Activity closed 2023 on a weak footing with both retail sales and manufacturing falling sequentially in 4Q23. Retail sales contracted 4.7% YoY in December (3.3% down in November), deeper than both the Bloomberg market consensus and our call of a 2.3% drop. Core retail sales (excluding fuels and vehicles) fell 2.2% from November (MoM/SA; +2.6% registered in the previous month), leading to a -2.8% YoY decline (-3.2% previously). Manufacturing increased by 0.5% MoM (-0.1% in November), leading to a 6.8% YoY decline (-6.4% previously), sharper than the Bloomberg market consensus of -5.4% and our -5.0% call. The data puts a downside bias to our estimate for the monthly coincident activity indicator (+0.8% YoY expansion). Overall, we expect GDP growth of +0.8% in the final quarter of 2023 (to be released on February 15; -0.3% in 3Q22), leading to growth of 1.0% during 2023 (7.3% in 2022).
Manufacturing levels remained low in 4Q23. During the final quarter of the year, manufacturing fell 6.3% YoY (7.6% drop in the 3Q23). At the margin, manufacturing contracted 0.5% qoq/saar (6.9% fall in 3Q23). Manufacturing levels are now 9.2% above pre-pandemic levels (down from a near 18% peak during 3Q22). For the full year, manufacturing contracted 4.9% yoy (+10.6% in 2022).
Retail sales continued to trend down, in line with the expected effect from elevated inflation and a contractionary monetary policy rate. In 4Q23, retail sales contracted 6.3% (9.2% drop in 3Q23), while core retail sales dropped 4.3% (in line with 3Q23). At the margin, core retail sales fell by 3.8% qoq/saar, building on the 6.5% fall in 3Q23. Core retail sales now sit just 11.6% above pre-pandemic levels (+24% by mid-2022). Overall, retail sales contracted 6.5% last year, partially offsetting the 10.4% increase in 2022.
The weak activity data in 4Q23 is in line with the expectation that the economic slowdown continued to consolidate. We expect the economy to growth 1.0% last year (down from 7.3% in 2022) and to grow at a below potential 1.2% in 2024 as monetary policy remains contractionary.
