Macro Latam
< VoltarThe activity contraction in October, as protest action took hold, far exceeded market expectations. The GDP proxy (Imacec) shrunk 3.4% yoy (Itaú and Bloomberg consensus: 0.5% drop; +3.0% in September), with the seasonally-adjusted number contracting 5.4% from September, sharper than the 4.1% drop in March 2010 when the economy was struck by a major earthquake. Mining activity growth of 2.0% yoy contained the overall decline. Meanwhile, the non-mining component, which was more directly affected by the protest action, contracted 4.0% yoy. Protest action persisted in November, but partial normalization of activity operations likely mean a milder year-over-year activity contraction.
In the rolling-quarter ending in October, activity growth slowed to 1.0% yoy (3.3% in 3Q19), the weakest since 2Q17, despite the gradual mining recovery. Mining production grew 1.8% yoy (1.4% in 3Q19), but growth of the non-mining component reached 0.9% yoy (3.6% in 2Q19 and 2.1% in 2Q19).
At the margin, activity contracted for a second consecutive month, leading to a decline of 3.9% qoq/saar. Non-mining activity fell 4.7% qoq/saar in the quarter (2.3% in 3Q19), while mining momentum moderated to 4.2% qoq/saar (6.0% in 3Q19).
Given the large downside surprise to October activity and considering that disruptions persisted in November, activity for 2019 is likely to grow significantly lower than our prior call of 2.0% call (and the updated Finance Ministry range of 1.8%-2.2%), with a rate below 1.5% highly likely. The weak carry-over into 2020 along with historically low business confidence (that would likely translate into reduced investment decision-making), means the likelihood of an activity recovery next year is slim. The central bank faces a challenging scenario, considering the economy needs stimulus beyond that currently in place, but exchange-rate volatility stands in the way of further rate cuts. While we expect the central bank to stay on-hold this week, further easing next year is likely.
Miguel Ricaurte
Vittorio Peretti