Itaú BBA - CHILE – Another large trade surplus in July

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CHILE – Another large trade surplus in July

August 7, 2020

Imports remain weak as domestic demand weakens and uncertainty restrict investments

The trade balance came in USD 1.2 billion in July, a significant improvement from the 95 million deficit recorded one year ago, as mining exports remain robust and consumer and oil imports still key drags. The trade surplus was larger than our USD 0.8 billion expectations and the Bloomberg market consensus of USD 0.7 billion. As a result, the rolling 12-month trade surplus increased to USD 9.5 billion, above the USD 8.2 billion recorded at the close of 2Q20 and more than double the surplus recorded at the close of 2019. At the margin, our own seasonal adjustment shows the trade balance surplus is even wider, at USD 16.6 billion as exports improved at the margin, offsetting some milder import declines. Going forward, higher copper prices and a gradual normalization in the global economy will support a wide trade balance in Chile.

Mining led exports in the month. Total exports grew 2% YoY, recording a second consecutive month of expansion (2.3% in June), as mining shipments expanded 19.5% (5.9% in June), led by copper exports (19.6% gain). However, the improvement was not widespread, as agricultural goods (-17.5%) and industrial exports (-15.5%) intensified their fall in the month. In the quarter ended in July, exports still fell 4.1%, milder than the 6.9% contraction in 2Q20 and the 7.5% fall in 1Q20, with industrial exports remaining the main drag (as has been the case for the past year), while mining exports saw the first positive print since mid-2018. At the margin, exports recovered to 10% qoq/saar after four months of contractions, led by higher copper exports.
Meanwhile, imports remain weak as domestic demand weakens and uncertainty restrict investments. Total imports dropped 18.5%, similar to the drop in June, but milder than the 36.4% fall in May. Energy imports declined 35.0% YoY (43.7% drop in June), and durable goods imports fell 31.3% (43.2% in June). Meanwhile, capital imports dropped 13.8%, the eighth consecutive decline. In the quarter ending in July, imports shrunk 25.3% YoY, similar to 2Q20 but a notable deterioration from 13.0% drop in 1Q20. At the margin, imports fell 26.7% qoq/saar, milder than the 49.9% decline in 2Q20. With oil prices showing some recovery, the energy drag is likely to moderate ahead. Meanwhile, the expectations of a consumption impulse from early pension withdrawals would likely support some consumer import improvement. Nevertheless, significant uncertainty (including from the upcoming constitutional referendum) would keep investment contained and limit capital imports.
Overall, soft internal demand would lead to a current account surplus of 0.5% of GDP this year, compared with a 3.9% deficit last year.

Miguel Ricaurte
Vittorio Peretti


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