Colombia—Industrial Production and Retail Sales Plunged in November
DANE reported that industrial production contracted by 13.3% y/y (7.1% y/y in Nov 08 and -6.7% y/y 3MMA) and real retail sales declined by 2.9% y/y (9% y/y in Nov 08 and -0.6% y/y 3MMA). Both readings were well below expectations: industrial production (BD -8.8% y/y; Bloomberg consensus -8.1% y/y) and real retail sales (BD -2.6% y/y; Bloomberg consensus -1.5% y/y). This result brings industrial production to a decline of 3% YTD (10.9% YTD in 11M07), and real retail sales to a rapid deceleration of 1.9% YTD (11% YTD in 11M07).
In terms of industrial production, intermediate goods output (40% of the index) contracted by -9.6% y/y, and consumer goods (41.3% of the index) declined at a more pronounced pace of 12.6% y/y. Moreover, capital goods plunged by 29.2% y/y and construction-related goods fell by 9% y/y. Overall, thirty-six out of forty-eight industrial categories declined, especially auto production (-33% y/y). Finally, manufacturing employment dropped rapidly by 4.1% y/y and industrial sales declined by 14.8% y/y.
This is further evidence that economic activity in Colombia continued decelerating rapidly in the 4Q08 as a consequence of unfriendly external conditions and the ongoing domestic deceleration. That is, limited external demand, especially from the US, Venezuela and Ecuador, along with lower disposable income, tighter credit conditions and waning consumer and business confidence, all which are taking their toll on overall growth. Moving forward, given the grim global growth and financial outlooks, coupled with low commodity prices, the Colombian economy will likely experience a rapid deceleration during the 4Q08 (2% to 2.5% y/y) and in the upcoming quarters, thus, bringing GDP growth to about 3% to 3.5% in 2008 and 1% to 1.5% y/y in 2009.
In this context, and considering that inflation and inflation expectations will most likely improve moving forward, though so far slowly, the central bank will likely be induced to cut the ON lending rate by another 50bps to 9% during the January 31st monetary policy meeting and to 7% by June 09. Further easing in the 2H09 is probable if external and domestic conditions do not improve or the 2010 outlook remains bleak.
Regarding real retail sales, twelve out of sixteen categories declined, led by automobiles (-19.35% y/y). Among those categories with the heaviest weights in the index: food production (46.2% of index) increased slightly by 1.2% y/y and household goods rebounded strongly by 4% y/y; however, apparel contracted by 1.2% y/y.