Itaú BBA - Evening Edition – Weaker-than-expected activity in Chile

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Evening Edition – Weaker-than-expected activity in Chile

August 5, 2019

The non-mining GDP component posted its first monthly decline this year.

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Activity indicators came in below market expectations in June, with the non-mining GDP component posting its first monthly decline this year. The monthly GDP proxy (Imacec) growth decelerated to 1.3% yoy (Itaú: 1.7%, market consensus: 1.8%; from 2.3% in May), leading to 1.9% growth in 2Q19 and 1.8% in 1H19 (5.0% in the 2018 corresponding period). After correcting for seasonal and calendar effects, activity grew an improved, but still limited 1.7% in June. Overall, the weak performance reinforces the view that demand-side inflationary pressures are low and bolsters the central bank evaluation that a looser monetary policy would be required to ensure inflation converges to the 3% target. Looking ahead, despite a more favorable base of comparison along with added monetary and fiscal stimulus measures, we see sufficient headwinds to limit the rate of the expected recovery. We see growth at 2.4% this year (4% in 2019). ** Full story here.

Consumer confidence remained low in July, but ticked up from the previous month. GFK consumer confidence index came in at 40.3 points in July (37.8 points in June; 50 = neutral), a 9.7 p.p. fall over twelve months (more moderate than declines in the previous two months). Four of the five sub-indexes remained below neutral levels, while the perception to purchase household goods moved to optimistic ground (53.3 points) after dipping below 50 in June for the first time since April 2017. Overall, the main drag still comes from the five-year viewpoint for the economy, down 15.1 p.p. (the sharpest sub-index deterioration) to 22.3 points, while the twelve-month economic perspective fell 11.9 p.p. to 46.4 points. The evaluation of the current economic situation contracted 9.1 p.p. to 40.6 points and the personal situation fell 8.6 p.p. to 38.8 points. Depressed confidence, amid a complex global scenario and low copper prices support our call for a growth slowdown to 2.4% this year (4% in 2018).


The BCB released its weekly survey with market participants (Focus). The only major change in today’s release was the year-end Selic rate forecast for 2019, which declined 25bps to 5.25%, reflecting the combination of the recent rate cut by the BCB, weak activity, below-target inflation and anchored expectations that paves the way for additional monetary stimulus. For 2020 and 2021, the Selic rate forecasts remained flat at 5.50% and 7.00%, respectively.

Tomorrow’s Agenda: At 8:00 AM, the Copom will publish the minutes of their latest monetary policy meeting, at which the committee decided to lower the Selic rate with a 50-bp cut, to 6.0%. The decision to start with a 50-bp move, along with the forecasts and the language used in the policy statement, set another 50-bp downward “adjustment” as the base case for the next meeting – signaling to which the minutes may add further insights. Additionally, at 10:00 AM, Anfavea’s auto production, important to July’s industrial production print, will also come out.


In the minutes of July’s monetary policy meeting, the board appears comfortable with stable rates at a “moderately expansionary” level. In the document released on Friday, activity is expected to accelerate in 2H19, but would be insufficient to close the negative output gap. Meanwhile, supply shocks are expected to transitorily lift headline inflation, but should not threaten the convergence to the 3% expectation for next year. The board notes the weak global growth scenario, but partly counters that with the expectation of favorable global financial conditions. ** Full story here.


Tomorrow’s Agenda: Manufacturing and construction data for June will be released. We expect to see another year-over-year drop in manufacturing (-7.0% in May). According to the IPI (a private index published FIEL think tank), manufacturing fell 5.6% in June. Construction activity also contracted in June according to private indicators like Grupo Construya index (-13.9% yoy). 


Tomorrow’s Agenda: The Statistics Institute (INEGI) will announce May’s gross fixed investment, which we expect to decrease 9.1% year-over-year (from -5.7% in April).

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