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The outlook for activity dynamics remain downbeat as business sentiment sits near lockdown levels

Andrés Pérez M. & Vittorio Peretti


The monthly GDP proxy (IMACEC) fell 2.5% over twelve months in November, falling for the third consecutive month (1.2% drop in October), as the economic correction unfolds.The 2.5% yoy decline came in between our -1.5% call and the Bloomberg market consensus of a 2.8% drop. Activity contracted 0.8% from October to November (SA), the first decline since July, pulled down by a large mining payback, while non-mining activity dropped a milder 0.2% (-0.4% mom/sa in October). While the activity normalization is evolving broadly in line with the central bank’s expectations, elevated inflationary pressures and a wide current account deficit favor caution in the rate strategy. We do not expect cuts before mid-year.

The economy contracted 1.4% year over year during the quarter ending in November.GDP growth was down from +0.3% in 3Q and +5.6% in 2Q22. Non-mining activity declined 1.4% (+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 (+1.3% yoy in the quarter versus 4.6% in 3Q and 11.5% in 2Q). The drag from commerce remained steady at a 9.5% contraction, while manufacturing contracted 5.4% (3.9% drop in 3Q).

With three prior sequential gains from August to October, the 0.9% November drop only partially offsets momentum at the margin.Activity increased 1.2% qoq/saar, from the 5.3% decline in 3Q. Non-mining activity fell 0.1% qoq/saar (-4.1% in 3Q; -1.8% in 2Q).

The outlook for activity dynamics remain downbeat as business sentiment sits near lockdown levels.Think-tank ICARE’s business confidence survey for December showed sentiment remained deep in pessimistic territory. Excluding the volatile mining component, business sentiment ticked down to 34.9 points (50 = neutral), completing eleven months in pessimistic ground and the lowest since July 2020. Construction sentiment remains the key drag amid elevated costs and low demand.

The sharper correction in November puts a downside bias to our 2.7% GDP growth call for 2022.During the first eleven months of the year IMACEC grew 3.1% yoy. For 2023, we see a 1.1% contraction, amid slowing global growth, elevated uncertainty and restrictive global financial conditions, in addition to the tight domestic macro policy mix and weak sentiment.

Andrés Pérez M.

Vittorio Peretti