COLOMBIA – Sequential activity fall in May amid social unrest

The downturn is expected to be transitory as protest action has since been suspended, mobility restrictions lifted and the vaccination program gains momentum

Vittorio Peretti & Carolina Monzón

15/07/2021


Activity indicators fell from April to May as protest action disrupted operations, particularly manufacturing. Given the favorable base of comparison, with the nationwide quarantine in force last year, activity indicators still posted notable annual increases. Retail sales grew 22.8% yoy, in between our 20% expectation and the Bloomberg market consensus of 26.7%, but moderated significantly from the 75.1% rise in April as core sales shrunk 4.1% MoM/SA. Meanwhile, manufacturing increased 8.6% yoy, underwhelming the 21.6% increase expected by the Bloomberg market consensus and our 30.0% call (63.9% in April). Manufacturing fell 22.1% from April to May, taking activity back to levels registered one year ago. Nevertheless, the downturn is expected to be transitory as protest action has since been suspended, mobility restrictions lifted and the vaccination program gains momentum.

Motorcycle and vehicle sales were the key contributors to the annual retail sales increase (together contributing 9.8pp to the headline result). Annual gains were widespread, aided by a low base of comparison, while the food sales contraction limited the headline growth (-7.6% yoy; subtracting 2.3pp). Once vehicle and fuel sales are excluded, retail sales increased 13.7% yoy, moderating from the 35.5% rise in April. In the quarter ending in May, retail sales increased 34.4%, up from the 4.7% and 1.3% gains in 1Q21 and 4Q20. Core retail sales (excluding vehicles and fuels) increased 18.0% from last year (+2.5% in 1Q21). At the margin, core retail sales contracted 4.1% from April (adding to the 10.7% contraction in April when mobility restrictions were tightened), resulting in a fall of 1.9% qoq/saar (annualized). Going forward, the loosening of mobility restrictions along with indications that the worst of the latest COVID-19 wave has passed would support improved retail dynamism.  

The manufacturing decline from April to May was broad based, but paper, household cleaning materials, sugar and coffee threshing were key drags. In terms of the 8.6% annual increase, beverage and apparel production were key pulls, contributing a combined 5.8pp. In the quarter ending in May, manufacturing increased 28.4% yoy, up from the 6.3% gain in the 1Q21 and 0.4% fall in 4Q20. Nevertheless, the 22.1% sequential decline from April led to a manufacturing fall of 19.1% qoq/saar, offsetting the 16.1% gain recorded in 1Q21. Social unrest and blockades, starting from the final week of April, had a significant impact on production, yet indications of recovering electricity demand (amid the suspension of protests) hint at a swift production recovery ahead. 

We continue to expect GDP growth of 6.5% this year (6.8% decline in 2020). The stronger-than-expected statistical carryover at the start of the year would mitigate the impact on 2021 growth from the reactivation of distancing measures and protest events during 2Q21. Nevertheless, the disruption to the activity recovery process during 2Q21, along with still anchored core inflation expectation lead us to expect that the central bank will opt to keep rates stable at 1.75% over the coming months.

Vittorio Peretti 
Carolina Monzón