Fynsa
There are surprises, and then there are surprises. And boy, have we had our share this year: inflation, an economic slowdown, election results, etc. Many of these surprises have indeed changed our expectations for the future, caused us to make different decisions, or simply left us even more confused. Unfortunately, the recent surprise represented by the August Imacec doesn’t do any of that.
In case you missed it, the Central Bank reported that the Imacec for August showed zero change compared to the same period last year, a result that exceeded both our expectations and those of the market (-2.0% and -1.5% year-over-year, respectively). A surprise of nearly two percentage points on the upside is no small matter, especially considering that the most recent data had been consistently disappointing, which was affecting not only this year’s outlook but also next year’s. This is doubly significant, as the seasonally adjusted series showed a 0.6% increase m/m, breaking a streak of four consecutive declines, bringing the annualized growth rate to -5.0% q/q.
Perhaps more so than on other occasions, it is important to look at the breakdown to find answers to such a surprise, especially considering that the sectoral data published by the INE were not only negative but worse than expected. Thus, as has become customary, the Mining Imacec fell by 7.5% year-over-year, in line with the sectoral index mentioned above. However, on a month-over-month basis, it remained unchanged after two months of sharp contractions.
However, the non-mining Imacec rose 1.3% year-over-year, driven mainly by the services sector (4.4% year-over-year). The press release indicated that, within this sector, education services were responsible for the increase, which we believe is likely to be temporary in nature. Retail trade continued to slow, falling 10.5% year-over-year. On a seasonally adjusted basis, the non-mining series rose 0.7% month-over-month, following four consecutive contractions, also driven by improved performance in education services. This is likely due to the extension of winter break into July, which resulted in a lower comparison base for August. As with the year-over-year change, retail sales fell 2.1% month-over-month on a seasonally adjusted basis, marking the fourth consecutive decline—a trend that is likely to continue in the coming months due to lower household disposable income.
Therefore, given that, both year-over-year and in the month-over-month comparison, the factors associated with the strong performance of education services in August are unlikely to recur, we believe that the current trend of economic slowdown in the national economy will continue.
August’s surprise isn’t even enough to raise hopes for a possible turnaround or a milder slowdown. Thus, on a preliminary basis, we estimate that the Imacec will change by between -2% and -1.5% year-over-year in September, marking—this time for real—the first in a series of negative changes that we forecast could extend through Q3 2023 (perhaps with a hiatus in February of next year). We maintain our full-year projection at between 1.5% and 2.0%, while GDP is expected to contract by between -1.5% and 0.5% in 2023.
