Itaú BBA - Evening Edition – Activity moderates in Colombia

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Evening Edition – Activity moderates in Colombia

Janeiro 17, 2020

We expect growth to come in at 3.1% this year

Our LatAm Macro Monthly report was published today, featuring scenarios for Brazil, Mexico, Argentina, Chile, Colombia, Peru, the global economy and commodities. ** Full story here.

See our Week Ahead full note at the end of this report. 

Talk of the Day


Activity was expectedly weaker in November, partly affected by disruptions to operations from protest action, along with a higher base of comparison. Retail sales growth slowed to 4.4% yoy (7.4% in October; 8.3% in 3Q19), but still more favorable than market expectations (mkt: 4.1%; Itaú: 3.0%). A sharp auto sales decline was a key drag to retail activity in the month, in part due to double-digit sales gains during the biennial auto show in the final two months of 2018. Even so, after excluding vehicle and fuel sales, the seasonally adjusted series showed the first monthly retail activity decline since March, hinting at a gradual core sales moderation ahead, in line with depressed sentiment and a weakening labor market. Meanwhile, manufacturing contracted 1.5% yoy (+2.1% in October: +0.4% in 3Q19), surprising to the downside (mkt: +1.2%; Itaú: -0.2%). Despite some expected weakness in November, overall activity dynamism remains in line with growth close to the potential, thwarting the need for any additional monetary easing. We expect growth to come in at 3.1% this year (3.3% expected for 2019). An improved global outlook would likely offset domestic risks linked to low confidence (also affected by social unrest) and the still weak labor market. ** Full story here.


The Argentine central bank cut the Leliq rate to 50% from 52%. This is the fourth rate cut since Fernández took office last month. The Leliq rate has fallen 1300 bps since December 2019, supported by tighter exchange rate controls. Interest paid on deposits accompanied the slide down in that period, hitting 36.5% and entering in negative territory in real terms.


Macro Scenario: We maintained our GDP growth forecasts at 1.2% for 2019, 2.2% for 2020 and 3.0% for 2021, as economic activity continues to recover gradually. On the fiscal side, our primary deficit estimates stand at 1.0% of GDP for 2019 and 2020, and 0.5% of GDP for 2021. If government spending remains under control, public debt is likely to decline in the coming years. Additionally, we maintained our exchange rate forecasts unchanged at BRL 4.15/USD for 2020 and 2021. On the inflation front, we revised our estimate for the consumer price index IPCA in 2020 to 3.3% from 3.5%, incorporating smaller adjustments in regulated prices. Thereafter, inflation is expected to reach 3.5% in 2021. Finally, on monetary policy, we believe that Brazilian Central Bank inflation forecasts are consistent with further monetary stimuli. We therefore continue to expect 25-bp cuts in the benchmark interest rate in February and March, driving the Selic to a final level of 4.0%. ** Full story here.

The Week Ahead in LatAm


The INDEC will publish the EMAE (official monthly GDP proxy) for November on Thursday. Leading and coincident indicators point to a weak activity performance. The manufacturing index fell 4.5% yoy, while construction output dropped 5.2% yoy. We forecast a 0.8% year-over-year drop in November.

The trade balance for December will also be released on Thursday. We forecast a surplus of USD 1.7 billion in the last month of 2019 (versus a USD 1.4 billion surplus registered in the same month of 2018) due to a weaker ARS. If our forecast is correct, the trade surplus reached USD 15.5 billion in 2019, from a deficit of USD 3.7 billion in 2018.    


January’s IPCA-15 inflation will be released on Thursday. We forecast a 0.64% monthly increase, leading the 12-month reading to 4.27% (above the 3.91% registered at the end of 2019). We expect all core inflation measures to remain on a benign path. For non-core inflation, food items, especially beef prices, will likely pose some relief in comparison to the December reading, amidst the protein price shock. 

On economic activity, the CAGED formal job creation for December may be released next week. We forecast a net destruction of 332k formal jobs in the month, given the typical seasonality for the month. In seasonally-adjusted terms, we expect a creation of 55k jobs, with the 3-month average falling to 75k from 80k. Additionally, FGV’s confidence surveys for January for the industrial sector (preview) and consumers will be released on Wednesday and Friday, respectively.


The trade balance for the month of November will be released on Tuesday. Another deficit of USD 813 million was recorded in October, but with some narrowing from the USD 1.2 billion deficit reported a year earlier. As a result, the 12-month rolling trade deficit edged down to USD 10.1 billion, from the USD 10.5 billion recorded in September and USD 7.1 billion for 2018. For November, we expect accelerating fuel imports amid still weak commodity exports to result in a large USD 1.6 billion trade deficit (USD 0.9 billion deficit one year earlier).

The coincident activity indicator (ISE) for November will be published on Wednesday. In October. Activity grew 3.2% YoY, (3.3% in 3Q19), close to potential. Strong retail activity at the start of 4Q19 remained a key growth driver. We expect ISE growth to slow to 2.5% in the November, in part due to the disruption of some operations during protest action.


INEGI will announce December’s unemployment rate on Tuesday. We expect the unemployment rate at 3.6%. Formal job creation for December grew at a soft pace (1.7% in December, practically unchanged from November).  

On Thursday, INEGI will publish the first inflation figure of the year, for the first half of January. We expect the bi-weekly CPI to grow 0.34% (from 0.11% a year ago), with core inflation at 0.17% (from 0.08% a year ago). The figure is expected to reflect pressure from an increase (update) in the excise tax to sugary drinks, tobacco and some upside pressure from non-core agro prices. Assuming our forecast is correct, headline and core CPI would grow 3.26% year-over-year (from 3.02% in the second half of December) and 3.69% (from 3.60%), respectively, also reflecting an unfavorable base effect due to lower monthly inflation at the beginning of 2019, associated to lower VAT in the northern frontier (that went from 16% to 8%). 

Ending the week, INEGI will publish November’s monthly GDP proxy (IGAE), which we forecast to contract 0.6% yoy (after falling 0.8% in October). We already know that industrial production fell 2.1% yoy in October, with mining still contracting (but showing improvement), along with deteriorating construction and manufacturing output. Additionally, service sector growth likely moderated. 

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