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#Colombia: Activity leading indicators: Retail sales slowed and industrial production strengthened in the outset of 3Q18

 

September 14, 2018 (Investorideas.com Newswire) Colombia's main activity leading indicators posted mixed dynamics on the margin in Jul-18 although both kept showing strong annual growth rates. Specifically, retail sales rose 3.2% y/y from 6.3% y/y in Jun-18, below the market consensus and our estimate (5.5% y/y and 6.2% y/y, respectively), while manufacturing production accelerated to 3.5% y/y (Jun-18: 1.3% y/y), close to our forecast (+3.8% y/y; consensus: 2.9% y/y). However, the latter benefited from an additional working day (20 in Jul-18 vs 19 in Jul-17). In fact, the seasonally-adjusted (s.a.) series posted different results with retail sales outperforming manufacturing. The slowdown of retail sales' annual growth matched with the setback of consumer confidence in Jul-18 (-5.7pp m/m to 9.8%), which was its first deterioration since Feb-18.

Despite the deceleration of retail sales in early-3Q18, we remain optimistic regarding private consumption, which will continue to be benefited by healthier fundamentals: i) stable inflation close to 3%, ii) higher consumer confidence, iii) resilient labor market, and iv) lower interest rates. We even expect a further impact from the latter factor as the 350bp easing cycle of the BanRep has not passed-through to consumer loan rates as strongly as in recent history (see chart 3).

This fresh data does not change our view on overall economic activity and monetary policy, so we continue to expect a GDP expansion of 2.8% this year and 3.3% in 2019. Moreover, the repo rate would remain at 4.25% for a considerable period while a potential first hike would come around Apr-19 (see note). In our view, additional EM turmoil and potential further volatility of the COP could trigger a sooner-than-expected rate increase by the BanRep, thus standing as the main risk to our base scenario.

  • Retail sales grew 3.2% y/y in Jul-18, standing as the weakest performance of 2018 so far, though this month the series faced the highest statistical base of the year (Jul-17: +3.3% y/y). The slowdown of retail sales this month was widespread as the ex-vehicles-and-fuels series decelerated from 6.9% y/y in Jun-18 to 3.6% y/y, also its lowest result of the year. However, the s.a. sample (also ex-vehicles-and fuels) rose 1.0% m/m after dropping 1.4% m/m in Jun-18, pointing to a stronger private consumption despite the observed in the raw annual growth rate which, as mentioned above, was affected by a relatively demanding comparison base. The group that posted the highest contribution to retail sales growth in Jul-18 was food and non-alcoholic beverages (+6.8% y/y; 1.5pp incidence), which would have been related to the soccer world cup held that month.
  • Manufacturing production grew at a healthy pace despite a demanding statistical base (Jul-17: 6.7% y/y), though the series benefitted from an additional working day. The growth observed in Jul-18 stands as the second-top performance of the year, behind Apr-18 (+10.6% y/y). More so, we highlight that the ex-refining sample improved from +0.7% y/y in Jun-18 to +3.8% y/y amid a strong impact from tradable subsectors such as chemicals manufacturing (+15.8% y/y; 0.5pp incidence on the headline figure). We expect manufacturing to continue posting healthier growth rates ahead on the back of a solid external demand and a competitive FX (manufacturing exports have grown 14.9% YTD through Jul-18).

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

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

Camilo DurĂ¡n
+ (571) 3394400 ext. 1383
caduran@credicorpcapital.com


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