Itaú BBA - COLOMBIA – Strong activity prior to dual shock

Macro Latam

< Voltar

COLOMBIA – Strong activity prior to dual shock

Abril 15, 2020

Despite strong activity at the start of the year, dual shocks would have a significant impact on the economy and lead to a growth contraction.

Activity indicators in February remained solid, still led by private consumption, although calendar effects amplified the headline numbers. Retail sales rose 13.2% yoy (7.5% in January), above our 7.2% call (Bloomberg market consensus: 6.9%), as almost all the categories posted double-digit growth. Core retail sales (excluding fuels) increased 14.6% yoy (8.5% in January). Being a leap year, the month of February had a favorable calendar effect with one additional Saturday. After adjusting for seasonal and calendar effects, core retail sales posted a much milder acceleration (to 8.0% from 7.3% in January). Meanwhile, manufacturing increased 4.6% yoy (3.7% previously), outperforming our call of 3.0% and the market consensus of 3.3%, but slowed to 2.2% yoy after adjusting for seasonal and calendar effects (3.8% in previously). The shutdown of the Colombian economy through March and April, along with the sharp drop of oil prices and slumping sentiment would undo much of the economic recovery seen to date.  

Manufacturing in February was once more lifted by beverage production, while vehicle production was a key drag. Beverage production lifted activity (+12.7% yoy; 1.4pp contribution), along with robust meat processing and the chemical industry. Meanwhile, vehicle production declined 17.8% (-0.3pp contribution). In the quarter ended in February, manufacturing rose 3.9% yoy, versus 1.3% in 4Q19 and 1.5% in 3Q19. At the margin, despite a 0.4% monthly decline, manufacturing in the quarter accelerated to 5.5% qoq/saar (0.2% fall in 4Q19). 

Retail gains were registered across the board, while there was a slowdown at the margin. All of the major categories expanded in February, with food division driving gains (+11.9% year-over-year, 2.5pp contribution to the headline figure). In the quarter ended in February, retail sales grew 9.0% year over year, up from 6.3% in 4Q19, while sales excluding fuels increased to 9.8% from 6.9% in 4Q19. At the margin, retail activity (excluding fuels) decelerated to 3.0% qoq/saar (3.9% in 4Q19). More recently, think-tank Fedesarrollo’s consumer confidence fell in March to the lowest level since 2017, an indication that retail sales would slump ahead.

Despite strong activity at the start of the year, we expect the dual shocks (coronavirus and oil prices) to have a significant impact on the Colombian economy and lead to a growth contraction of 1.4% this year (+3.3% in 2019). As domestic demand implodes, containing inflationary pressures, we expect the central bank to continue to implement monetary stimulus by bringing the policy rate to 2.75% before the end of this year.
 

Miguel Ricaurte
Carolina Monzón



< Voltar