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We expect the economy to slow to 0.6% in 2023

Vittorio Peretti & Carolina Monzón


Core retail sales and manufacturing registered a mild monthly gain in November. Retail sales increased 1.7% yoy in November (2.0% in October), slightly below Bloomberg market consensus and our 1.8% call. Core retail sales (excluding fuels and vehicles) expanded 0.6% YoY (-0.6% in October) corresponding to a mild 0.1% (SA) from October, the third consecutive monthly increase. Meanwhile, manufacturing picked up by 0.3% MoM/SA, rebounding from the 0.2% contraction in October. In annual terms, a 4.5% growth was recorded (5.3% previously), between the 4.8% Bloomberg estimate and our 4.4% forecast. The data is consistent with a 0.1% YoY increase for the coincident activity indicator in November (4.6% in the previous month), to be released tomorrow. Overall, with activity still at elevated levels, high inflationary pressures and the current account deficit widening, the Central Bank is likely to continue hiking rates. The next policy meeting will take place on January 27 when we expect a further 75bps increase to 12.75%.

Manufacturing now sits around 14.0% above pre-pandemic levels. The 4.5% annual growth was boosted by pharmaceutical products (0.7pp), vehicles production (0.6pp) and personal cleaning production (0.6pp). During the quarter ending in November, manufacturing increased 5.5% YoY, moderating from the 7.0% expansion in 3Q22. At the margin, manufacturing expanded 0.3% from October (-0.2 previously), resulting in a 2.6% growth qoq/saar, recovering from the 2.2% contraction in 2Q22.

Retail sales sit 15.1% above pre-pandemic levels. The 1.7% YoY increase of retail sales in November was pulled up by other vehicles and motorcycles (1.4pp), and fuels (0.5pp), partially countered by appliances and furniture (-0.6pp). In the quarter ending in November, retail sales expanded 3.5% from 7.6% in 3Q22, while core retail sales growth moderated to 1.8% from 6.3% in 3Q22 (22.0% in 2Q22). At the margin, core retail sales retreated 8.0% qoq/saar, moderating from the 10.5% downturn in 3Q22, following four consecutive sequential drops.

We expect the economy to slow to 0.6% in 2023, from the 8.2% anticipated for last year. High rates, weak sentiment, and a challenging global backdrop should dent growth this year.

Vittorio Peretti

Carolina Monzón