COLOMBIA – Upbeat retail activity in August

High terms-of-trade, the absence of significant mobility restrictions and expansionary macro policies are supporting a fast GDP recovery

Vittorio Peretti & Carolina Monzón

15/10/2021


Activity indicators show the economic recovery continued to advance mid-way through the third quarter of the year, led by retail sales. The solid annual increases are helped by a low base of comparison given Colombia faced the second Covid-19 wave of the pandemic in August 2020, leading to the reintroduction of mobility restrictions. Yet, dynamics at the margin remain favorable. Retail sales grew 32.0% YoY in August (27% previously), falling in between the Bloomberg market consensus of 26.6% and our 34.0% forecast. Core retail sales increased 3.5% from July, building on the 4.4% gain in the previous month. Meanwhile, manufacturing increased 22.9% YoY (20% previously), exceeding the Bloomberg market consensus and our call of 18.5%. Overall, the data is consistent with a 17% YoY increase for the coincident activity indicator (ISE) to be released next Tuesday. The swift activity recovery, rising inflationary pressures, and external imbalances would likely lead Central Bank to accelerate the pace of the normalization cycle going forward, taking the interest rates to 3.0% by yearend.

Core retail sales sit 14% above the pre-pandemic levels, consolidating the consumption-led economic recovery. The 32.0% retail sales increase was pulled up by fuels, vehicles sales, apparel and auto parts sales, in line with recovering consumer sentiment and retail confidence. Core retail sales (excluding fuels and vehicles) grew 22.5% YoY (17.1% in July; 9.8% drop one year ago). In the quarter ending in August, retail sales expanded 28% (36.8% in 2Q), while core retail sales advanced 17.2% (19.1% in 2Q21). At the margin, core retail sales gained momentum, increasing 38.9% qoq/saar, after a 20.7% fall in 2Q21 (hindered by a third Covid-19 wave and social unrest).

Manufacturing levels were steady at the margin, remaining 8% above pre-pandemic levels. The 22.9% annual increase was driven by beverage production (39.7% YoY; +4.3pp contribution), apparel (54.1% YoY; +1.5pp) and plastics (31.1% YoY; +1.3pp). During the quarter ending in August, manufacturing increased 21.2% YoY, after expanding 28.4% in 2Q (6.2% in 1Q21). At the margin manufacturing expanded 52.4% qoq/saar, offsetting the 22.5% drop in 2Q21 as the economic reopening consolidated.



High terms-of-trade, the absence of significant mobility restrictions and expansionary macro policies are supporting a fast GDP recovery in 2021. Following upside surprises, we expect the Colombian economy to expand by 8.8% this year

Vittorio Peretti 
Carolina Monzón