Retail sales increased sequentially in November, while manufacturing registered a mild decline. Retail sales contracted 3.4% YoY in November (11.1% down in October), a milder fall than the Bloomberg market consensus of -6.1% and our call of an 6.0% drop. Core retail sales (excluding fuels and vehicles) increased by 2.2% from October (MoM/SA -0.8% registered in the previous month), leading to a -3.2% YoY decline (-7.5% previously). Meanwhile, manufacturing contracted 0.2% MoM/SA (-0.9% in October), leading to an 6.4% YoY decline (-5.9% previously), below the Bloomberg market consensus of -5.5%, while closer to our -6.2% call. The data puts an upside bias to our estimate for the monthly coincident activity indicator (0.9% YoY expansion, to be published on January 18; -0.4% YoY in October). The overall weak activity supports further loosening of monetary policy. We expect a 25bp cut at the January meeting to 12.75%, but the downside CPI surprise in December and swiftly falling medium-term inflation expectations may increase calls to accelerate the pace.
Manufacturing continues to trend down. During the quarter ending November, manufacturing fell 6.4% YoY (7.6% drop in the 3Q23). At the margin, manufacturing contracted 0.4% qoq/saar (6.8% fall in 3Q23). Manufacturing levels are now 8.6% above pre-pandemic levels (down from a near 18% peak during 3Q22).
The milder retail sales decline was boosted by appliances, furniture vehicles and motorcycles. In the quarter ending November, retail sales contracted 7.9% (9.2% drop in 3Q23), while core retail sales dropped 4.7% (-4.3% in 3Q23). At the margin, core retail sales increased 1.8% qoq/saar, partly recovering from the -6.4% in 3Q23. Core retail sales now sit just 12% above pre-pandemic levels (+24% by mid-2022).
With monetary policy expected to remain contractionary throughout the year amid a slow disinflation process, activity dynamics will remain weak. We expect the economy to grow at a below potential 1.2% this year (after the 1.0% expected in 2023).
