Itaú BBA - Evening Edition – Activity growth remains below potential in Chile

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Evening Edition – Activity growth remains below potential in Chile

June 5, 2019

The monthly GDP proxy (Imacec) increased 2.1% yoy in April, in line with market consensus and a tick above our 1.9% call.

Talk of the Day

Chile

Activity has grown below potential in April, as has been the case so far this year. The monthly GDP proxy (Imacec) increased 2.1% yoy in April (1.8% in March), in line with market consensus and a tick above our 1.9% call. Growth was aided by a mining recovery, while services still lead the rest of the economy. Given the weak start to the year and also considering external developments, the central bank is likely to reduce its current 3%-4% growth forecast for this year when it publishes the 2Q Inflation Report (on June 10). Overall, the growth outlook, coupled with still-low inflation, could warrant changes to the current guidance for monetary policy ahead.
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The results of central bank’s trader survey ahead of the next monetary policy meeting are in line with the outcomes from last month. The survey retained the view of stable rates for at least a year, while the next move is still as a hike. The short-term (1-year) inflation expectations stayed at 2.8%, while the relevant 2-year inflation forecast is anchored at the 3.0% target. The policy rate is seen remaining at 3% for the next twelve months, while 3.25% is the two-year outlook. The Chilean peso is expected to remain near spot levels over the next month (around 700 pesos per dollar; and broadly in line with the levels recorded at the close of 2018). On Friday, the central bank will announce its monetary policy rate decision before publishing the 2Q19 Inflation Report (IPoM) the following week. With the IPoM set to communicate any potential change in the baseline scenario for the policy rate trajectory, we expect a decision to hold the policy rate at 3%.

Tomorrow’s Agenda: April’s nominal wage growth will be released at 10:00 AM. The index posted a strong 4.8% year-over-year in March, resulting in a real wage expansion of 2.3%. Signs of wage growth recovery, along with low inflation (expected to stay below the central bank’s 3% target this year) and an expansionary monetary policy, would support consumption ahead.

Mexico

Tomorrow’s Agenda: The Statistics Institute (INEGI) will announce March’s gross fixed investment, which we expect to decrease 3.1% year-over-year in the period (from -1.9% in February).

Brazil

Tomorrow’s Agenda: May’s auto production (Anfavea) will be released at 11:20 AM. Last month, the index reached 267.5k in April, increasing 3.7% in seasonally adjusted terms. Despite the month-over-month growth, the demand breakdown came in weak, as exports declined 10%, while domestic sales remained virtually stable.



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