Itaú BBA - Stronger-than-expected GDP growth in Colombia

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Stronger-than-expected GDP growth in Colombia

Fevereiro 17, 2020

Slowing consumption and investment were offset by a smaller net export drag

Talk of the Day

Colombia

GDP expanded 3.4% in the final quarter of last year, above the market consensus of 3.2% and our 3.3% call. Growth was broadly in line with 3Q19 (revised up 0.2 p.p. to 3.5%), as slowing consumption and investment were offset by a smaller net export drag. At the margin, growth lost momentum. For the full year, activity grew 3.3%, a recovery from the downwardly-revised 2.5% in 2018 (2.6%, previously). Going forward, developments on the global outlook and possible domestic social unrest would be key as to whether Colombia can consolidate its recovery. We expect still robust investment and consumption to drive a GDP growth rate of 3.1% this year. Close to potential growth, alongside inflation that would gradually converge to the 3% target, favors a stable policy rate near neutral levels. ** Full story here.

According to the central bank’s monthly analyst survey, receding inflationary pressures justify stable rates for the time being. Inflation expectations for 2020 edged down to 3.34% (3.40% previously; Itaú: 3.30%), following the downward surprise at the beginning of the year, as the food component continued to moderate. Meanwhile, the 1-year horizon inflation outlook ticked up to 3.43% (3.39% previously), while the 2-year horizon inflation expectations fell to 3.10%, from 3.25% in January. Expectations for inflation excluding food prices were broadly unchanged at 3.34% for a 1-year horizon (3.35% previously), while for the 2-year horizon they remained close to the Central Bank’s target. On the monetary policy front, analysts now foresee just one rate increase in the forecast horizon (vs. two hikes previously), which would take place in December 2020 (delayed from October expected in the January survey). We expect the board to keep the policy rate unchanged at 4.25% for the time being, given controlled inflation, well-behaved inflation expectations, and close to potential growth.

Day Ahead: The trade balance for the month of December will be released today. A large trade deficit of USD 1.7 billion was posted in November (USD 0.9 billion deficit one year earlier), as commodity exports continued to drop sharply while imports rebounded (partly due to fuel imports). We expect a trade deficit of USD 502 million in the final month of 2019 (similar to December 2018), moderating from previous months as oil exports improved while fuel imports are expected to be more subdued. As a result, a trade deficit of USD 10.8 billion would be recorded in 2019, widening from the USD 7.0 billion deficit in 2018.

Brazil

On Friday, the BCB intervened in the FX market by offering swap contracts for the second consecutive day in the week. In the auction, the central bank offered 20,000 swap contracts (close to USD 1 billion), the same amount that was offered in the first intervention. Moments prior to the auction, the BRL hit its peak intraday level, at BRL 4.33 per dollar. Following Friday’s intervention, the BRL started to appreciate (albeit not monotonically), closing the day at BRL 4.29 per dollar.

In December, the Itaú Unibanco monthly GDP (PM-Itaú) fell 0.8% mom/sa (+0.7% yoy). Negative figures in the service, retail and industrial sectors were behind the monthly reading. According to IBGE, real revenues from services, industrial production and broad retail sales declined 0.4%, 0.7% and 0.8% mom/sa, respectively. In the 4Q19, PM-Itaú climbed 0.4% vs. the previous quarter. Thus, for the whole year of 2019, the indicator advanced 1.0%. Our forecast for 4Q19 GDP growth is 0.5% qoq/sa. ** Full story here.

The BCB released its monthly activity indicator (IBC-Br) on Friday. The index fell 0.27% mom/sa in December (-0.1% in November), in line with the market consensus (-0.3% mom/sa) and better than our call (-0.6% mom/sa). In year-over-year terms, the indicator advanced 1.28%, and, for the whole year, the gain reached 0.89% in 2019.

Chile

The Institute of Statistics (INE) revised the CPI measurement for January, but this did not affect the value of the inflation-indexed currency unit (UF, utilized to adjust a broad set of prices) for next month. Unlike originally reported, electricity prices did not go up by 3% from December (7bp contribution and partly explaining the 0.2pp surprise in the month), with INE now reporting stable prices from the end of last year (and in line with legislation that has frozen 90% of the components in electricity prices). Hence, the CPI variation was only 0.57% MoM vs. 0.64% MoM originally reported. This does not change the value of the UF for the February 10-March 9 period as it is calculated on the basis of the MoM variation rounded to 1 decimal place (i.e., 0.6% in either case). Consequently, inflation increased from 3.0% in December to 3.47% YoY (instead of 3.55%), with tradable inflation coming in at 4.27% instead of 4.41%. Overall, the diagnosis for the month does not change, but the revision could have implications for short-term inflation dynamics. We still expect inflation to remain under pressure in the coming months, as pass-through pressures persist, before ending the year at a near-target level of 3.3%. Weak internal demand amid anchored inflation expectations and a better performing CLP would diminish pressures.

The Week Ahead in LatAm

Argentina

The fiscal accounts for January will be published on Thursday. The Treasury ran an estimated primary deficit of 0.4% of GDP in 2019, down from 2.6% in 2018. We think the recent tax package will likely prevent the federal primary balance from worsening this year. Thus, we forecast a primary deficit of 0.4% of GDP for 2020.

The INDEC will publish the EMAE (official monthly GDP proxy) for December on Friday. Leading and coincident indicators showed mixed signals for that month. The manufacturing index rose 1.2% yoy, while construction output dropped 6.4% yoy. We forecast a 3.0% yoy drop in December.

The trade balance for the first month of 2020 will also come out on Friday. We forecast a surplus of USD 1.2 billion in January (up from USD 0.4 billion surplus registered in the same month of 2019) due to a weaker ARS and internal demand. If our forecast is correct, the trade surplus accumulated over the last 12 months would rise to USD 16.8 billion from USD 16 billion in December 2019.

Brazil

February’s IPCA-15 inflation will be released on Thursday. We forecast a 0.18% monthly increase, leading the 12-month reading to 4.17%. We expect food prices to fall (-0.31%), with additional relief in beef prices (-6.3%) after December’s protein price shock. We expect all core inflation measures to remain on a benign path. This is the first IPCA-15 reading under the new weight structure from the updated version of the household budget survey (Pesquisa de Orçamento Familiar – POF).

On economic activity, the CAGED formal job creation (Jan) may be released this week. We forecast a net creation of 70k formal jobs (50k in seasonally adjusted terms, decreasing the 3-month s.a. moving average to 72k from 75k). Additionally, FGV’s confidence indexes for February on industry (preview), construction, retail and consumer will be released throughout the week.

On external accounts, we expect the current account (Friday) to post a USD 11.0 billion deficit in January, higher than the USD 8.9 billion deficit observed in the same month of the previous year, mostly due to a weaker trade balance. With this result, the current account deficit over 12 months would add up to USD 52.8 billion, or 2.9% of GDP (from USD 50.8 or 2.7% of GDP billion in December).The 3MMA SAAR is set to slightly worsen to a USD 48.6 bn deficit (from a USD 47.8 bn deficit in December). Direct investment in the country (DIC) will likely amount to USD 4.8 billion in January, with the DIC over 12 months receding to USD 77.5 bn from USD 78.6 bn (or 4.2% of GDP).

Colombia

The trade balance for the month of December will be released today. A large trade deficit of USD 1.7 billion was posted in November (USD 0.9 billion deficit one year earlier), as commodity exports continued to drop sharply while imports rebounded (partly due to fuel imports). We expect a trade deficit of USD 502 million in the final month of 2019 (similar to December 2018), moderating from previous months as oil exports improved while fuel imports are expected to be more subdued. As a result, a trade deficit of USD 10.8 billion would be recorded in 2019, widening from the USD 7.0 billion deficit in 2018.

Consumer confidence for the month of January will be released on Wednesday. Think-tank Fedesarrollo’s consumer confidence closed 2019 entrenched in pessimistic ground at -9.5%, below the -8.3% recorded one year earlier. Consumers have held a downbeat outlook during 15 of the last 16 months. Despite the restrained confidence levels, retail sales has been a key growth driver.

Peru

On Friday, the statistics institute (INEI) will announce GDP growth for 4Q19, which we estimate at 1.8% (from 3.2% in 3Q19). The demand-side breakdown of GDP will likely show gross fixed public investment deteriorated (associated to weak public investment expenditure execution). In turn, private consumption likely moderated its pace. On the external side, we expect exports weakened in 4Q19 (mainly metallic exports, associated to softness in mining output), while imports decelerated.

 



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