Itaú BBA - CHILE – Another large trade surplus in August

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CHILE – Another large trade surplus in August

September 8, 2020

Signs that import dynamics are improving would contain further surplus widening

Despite softening exports, another large trade surplus was recorded in August. The trade balance came in at USD 0.9 billion (roughly in line with our call), a significant improvement from the USD 0.3 billion surplus last year, resulting in the rolling 12-month trade surplus rising to USD 11.6 billion, from USD 9.6 billion as of June and USD 4.2 billion in 2019. At the margin, our own seasonal adjustment shows the trade balance surplus is even wider, at USD 17.1 billion, but signs that both consumer and capital import dynamics are improving (in part due to policy support measures), would contain further surplus widening.

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Weakened mining led the export slump in the month. Total exports dropped 10.8% YoY in August, after posting gains in the prior two months. Mining shipments were the lowest since the pandemic began, despite copper prices reaching highs not seen since 2018, shrinking 9.4% YoY (+19.5% in July), the sharpest decline since October last year. The slump was likely transitory, considering August was second highest base of comparison last year, with unseasonably high mining exports despite low copper prices in the month. Meanwhile, both agriculture and manufactured goods remained weak, falling 8.5% and 13.1%, respectively. The latter was hampered by paper, chemical, and metallic products. In the quarter ended in August, exports still fell 1.0%, milder than the 2.4% contraction in 2Q20 and the 4.9% fall in 1Q20, with the improvement still mining-led. At the margin, exports increased 6.1% qoq/saar, compared to the 5.5 drop in 2Q20. Despite the mining slowdown in August (9.5% MoM drop, SA), rising copper prices and a recovering global demand would likely support exports going forward.

Meanwhile, imports shrunk by a fifth in August, but there are signs of improvement ahead. Total imports dropped 22.4% (19.8% down in July), as durable consumer and energy imports remained key drags. Energy imports declined 55.6% YoY (35.0% drop in July), and durable consumer goods imports fell 30.5% (31.3% in July). Meanwhile, capital imports dropped 9.9%, the ninth consecutive decline. In the quarter ending in August, imports shrunk 20.9% YoY, milder than the 27.2% decline in 2Q20, led by weak consumer goods. At the margin, imports increased 7.3% qoq/saar, the first quarterly gain since 4Q18. As oil prices consolidate their recovery and the economy reopens, the energy drag is likely to diffuse ahead. Meanwhile, the impact of direct aid programs, subsidies, payment deferrals, tax cuts, and the approval of the partial withdrawal of pensions will likely boost demand for consumer goods. Additionally, significant measures to provide credit access will likely help mitigate the fall in investment and hence the capital import demand drag.
 
We expect a broadly balanced current account this year (vs. 3.9% deficit last year), on the back of the significant shock to domestic demand. With an anticipated recovery unfolding in 2H20 and 2021, the current account would likely post a 2% of GDP deficit next year.

Miguel Ricaurte
Vittorio Peretti 



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