Itaú BBA - Weaker-than-expected activity in Chile

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Weaker-than-expected activity in Chile

February 6, 2019

We expect the activity recovery to consolidate this year, but lingering headwinds would reduce growth between 2019 and 2018

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.


In January, inflation came in below expectations. The monthly gain was 0.60% (0.64% one year earlier), led by food inflation (1.40%) and hotels and restaurants (1.15%). The only division in the new basket which contracted was clothing (-0.16%). The corresponding annual inflation was 3.15%, lower than the market consensus (3.26%) and our 3.27% estimation. The new CPI basket, which has a 2018 base year, includes a number of methodological changes which limit historical comparison. Total divisions increased to 12 (from 9), and the coverage now includes 38 cities (32 previously). The new basket has a lower weight for food (15% vs. 28%, previously) and transportation (to 12.9% from 15.2%), while the weight of housing increased to 33% from 30%. Additionally, core measures as well as the tradable/non-tradable breakup were not provided by the institute of statistics upon publication of the data. Overall, we expect inflation to end the year at 3.4%. Food price normalization, the gradual activity recovery and the minimum wage indexation would lift inflation during the year. On the other hand, controlled inflation expectations should contain the acceleration.

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. 


According to local news (Valor Pro), the government will probably send the official pension reform proposal as a new constitutional amendment, instead of using the version that is currently in the congress (PEC 287). If confirmed, the approval process will be delayed, because it will have to pass through all the commissions again.

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 today) 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 -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). 

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

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