Turning point in the economy: after a rebound in manufacturing and a strong rise in trade, activity would leave behind a double-digit drop

The economy gave new signs of green shoots in September. And although they are still tenuous, they are signs that the process of deconfinement is starting economic activity, which is translating into greater dynamism. This was reflected in the sectoral figures published this Friday by the National Institute of Statistics (INE).

Manufacturing production rose 5.3%, its first rise since the crisis began, exceeding market expectations that expected a 2.3% drop, after the sharp drop of 8.2% the previous month.

According to the INE, the rise is largely explained by the 7.7% year-on-year increase in the production of food products. This is mainly due to a greater production of pork, fresh or refrigerated, to meet the demand for National Holidays. It was followed in positive incidence by the production of alcoholic and non-alcoholic beverages with an increase of 18.7%, as a consequence of a higher production of other non-alcoholic caloric beverages, to meet the increase in requests nationwide.

Retail trade sales extended their recovery and posted a sharp rise in September, driven by misconfines and increased consumption due to the withdrawal of 10% of AFP funds. The Retail Trade Activity Index, measured at constant prices, grew 9.5% in September compared to the same month of the previous year, marking an acceleration compared to the 2.8% increase recorded in August.

In addition, the growth beat market forecasts for a 7% increase, according to a Bloomberg survey.

“The product lines that contributed the most to the increase in the index were electronic products, for home furnishings and technology; building materials, tools, hardware and paint; and miscellaneous consumer goods with increases of 57.4%, 45.7% and 6.0%, respectively, ”said the INE.

From Santander they affirm that “the progress of the deconfinement process and the strong impulse to consumption from the liquidity shock received by households caused the manufacturing and retail trade figures to be above expectations.”

Mining, meanwhile, completed its second consecutive fall, although it moderated it in relation to the -2% in August when it fell 0.8%. This, as a consequence of the lower activity registered in two of the three types of mining that compose it. Metal mining decreased 0.8%. Likewise, the Electricity, Gas and Water Production Index contracted 0.5% in relation to September 2019.

Is the upturn in the sectors sustainable? With these figures, the economy could begin to leave behind the five months of double-digit drops that activity has had. While an average 4.3% contraction is still expected, the dispersion is high. Some foresee zero or slightly positive growth, while at the other extreme they anticipate -7.9%. If this forecast materializes, the third quarter would show -8.8%, lower than the -14.1% registered in the second quarter.

Marco Correa, an economist at Bice, projects a variation close to -4% for the Imacec for September, almost in line with the average of those consulted. “Although consumption has had a boost due to the increase in people’s disposable income, and industrial activity showed an important recovery, there are other sectors that as of September were more affected by sanitary measures, such as the construction sector, education, transport and tourism, among others ”, he commented. Alejandro Fernández, economist at Gemines, underlines that “considering all these factors, we anticipate a contraction of 6.8% for the Imacec in September in 12 months, essentially confirming our previous expectations and, if given, it would be the least bad result since March confirming incidentally, the outlook for results in blue during October and November ”.

Now, when it comes to how sustainable the growth of manufacturing and trade is, the experts showed conflicting positions. On the one hand, some mention that it is, and that as the de-confinement progresses it will be accentuated, while others affirm that this greater rise is due to the initial impulse of the opening of the activity, and that later as it becomes normalized, it will return to a level more in line with the bases of the economy. In the first group is the chief economist of STF Capital, Sergio Godoy, who said that “they should remain in positive territory, since the comparison bases are low, but at a slightly slower pace and assuming that the restrictive measures they do not return and mobility continues to increase ”.

Pavel Castillo, from Corpa, adds that “seeing the contagion figures and the experience of other countries, a strong outbreak should not yet be expected before the end of the year, which makes it possible for the manufacturing figures to remain in blue, but with a very low growth, probably less than 1% in what remains ”.

Sergio Lehmann, chief economist of Bci, is located on the other side, who asserts that “the upswings are more marked at the time when the economy is normalizing. Then momentum falls, with the fundamentals of the economy defining the pace. Accordingly, manufacturing growth would not be sustained at that magnitude ”.

Little by little, the idea that in the fourth quarter there will be growth in 12 months has taken hold. Slight, but growing. Martina Ogaz, economist at EuroAmerica, foresees a 0.4% hike. “The latter goes hand in hand with the containment of contagions that the country has registered in recent weeks and both the reopening and return of activities in various cities.” Correa specifies that “given the process of deconfinement, together with a low base of comparison product of the effects of the social crisis at the end of the previous year, we estimate that the last quarter would show positive figures, in the range of 2% to 3%” . For the year, meanwhile, expectations remain in the range -4.9% to -5.6%.