Itaú BBA - Evening Edition – Favorable signals for activity in Chile

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Evening Edition – Favorable signals for activity in Chile

February 4, 2019

Overall, we expect the monthly GDP proxy (Imacec) to grow 3.5% in December (3.1% previously) and 4.0% in 2018 (1.5% in 2017)

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Consumption related activity came in weaker-than-expected in December, yet a notable pick up in the final quarter of 2018 was still registered. Retail sales including vehicles grew 2.4% (-0.8% in November), below the market consensus (3.0%) and our call (3.2%). Meanwhile, wholesale trade showed robustness, still favorably led by sales of investment-linked materials. Overall, we expect the monthly GDP proxy (Imacec) to grow 3.5% in December (3.1% previously) and 4.0% in 2018 (1.5% in 2017). The improved activity dynamism at the close of 2018 likely supported the central bank’s decision to hike the policy rate last week. Going forward, improving private sentiment and strong signals from the investment front will likely mean a gradual normalization process advances this year.

Strong credit demand indicators in 4Q18, increased investment dynamism and recovering private sentiment point at favorable activity dynamics ahead. The central bank’s quarterly business perception report showed an investment increased in the final quarter of the year, while consumption was somewhat less dynamic. Overall, business expects a similar performance this year compared to 2018. Meanwhile, GFK reports that consumer confidence in January remained in pessimistic territory at 47 points (50 = neutral), however the downward trend was reversed (up from 44.6 in December). Behind the improvement at the margin, are the evaluation of the economy, the 1-year outlook and whether it is an opportune moment to purchase household goods. The recovering consumer sentiment is in line with business confidence returning to optimistic ground at the start of the year and favorable for the consolidation of the activity recovery. Nonetheless, the global trade negotiations remain uncertain and weaker activity in the core economies pose a risk to our growth forecast for this year (3.5%).
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According to the Central Bank’s Business Perception Report, most respondents expect this year’s business performance to be similar to 2018 (which recovered from 2017). Activity at the close of 2018 was stronger than in previous years, yet somewhat below initial expectations. In 4Q18, investment increased in the final quarter of the year (led by mining, fish farming and forestry), while consumption was somewhat less dynamic. A caveat on the investment rebound is that most of the expenditure was related towards more cost-efficient technology and comply with environmental regulation rather than expansion of capacity. Meanwhile, consumption was somewhat less dynamic in the quarter as consumer opted for cheaper products, and the reduced influx of Argentinian tourists was also negatively felt. No major changes in the labor force were highlighted, with little pressure on wages. Credit conditions were seen to be less restrictive (in line with results from the credit survey), while some respondents highlight rising interest rates. In all, the report is in line with the expected activity recovery. 

Consumers remained pessimistic in January, but there was a reversal of a general worsening trend since June last year. GFK’s consumer confidence index moved from 44.6 points in December (50 = neutral) to 47 points at the start of 2019 (similar to the level registered last August). It still represents a 4.5 point drop over a 12-month period, but is smaller than the 8.5 points deterioration recorded in December. The sub-indexes that drove the improvement at the margin include the current evaluation of the economy (to 50.3 from 44.4 points in December), the 12-month economic outlook for the country (to 55 from 52.6 points) and the evaluation of whether it’s an opportune time to purchase household goods (to 58.9 from 55.9 points). Still dragging confidence down is one’s own economic evaluation at 43.5 points (44.5 in December), yet showed some improvement over a one-year period (41 points in January 2018). The 5-year country outlook is still perched far in pessimistic ground at 27.5 points (25.5 in December and 43.3 one year earlier). The recovery of private sentiment is key to consolidating the activity recovery (3.5% expected for this year; 4.0% for 2018). Low and controlled inflation, along with a still expansive monetary policy and gradually improving labor market would likely aid consumer confidence.

Tomorrow’s agenda: The central bank will publish the GDP proxy (Imacec) for the final month of 2018 at 9:30 AM (SP Time), for which we expect a 0.1% decline from November, resulting in a 3.5% yoy growth (3.1% in the previous month), which would lead to a 4.0% growth in 2018 (1.5% in 2017).


According to the Focus survey, the year-end Selic rate expectations declined to 6.50% for 2019 (from 7.0%), and remained stable at 8.0% for 2020 and 2021. The IPCA inflation expectations for 2019 declined 6 bps to 3.94%, and did not change for 2020 and 2021 (at 4.0% and 3.75%, respectively). The median of the forecasts for the exchange rate declined to BRL 3.70/USD (from 3.75) for 2019 and to BRL 3.75/USD (from 3.78) for 2020. For 2021, the median of the forecasts for the exchange rate oscillated to BRL 3.80/USD (from 3.81). The median of GDP growth expectations remained flat at 2.50% for the three years horizon (2019, 2020 and 2021).

As widely expected, deputy Rodrigo Maia (DEM) was re-elected to the Lower House speakership. He received 334 votes, while the second runner, Fabio Ramalho (MDB), received 66. In the Senate, Davi Alcolumbre (DEM) defeated Renan Calheiros (MDB), who was considered by the local news as the front-runner. Alcolumbre received 42 votes.

Tomorrow’s agenda: We expect Fenabrave’s vehicle sales to come out throughout the day.


Tomorrow’s agenda: The institute of statistics (DANE) will publish exports for the month of December at 1:00 PM (SP Time). We expect December exports to come in at USD 3.5 billion, down 12.6% from last year on the back of lower oil prices (+7.9% previously). Later, inflation for the month of January will be released. High frequency data for the first month of 2019 indicate month-over-month inflation at 0.71% (0.63% last year), lifted by food and health prices, resulting in a 3.26% yoy inflation.


Tomorrow’s agenda: Manufacturing and construction data for December will see the light. We expect to see a new year-over-year drop in manufacturing (-13.3% in November). Also, the car-makers association (ADEFA) will release January data on production, exports and domestic sales to car dealers. We expect some recovery in car production in 2019 mostly led by higher exports to Brazil as domestic sales will likely remain weak.

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