulative fiscal balance through October, reaching +2.5% of GDP (-7.6% last year). Looking ahead, a mildly expansionary budget for 2023 was approved (+4.2% real expenditure growth).

While the activity deceleration may be positively surprising, the outlook remains unfavorable. Think-tank ICARE’s business confidence survey for November showed sentiment remained deep in pessimistic territory. Excluding the volatile mining component, business sentiment ticked down 60bps to 35.5 points (50 = neutral), completing ten months in pessimistic ground and the lowest recording since July 2020. Construction sentiment remains the key drag with reports of rising costs and falling demand.

Overall, recent activity data suggests the expected slowdown is unfolding somewhat more gradually. Nevertheless, a tight macro policy mix, downbeat private sentiment and the erosion of real disposable income amid a less favorable global backdrop will result in further correction ahead. GDP growth for this year will likely exceed our 2.3% call, but we still expect a meaningful contraction in 2023 (-1.5%).

Andrés Pérez M.

Vittorio Peretti

Ignacio Martinez