Industrial production dropped for the fourth consecutive month in December, with the pace of contraction accelerating to -9.8% y/y (seasonally adjusted; -6.6% in November). This took annual growth of industrial output to just +1.8% for all of 2018, down from +8.9% in 2017. Likewise, retail sales dropped by -9.2% y/y in December, bringing the full-year 2018 expansion down to just +1.4%. Meanwhile, USD-denominated imports (goods and services) plunged by -27% y/y in December (-20% in November) while the previous rebound in exports (+7% in November) came to a halt in December (-2%). As a result, the monthly current account shifted back into deficit, after four months of surpluses. Still, the rolling 12-month external deficit is narrowing and should continue to do so, albeit at a slower pace. Amid these signs of a deepening recession, the Central Bank last week reduced reserve requirement ratios for banks in order to boost credit growth. However, the move may jeopardize the positive impact of the higher interest rates regime since September 2018 which led to a reduction of private sector credit growth to a healthy +15% y/y in December from an unsustainable peak of +39% in August 2018.
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Weekly Export Risk Outlook 20 February 2019