Itaú BBA - CHILE – Activity disappoints in 2Q19

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CHILE – Activity disappoints in 2Q19

August 5, 2019

Despite a more favorable base of comparison and added stimulus measures, sufficient headwinds would limit the recovery ahead

Activity was weaker than expected in June, with the non-mining GDP component posting its first MoM decline this year. The monthly GDP proxy (Imacec) growth decelerated to 1.3% yoy (Itaú: 1.7%, Bloomberg market consensus: 1.8%; 2.3% in May), leading to growth of 1.9% 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.

As expected, mining remained a drag in June with growth of 0.3% (partly affected by an extensive labor strike), but the key surprise was non-mining growth of 1.4%, the lowest rate since September 2017. Services continue to be highlighted as driving growth, while manufacturing was the principal strain. Overall, in the second quarter of the year, mining improved from the 3.6% drop in 1Q19 to a 0.1% decline. Meanwhile, non-mining activity growth ticked down 0.1pp to a below-potential 2.1%.

At the margin, activity was flat from May to June, but posted some recovery in the quarter. Activity increased 3.2% qoq/saar in the quarter, following a notably weak 0.2% drop in 1Q19. Non-mining activity accelerated to 3.0% qoq/saar in the quarter (1.9% in 1Q19; 4.3% in 4Q18), while mining improved to 4.8% qoq/saar, following the 17.3% drop in 1Q19.

Constrained private sentiment, as well as developments in the global economy, pose headwinds to the expected rebound in 2H19. ICARE’s business confidence index decreased to 50.4 in July from 52.2 points one year ago (50 = neutral). Business confidence has sat below last year’s levels throughout 2019. Both industrial and construction confidence are entrenched in pessimistic territory, while retail confidence posted the sharpest deterioration over twelve months. Business confidence excluding the volatile mining component dropped 5.3pp to 46.6 points, similar to levels recorded in the previous month. Meanwhile, the GFK survey showed consumer confidence stayed low with a 10pp drop from July 2018 to reach 40.3 points (50 = neutral; 37.8 in June). It was the ninth consecutive 12-month deterioration. Falling participation in the labor market, weak private salaried job creation and declining imports of consumer goods hint at contained consumption growth ahead. Meanwhile, the deceleration of capital goods imports and the uncertain global scenario would lead to a decreasing investment pull throughout the year.

In all, 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).

Miguel Ricaurte
Vittorio Peretti


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