What Jumps Out: Colombian Consumer Confidence Edging Upward

Fedesarrollo yesterday published their latest look at Consumer Confidence (CC) and whilst some were perhaps hoping for a first positive number since March 2019, we instead got a reading that was broadly in-line with expectations.

At -1.3% this was the best reading for the last 10 months, since last December before the new round of lockdowns began and crucially before any vaccines had been administered. There is little question that the country is going in the right direction, even the unemployment data for September was considerably better than expected.

The CC number itself is broken into two segments – Consumer Expectations (CE) and Economic Conditions (EC) and there were contrasting readings. In terms of CE we saw a decline from 14.1% to 10.6% driven by an overall decline in consumers’ outlook for the economy. However, when asked about their own domestic economic conditions there was an improvement from -28.7% to -19.2%, this served to push the overall CC number up from -3.0% in September to -1.3% in October.

Rupert’s opinions & analysis as an independent expert contributor are his own and not necessarily those of Finance Colombia or the BVC.

When asked about their propensity to buy there was another mixed picture. In terms of housing, we saw a drop from -0.5% to -3.8% but with both vehicles (-43.8% to -38.6%) and consumer durables (-44.3% to -28.2%) there was a healthy improvement. As if to confirm that last group, the recent VAT Free Day tax holiday saw an enormous increase in sales, especially in that group.

In general terms, confidence is on the rise, and we may well be in positive territory before year end, especially as the feel-good factor of the holidays sets in. Unemployment is the key component when a household is looking at its confidence level and whilst there has been healthy progress there is still work to do – which also represents upside potential. Prior to the pandemic close to 60% of the population was working, that dropped to close to 40% during the COVID crisis and stood at 52% in August. Encouragingly, that rose to 55.8% by September – a sizable increase as unemployment dropped from 14.19% to 13.02%.

What remains to be seen is whether the tightening of interest rates by the Central Bank will have any effect on sales – the 50bps increase to 2.50% was unexpected; however, for those with long enough memories, there has been criticism of the committee on previous occasions for not being more proactive.

President Duque has expressed his concern and asked for some restraint in future meetings. As he appointed six of the seven members of the committee, he is likely to get a hearing. What supports his call is the most recent inflation number for October: there were mitigating circumstances due to the aforementioned VAT Free Day however at 0.01% it was well below the 0.22% expected. The 4.58% 12-month number is outside of the government’s range but not by much.

With ever increasing 2021 GDP expectations, S&P now at 8%, inflation is no more than a reflection of that buoyancy and to some extent a good problem to have. Nonetheless it has to be monitored very carefully and whilst much of the developed world is reluctant to raise rates, emerging markets don’t have the same luxury.

That is about it for today – remember these are just themes that jump out at me – please refer to your local analyst, economist, salesperson or soothsayer for more details.

My regards to all,

Roops