Itaú BBA - COLOMBIA – Activity moderates in November

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COLOMBIA – Activity moderates in November

Janeiro 17, 2020

A gradual core retail sales slowdown expected ahead, in line with depressed sentiment and a weakening labor market

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 (Bloomberg consensus: 4.1%; Itaú: 3.0%). A sharp auto sales contraction was a key drag to retail activity in the month (in part due 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 a monthly retail activity decline from October (the first negative print 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 (Bloomberg market consensus: +1.2%; Itaú: -0.2%). Despite some expected weakness in November, overall activity dynamism remains in line with growth near potential, thwarting the need for any additional monetary easing.

Manufacturing in the month (1.5% yoy drop) was hampered by one fewer working day, but even after adjusting for seasonal and calendar effects, activity is low (1.2% yoy; +0.7% in October). The chemical division and steel production were the main drags in November. During the quarter ending in November, manufacturing increased 0.4% yoy (1.5% in 3Q19), while at the margin activity declined 0.3% qoq/saar (+1.2% in 3Q19). Despite the robust domestic demand and weakening of the Colombian peso, manufacturing activity has continued to disappoint.

Shrinking car and motor sales (-16.0% year over year) led the retail sales moderation to 4.4% in November, but core retail activity also moderated. Food, telecommunication equipment and apparel sales partly offset the retail weakening (contributing a combined +4.7bp to the headline figure). Adjusting for calendar and seasonal effects, core retail sales (excluding vehicle and fuel sales), slowed from 9.9% in October to 7.2% (the lowest gain in 2H19). In the quarter ending in November, retail sales grew 6.1% (8.3% in 3Q19), while core growth edged down to 8.9% (9.4% in 3Q19). At the margin, retail sales momentum (excluding vehicle and fuel sales) slowed to 6.5% qoq/saar from 11.3% in 3Q19, likely affected by the social demonstrations at the end of the year.

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.

Miguel Ricaurte
Carolina Monzón

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