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

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Evening Edition – Weaker-than-expected activity in Chile

February 5, 2019

We expect the activity recovery to consolidate this year

Talk of the Day


Activity disappointed in December, negatively affecting the carry-over for 1Q19. Activity grew 2.6% in the final month of 2018, below the market consensus (3.2%) and our call (3.5%), as mining was the key drag. Mining grew 0.5%, below the 1.3% recorded by the statistic agency’s records, suggesting that despite record quantum, value-added is restricted. Still, there was an improvement in the final quarter of the year, consistent with the central bank decision to reduce monetary stimulus with last week’s rate hike. However, with headwinds to growth lingering, the board will likely be cautious in reducing stimulus further.  

We expect the activity recovery to consolidate this year, but lingering headwinds (uncertainty over global trade negotiations and weaker activity in the core economies) and weaker-than-expected data in December would reduce growth between 2019 and 2018. We now see a 3.2% GDP growth in 2019 (3.5% previously; 4.0% in 2018), with low inflation and a still expansive monetary policy supporting activity.


The reform proposal released by the newspaper O Estado de São Paulo implies 2.6% of GDP in savings by 2027 (or BRL 1.05 trillion accumulated over 10 years), 20% higher than Temer's original proposal and 80% higher than the bill currently in Congress (which has an impact of 1.4% of GDP, BRL 550 billion). The draft has an uncertain regimental implementation in Congress, since some changes are not foreseen in previous versions of the proposal, nor in the Special Committee’s amendments. An alternative is to "append" the new text to the current version, which, according to the Lower House speaker, Rodrigo Maia, would require the proposal to be revisited by at least the Constitution and Justice Commission (CCJ), with an estimated processing time of 2 weeks, starting from the commission formation in March.

According to Fenabrave, vehicle sales reached 200k in January, increasing 2.5% mom, according to our seasonal adjustment (following a 9.4% decline in the previous two months combined). In year-over-year terms, sales increased 10.2%. The breakdown shows a 1.9% increase in passenger cars + light vehicles, and a 16.9% gain in trucks + buses. 

Our forecast for January’s auto production (Anfavea, to be released tomorrow) is 197k (-10.0% yoy, 2.4% mom/sa).  For January industrial production, our forecast remains at 0.1% mom/sa (-0.7% yoy).

According to ABRAS, supermarket real sales improved 0.7% mom in December (our seasonal adjustment). In year-over-year terms, supermarket sales advanced 3.2%.

Our preliminary forecast for December’s monthly survey for retail (to be released on February 13th) decreased from 0.2% mom/sa to a -0.3% in core retail sales and  from 0.5% mom/sa to -0.1% in the broad segment (which includes vehicle and construction material). 

Tomorrow’s agenda: The Copom will announce its monetary policy decision at 6:20 PM. We expect the Selic rate to remain stable at 6.5%


The fall of global oil prices late last year was reflected in oil exports contracting in December for the first time since July 2017. Total exports decreased 14.6% yoy in the final month of 2018 (7.8% previously), dragged down by the 39.8% drop in coal exports (-9.8% previously). Meanwhile, oil exports shrunk 10.1% in December (+34.1% in November) as prices fell around 10% and quantum was broadly stable. In 4Q18, exports grew a mild 1.5% yoy, compared to 12.0% 3Q18 (19.2% 2Q18) as oil exports moderated (to 14.7% from 51.3% in 3Q18). Meanwhile, coal exports contracted 15.4% in the quarter (-13.7% in September) and coffee exports are still declining (-3.0% vs. -18.8% in 3Q18). Overall, exports growth in 2018 moderated from 19.2% in 2017 to 10.4%, despite oil exports rising 27.4% (22% in 2017). Coal was the principal drag in the year (+0.8% vs. 59.3% in 2017). At the margin total exports fell 13.6% qoq/saar in 4Q18 (+2.2% in 3Q18 and +11.3% in 2Q18), led by slowing oil exports. External uncertainty and low oil prices are risk for an external account correction. We see current account deficit at 3.3% of GDP, broadly stable since 2017. 

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