Itaú BBA - CHILE – Activity returns to growth in November

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CHILE – Activity returns to growth in November

January 4, 2021

While commerce will remain dynamic, tighter mobility restrictions mean that the recovery path is set to be uneven.

Still upbeat commerce and the gradual recovery of other services led to the first annual activity increase since February. The GDP proxy, IMACEC, rose 0.3% YoY in November, improving from the 1.2% drop in October and the cycle low of 15.5% in May. The variation came in below our 1.0% call (Bloomberg market consensus: 0.2%). The IMACEC breakdown shows that commerce (+15.3% YoY) continues to lift activity (17% in October), while also supported by manufacturing (+1.6%), but less so than in prior months (4.9% in October). Meanwhile, shrinking construction and a mining decline (-1.1%; +1.6% in October) dragged activity down in the month. Although services continued to post a notable annual drop (2.3% YoY), the 1.9% MoM/SA gain from October as the economic reopening consolidated, helped reduce the drag on overall activity. Adjusted for seasonal and calendar effects, IMACEC increased 1.1% from October leading to GDP sitting 6.3% below the level prior to the pandemic (16% down during the cycle trough in May). While the materialization of a second 10% pension withdrawal occurred during the final month of 2020 would benefit commerce dynamics, the implementation of tighter mobility restrictions amid the accelerating spread of the coronavirus means that the recovery path is set to be uneven.

During the quarter ending in November, the activity drag moderated meaningfully with IMACEC shrinking 1.9% YoY, compared to the 9.1% drop in 3Q20 and 14.5% fall in 2Q20. Commerce rose 13.9% YoY (0% in 3Q20 and -20.8% in 2Q20). Meanwhile, the other services drag eased to a 5.1% contraction (11.7% in 3Q20 and 16.2% drop in 2Q20).
After a mild activity decline from September to October, activity returned to sequential growth in November, boosted by services (+1.9% MoM). After six months of monthly gains, commerce declined 1.3% as the boost from the first pension withdrawal and liquidity injections (transfers) likely faded. Mining dropped 2.0% from October, while manufacturing shrunk 0.9%. For the quarter, activity increased 38.1% qoq/saar, consolidating on the 22.5% gain in 3Q (44.1% fall in 2Q20), as non-mining sectors rose 45.8% qoq/saar (25.8% in 3Q; 47.8% drop in 2Q20).

Despite Chile starting its vaccination rollout in December, the implementation of stricter mobility controls hampered private sentiment.
Business confidence, excluding the volatile mining component, moved to 49.97 points in November (50 = neutral), above the lows reached in April (25.1 points), but the first drop at the margin since April. While commerce sentiment remains upbeat (56.2 points) as the continued pension withdrawals likely boost sale dynamics, construction and manufacturing sub-indexes posted notable retreats. Meanwhile, despite partial job recovery and significant liquidity injections, consumer sentiment remained sticky at a low level. The GfK consumer confidence index came in at 29.8 points at the close of 2020, in line with the close of 2019 and the preceding two months. Stable or improving sentiment related to current developments (both on a personal and economy-wide scale) is being offset by receding medium- to long-term expectations that highlight the challenge of sustaining the recovery dynamism beyond the transitory support measures.

While the resurgence of Covid-19 has resulted in response measures that hinder the pace of the economic recovery, the implementation of significant monetary and fiscal stimuli, along with high copper prices will support activity rebound once immunization increases amid the vaccine rollout. We expect a GDP contraction of 6% for last year, with a recovery of a similar magnitude this year.  

Miguel Ricaurte
Vittorio Peretti 

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