Itaú BBA - Evening Edition – Economic activity decelerates in Chile

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Evening Edition – Economic activity decelerates in Chile

April 5, 2019

See our Week Ahead full note at the end of this report.

See our Week Ahead full note at the end of this report.

Talk of the Day


The monthly Economic Activity Index (Imacec) decelerated in February, as mining posted an expected contraction in the month, but disappointing non-mining activity resulted in the lowest headline growth since mid-2017. Activity grew 1.4% yoy in February, below the 2.0% market consensus (also our call). Mining contracted 7.8% (-3.9% previously), the sharpest drop since the extensive labor strike at the country’s largest mine in early 2017, as disruptive weather hampered activity at some mines. Services remain the driver of non-mining activity, but weak manufacturing and retail sales led non-mining activity to slow down to 2.4% (2.8% previously), the weakest print since September last year. The slow activity start to the year is in line with the central bank’s recent downward revisions to growth and our 3.2% forecast for 2019. At the margin, non-mining activity slowed but remains near potential, while mining is the key drag. Imacec increased 1.3% qoq/saar in the quarter ending in February (from 5.4% in 4Q18).

Weakness in mining activity is largely due to transitory factors (in particular, bad weather) and the current level of copper prices will likely contribute to boost production ahead. Business confidence, in an environment of low inflation and expansionary monetary policy (central bank has signaled stable rates until near yearend), would also support growth this year.
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Wages picked up in February – both in nominal and real terms, as the inflation rate remains low. Nominal wages increased 4.3% over twelve months (3.8% previously), resulting in real wage growth of 2.1% (1.6% in January). Nevertheless, with the slowdown in previous months, wage growth in the rolling quarter was in line with 4Q18 (4%), still around 1pp lower than the gains registered in 1H18. Real wages in the quarter rose 1.6% (1.2% in 2H18). The real wage bill (considering only formal employment) grew at a more moderated pace (1.8% in the quarter, from 2.7% in 2H19), on the back of weakening formal employment growth. The notable immigration influx in recent years has been a key determinant of subdued wage pressures. Yet, signs of wage growth recovery along with low inflation and an expansionary monetary policy would support the consolidation of the consumption recovery.

The Week Ahead in LatAm


March’s IPCA inflation will be released on Wednesday. We forecast a 0.63% monthly increase, leading the 12-month reading to 4.45% (from 3.89% in February). Due to base effects, we expect the 12-month inflation to accelerate during this year’s first semester and then recede to 3.6% by the end of 2019. Food at home and fuel will likely post the major upward contributions to the current monthly reading. 

Regarding economic activity, February’s retail sales (PMC) and service revenues (PMS) will be the main releases, on Tuesday and Friday, respectively. We forecast a 0.7% mom/sa decline in core retail sales and a 1.0% drop in the broad segment  (which includes vehicle sales and construction material). For the PMS, our preliminary forecast (conditional to PMC) is a 5.1% increase on year-over-year terms. Finally, two indicators related to March’s industrial production will likely be released (without a specified date): paper cardboard dispatches (ABPO) and traffic of heavy vehicles (ABCR).

On the political side, president Jair Bolsonaro will continue to meet with political parties’ leaders throughout the week, according to the political news. Additionally, the rapporteur for the pension reform at the Constitutional and Justice Committee, Marcelo Freitas (PSL-MG), is expected to present his report on Tuesday.


March’s inflation data will be released on Monday. The annual variation in February ticked down 0.1 pp, to 1.7%, further below the central bank’s 3% target. The drop was led by tradable inflation on lower fuel prices, while non-tradable inflation edged up slightly, from 2.9% to the 3% target. Core inflation remains low, at 2%. We expect consumer prices to increase by 0.3% from February (vs. 0.2% one year ago), as high-frequency price tracking indicates a decline in fuel prices and interurban transportation tariffs following the end of the peak season and given that the Easter holiday will be in April this year (vs. March last year). The seasonal pick-up in education will be an inflation driver in the month, lifting annual inflation to 1.9%.

Also on Monday, the central bank will publish the trade balance for March. Falling mining exports and robust capital imports resulted in a narrower trade surplus of USD 0.3 billion in February, versus USD 1.2 billion one year earlier. We expect a trade surplus of USD 850 million in March (vs. USD 619 million one year earlier), as a widespread import slowdown offsets the continued contraction of mining exports. This would result in a trade surplus of USD 2.2 billion in 1Q19, versus USD 3.0 billion in 1Q18.

During the week, the National Automotive Association of Chile (ANAC) will publish the new car sales data for March. Car sales decreased by 5.1% year over year in February, a significant reversal from the 3.5% expansion registered in January. Since 2016, a more stable currency, improved consumer sentiment and the delay in e-car-purchase decisions led to strong car sales. The moderation in recent months can likely be attributed to a weak labor market and subdued wage growth. 


February’s activity indicators will be published on Friday. Activity at the start of 2019 was mixed, with retail sales slowing more than anticipated, while headline industrial production came as a positive surprise (although weakness at the margin persisted). For February, we expect industrial production to remain in positive territory, with growth of 1.8% year over year (3.0% in January), given the still upbeat confidence levels. Retail sales are likely to grow 5.0% in the twelve-month measure (3.0% in January), as auto sales returned to positive territory after the negative print in January.


Starting the week, the Statistics Institute (INEGI) will disclose the gross fixed investment figure for January, which we expect to have decreased by 1.3% year over year (from -6.8% in December). On an annual basis, coincident indicators improved somewhat in January: construction output (1.7% year over year, from -4.3% in December), business confidence (0.7% year over year, from 0.1% in December) and capital goods imports (4.8% year over year, from -4.01% in December).

INEGI (statistics institute) will publish the CPI inflation data for the full-month of March on Tuesday – we estimate 0.38% month over month, from 0.32% a year ago. We expect energy inflation to accelerate following an increase in gasoline prices (despite increase in fiscal stimulus for gasoline prices by the Ministry of Finance). We expect non-core food prices to remain under pressure, but significantly less so than in February. Assuming that our forecast is correct, headline inflation would come in at 3.9% year over year (virtually unchanged from February).

The Statistics Institute (INEGI) will publish the February industrial production data on Thursday, April 11. We estimate a decrease in industrial production of 0.8% year over year, from -0.9% in January. Recent data showed a continued contraction in coincident indicators, such as vehicle production and oil output, in February (on an annual basis). Likewise, manufacturing exports decelerated during the period.  

Mexico’s Central Bank (Banxico) will publish on Thursday, the minutes of the March monetary policy meeting (held two weeks earlier), where Board members voted unanimously to leave the policy rate unchanged at 8.25%. The tone of the statement did not change significantly from the previous monetary policy decision statement (February 7). We expect the minutes to address the implementation of monetary policy in light of weak economic activity, but with the balance of risk for inflation still tilted to the upside (specifically the persistence of core inflation).


The Central Bank of Peru (BCRP) will publish on Thursday its April reference rate decision, which we expect to remain unchanged at 2.75%. BCRP General Manager Renzo Rossini recently noted that he sees room to maintain an expansive monetary policy because he does not expect the output gap to close this year, while inflation expectations are well anchored. We believe that the central bank can afford to wait to have more clarity on the economic outlook before removing its stimulus, given the well-behaved inflation.

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