Itaú BBA - CHILE – Growth improvement in 3Q17

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CHILE – Growth improvement in 3Q17

November 6, 2017

GDP growth was close to 2.2% in 3Q17 (0.9% in 2Q17).

Activity strengthened in the third quarter of the year. The rebound of mining activity is currently the main driver behind better growth figures, however, non-mining activity has shown some consolidation as well. The Imacec (monthly proxy for GDP) grew 1.3% year over year in September (2.4% in August), close to our 1.5% forecast and the 1.6% Bloomberg market consensus. Once corrected for seasonal and calendar effects, growth in September was somewhat higher at 1.8% (2.2% in August). Overall, Imacec rose 2.2% in the third quarter, up from the 0.9% in 2Q17. An activity recovery is expected to persist, as leading indicators such as business and consumer confidence continue to show improvement.

The recovery of mining production from the extensive labor strike earlier in the year along with elevated copper prices has supported activity. Mining increased 7.6% in the third quarter of the year, following the 3% drop in 2Q17 and the 13.8% contraction in 1Q17. On the other hand, non-mining activity posted growth of 1.7% in 3Q17, up from the 1.3% in 2Q17. Sectoral data shows commercial activity, services and manufacturing were the main engines of growth in the quarter, while construction remains a drag.

At the margin, activity accelerated to 6.1% qoq/saar from 3.1% in 2Q17 and 0.3% in 1Q17, boosted by mining. Mining production sped up to 44.8% qoq/saar (+26.2% in 2Q17 and -24.4% in 1Q17). As mining consolidates production following the end of the strike, a moderation in its growth rate is likely. However, non-mining activity is also improving, expanding 3.3% qoq/saar in 3Q17, up from 1.4% in 2Q17 and 2.6% 1Q17.

Low inflation, an expansionary monetary policy, improving private sentiment and higher copper prices will all aid an activity recovery. We expect growth of 1.7% this year (1.6% in 2016) and a pick-up to 2.7% next year. As shown in the central bank’s recent business perception report, the outcome of the general election will likely have a significant influence on confidence and consequently on investment decisions and growth. Still, business confidence is already rising: although it completed 43 consecutive months in pessimistic territory, business sentiment posted the largest year-over-year gain since dipping below the neutral level of 50 points in April 2014.

 

Miguel Ricaurte

Vittorio Peretti



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