We expect activity recovery to consolidate in the current quarter

Economic activity picked-up in the beginning of 3Q17. The EMAE (official monthly GDP proxy) grew by a solid 4.9% yoy in July, following a revised 4.3% expansion in June. On a sequential basis, the index gained 0.7% relative to June (up from 0.3% in the previous month). As a result, the quarter-over-quarter growth was 6.1% (annualized), up from 2.7% and 4.8% posted in 2Q17 and 1Q17 respectively. The index, in the first seven months of 2017, is 2.1% higher than in the same period one year ago.

Manufacturing output and Services continued to improve in August. Industrial output increased 4.9% in the quarter ending in July (up from 2.4% in 2Q17). The service sector gained 3.4% in the same period (from 2.4% in 2Q17) indicating a recovery of consumption. Construction activity growth keeps its solid pace (12.3% from 9.6% in 2Q17) propelled by public sector expenditures in infrastructure. Finally, primary activities increased 4.8% in the period, compared with 5.1% in 2Q17.

Sequentially, the recovery is also broad based. According to our own seasonal adjustment, on a sequential basis manufacturing and construction led growth (14.2% and 13% qoq/saar respectively), followed by primary activities (4.6%) and services (3.7%).

Looking ahead, we expect activity recovery to consolidate in the current quarter. Coincident and leading indicators available for August showed strong gains. In particular, the IGA (a GDP proxy published by OJF consulting firm), registered an increase of 5.1% year over year. We forecast a GDP growth rate of 2.5% in 2017, with risks tilted to the upside.

Juan Carlos Barboza
Diego Ciongo