The monthly GDP proxy fell by 1.3% yoy in July (from -0.6% in June), below our forecast of -0.1% and market expectations of a null expansion (as per Bloomberg). Agriculture (-0.7% yoy in July), fishing (-47.9%) and construction (-8.8%) sectors remained weak, affected by the el Niño phenomenon. In contrast, mining output expanded at a solid pace (11.4%), but the services sector registered a soft expansion of 1.0%. The quarterly annual rate of monthly GDP fell by 1.1% in July (from -0.5% in 2Q23), with primary and non-primary activity at 0.2% (from 1.4%) and -1.3% (from -1.1%), respectively.
At the margin, activity fell in July. Using official seasonally adjusted series, the monthly GDP fell by 1.1% mom/sa in July, taking the quarter over quarter (non-annualized) growth rate to a weak -1.1% in July (from -0.3% in 2Q23).
Our 2023 GDP growth forecast stands at a below potential growth rate of +0.8%.
The El Niño phenomenon will likely curb the rebound of activity in the 2H23 (after social unrest and harsh weather affected GDP in 1H23), which together with lower inflation, will likely prompt the central bank to keep cutting its policy rate at the same pace of 25-bp in the last three meetings of the year (reaching a level of 6.75%).