Economics : Still a Bag of Allsorts

BACK IN BLACK

This of course is not a reference to my first ever rock concert at the Southampton Gaumont back on November 7th 1980 but instead the fact that after going into hibernation for 27 months the consumer confidence number moved back into positive territory for April, we have been as low as -30.2 in January 2017 but now finally a modest 1.5 positive reading - small acorns of course but moving very much in the right direction. It was not just true of Consumer Confidence as Fedesarrollo reported yesterday (Weds) that Retail Confidence for April stood at 28.7%, up from 17.8% and the higest reading since August 2016 - on the Industrial Side it was a more modest 2% but again versus -8.5% a year ago a very healthy number. These past couple of years have been dark days for the local economy as oil prices complicated the country's finances before the politicians got involved fighting over the peace process, then we had the tax reform with the increase in VAT rates and finally an election process which has suffered from a lack of transparency and which even now has question marks hanging over it. However even against this background we have seen some aspects of the economy showing signs of a pick-up, not all of them but bit by bit we are getting the country back on track - the 2.2% GDP reading for 2Q is now in the past as are most of the recent data points but the 2.7% FY 2018 estimate is unquestionably attainable. * The usual Gustavo Petro disclaimer needs to be inserted here *

Going hand in hand with confidence we saw another strong Retail Sales number for March with a 5.5% reading, Colombia is one of the great consumer societies and once that Confidence number really picks up the shops and malls will be as full as they have ever been - it is easy to forget that the product offer gets ever larger and new goods are constantly to be found on the shelves, just this week there was news that IKEA would potentially be opening their doors in Colombia - I would guess after 24 hours those doors would be last thing in the shop. The numbers themselves for March are a mixed bag with food accounting for over half of the increase whilst the 21.9% increase in cigarettes and alcohol whilst an unhealthy trend contributed very little to the total. The second highest contributor was electronics - Colombians do love their cellphones and the World Cup is just the perfect excuse for a new smart TV - in fact any kind of TV. The key vehicle market did see a 3.4% pick up but as of yet is contributing little - confidence is one thing but import taxes and the level of the Peso are quite another. A factor that has got lost in the mists of time when it comes to vehicles is that when I arrived here many moons ago there was almost no used vehicle market - you could re-sell a car with almost no loss, those times are gone and the used vehicle market is well established and provides stiff competition for those on the forecourt where prices have risen enormously over the same period.

Whilst the sales number itself was well ahead of estimates it is also important to note there was a negative calendar effect as Easter moved from April into March so in reality things may be even better, April´s reading will give us a better idea of where we are when we blend the two figures.

The same is true of course for Industrial Production which is is still struggling to get in the game with a 1.4% contraction in March, arguably better than expected but nonetheless it is slow progress and to an extent it has been propped up by Reficar over the past 18 months, even in March refining contributed with 0.9% of positive effect. With the collapse of oil prices the expansion of the industrial base in order to find alternative export products became a priority however as of yet despite a pick up in non traditional exports we are far below optimal levels - in March 26 of the 39 sectors measured were in the red, again with the calendar effect that will hopefully iron itself out in April but we have to wait and see. One of the areas where the somewhat beleaguered banking sector has done well recently is mortgages and once again the 1Q saw decent numbers in terms of Pesos lent however in keeping with our mixed bag situation the actual number of mortgages fell. We find total disbursements of COP1.7bn which is up 21.4% YoY however during the same period the number of mortgages dropped 0.3% to 27,845 - the simple conclusion is that lending is moving away from subsidized housing (-4.7% YoY) & towards the private sector (+28.4%), this is feasibly due to the election process and the fact that the wheels of Government have largely stopped turning.

Sticking with broadly the same sector we saw a marginal 0.81% increase in concrete production in March, it is only modest but at least moving in the right direction - one factor that continues to stick out is the long term drift towards Civil Works & Housing whilst Other Buildings have stagnated over the same period - the anomaly here is that whilst there was a 1Q 10.7% increase in Concrete Deliveries to Civil Works the actual number of disbursement to that sector from the Government was down 7.1% during the same period.

We touched on the need to diversify exports earlier and despite oil trading above $70 and the continued Venezuelan meltdown that can't be relied upon for ever, oil will always be required for other derivative products however the world is moving in a different direction - it is unlikely we will ever get back to the 2012 levels of exports when oil was raging however there are plenty of products both traditional and otherwise that can help drive the sale of good overseas if only the determination is there. In terms of March the 1.4% improvement in exports was modest but a continuation of the recovery but again the numbers continue to be dominated by the oil sector which rose 12.8% whilst coal/coke etc rose 13.9%. When we zoom out slightly and look at the 1Q 2018 data we find a healthy 14.6% increase but still there is a dominance of oil which rose 11.9% and contributed 4.2% to the gain, coal also contributed the same amount. There has though been decent news on the industrial side during Q1 as there has been a 14.6% increase which has contributed to 2.8% to the overall increase - highlights were Vehicles (+64.4%), Plastics (+23.9%) & Iron/Steel (+96.5%) - encouraging numbers.

On the other side of the coin imports rose during Q1 by 1.3% despite a weak March (-5.3%) however it we double click on the 1Q number then we find it has been diversely affected under by oil derivatives which dropped 17.8% and contributed -14.6% to the quarterly figure. Moving away from cereals (-14.3%) the other notable weak area, there are signs that some of the consumer discretional goods are picking up with a 15% increase in electronics which dove-tails with what we have seen on Retail Sales as well as textiles which rose 15.1%. On top of that there has been another healthy increase in manufactured goods for the industrial sector as well as spare parts which have jumped 21.5%. In the case of both Imports and Exports one key factor going forward is 4G - Colombia's highway network is a well documented disgrace and the cost for industry to get goods to and from the ports makes all international commerce far more expensive than it should be, hopefully in a few years this will have changed radically. SUMMARY In short if you are buying a car you are not interested in the mileage it has done, you want to know what it is capable of doing once you own it and that is the same for anyone investing in Colombia, all of the above data is already baked into the 1Q GDP number. We still need more data however what is certain is that rates and inflation are very much under control and have provided a very favourable environment for the expansion of the economy - to repeat what I said earlier the 2.7% central Government estimate seems very attainable and to turn that argument the other way, it is harder to see why it wouldn't occur.