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Colombia: Retail sales and manufacturing production kept a strong momentum in May-18

 

July 12, 2018 (Investorideas.com Newswire) Activity leading indicators continued posting strong annual growth rates in May-18, which had the same working days as May-17 (21). Specifically, retail sales rose 5.9% y/y, close to our forecast of 5.6% y/y but above market consensus (+5.0% y/y). Manufacturing production came in at 2.9% y/y, also standing in line with our expectations (3.0% y/y; consensus: 4.9% y/y). The seasonally-adjusted (s.a.) series posted mixed results, as the one of manufacturing dropped for the first time since Feb-18. While the performance of both leading indicators in the first two months of 2Q18 point towards an accelerating economic activity vs. 1Q18, we remain relatively cautious on this front, as the outlook for investment during that period remained weak considering the current depressive state of the construction sector (specially in buildings), and the postponement of capital expenditure decisions amid the political uncertainty previous to the presidential elections of May/Jun-18. In any case, we acknowledge the upside risks to our 2018 GDP growth forecast of 2.3%, which mainly come from the persistently-high oil prices. This fresh data does not change our view on monetary policy either, so the repo rate would remain at 4.25% for a considerable period.

  • Retail sales grew 5.9% y/y in May-18, slightly decelerating from the 6.3% y/y observed in Apr-18. Beyond this, we highlight the relevant improvement of the ex-vehicles-and-fuels series, which accelerated from 4.9% y/y in Apr-18 to 6.5% y/y in May-18, its strongest annual growth rate since Sep-15. While the favorable statistical base continues to push both the headline and the ex-vehicles-and-fuels series (recall that the 3pp hike came into force in early-2017), the multi-year high of annual growth rates and the relatively positive performance of the s.a. series in May-18 (headline: 1.7% m/m; ex-vehicles-and-fuels: 1.6% m/m) definitely point towards a growing momentum of private consumption this year, in line with our long-held view. Specifically, the groups that posted the strongest annual advances were computer and telecommunications equipment (+25.6% y/y; 1.8pp incidence to the headline figure), and food and non-alcoholic beverages (+7.2% y/y; +1.6pp).
  • Overall, as mentioned in previous reports, we continue to expect private consumption to accelerate further in the upcoming quarters in the midst of stable inflation close to the 3% target, and the steady advance of consumer confidence (which reached a 3-year high in May-18: 8.9%). Thus, household spending should be a prime source of acceleration of GDP growth in 2018 amid higher disposable income in comparison to previous years. The recent data of retail sales and national accounts seem to support this view.
  • We consider the 2.9% y/y growth of manufacturing production May-18 as somewhat positive despite the downside surprise for the consensus, as there was no positive calendar effect, although the statistical base was somewhat helpful (May-17: -0.2% y/y). Beyond this, we highlight that the ex-refining sample posted an annual growth above that of the headline series for the second straight month (+4.2% y/y), which point towards a widespread improvement of the manufacturing sector. In fact, just 9 out of 39 subsectors of the sample posted annual contractions this month. That said, the s.a. headline series dropped for the first time since Feb-18 (-1.8% m/m), while posting the weakest performance since Oct-17. In any case, overall manufacturing seems to be improving on the margin this year on the back a solid external demand and a competitive FX (manufacturing exports have grown 19.2% YTD through May-18).

For charts, tables and the full report, see the pdf file

Daniel Velandia, CFA
+ (571) 3394400 ext. 1505
dvelandia@credicorpcapital.com

Camilo Durán
+ (571) 3394400 ext. 1383
caduran@credicorpcapital.com


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