Itaú BBA - CHILE – Imacec to grow 2.5% in July

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CHILE – Imacec to grow 2.5% in July

September 3, 2018

Growing risks that the monetary policy normalization cycle will start later than the yearend indication

High frequency activity data shows both investment and private consumption related activity was notably weak in July. Last week, industrial production indicators surprised to the downside. Today’s commercial activity numbers also disappointed, dragged down by retail sales (while wholesales remained dynamic). All in all, we are revising our Imacec (monthly GDP) forecast for the month down to 2.5% (4.9% in June), from the 3.2% preliminarily expected. With activity stumbling at the start of 2H18, amid trade war risks, the central bank will likely opt for further evaluation of how robust the recovery is and thereby prefer to retain the monetary stimulus in place for some time (also considering low inflationary pressures and a still-negative output gap). In fact, we see growing risks that the start of the monetary policy normalization cycle will happen later than currently indicated by the monetary authority (yearend 2018). 

The commercial activity index – which aggregates retail activity, wholesale and vehicle sales – grew 3.2% year over year in July (9.0% in June), below our 5.5% forecast. Leading activity in the month was wholesales with growth of 5.2% (8.3% in June) contributing 2.3pp to the headline commercial activity gain. Machinery, equipment and materials – positive for an investment recovery – along with food, beverages and tobacco still led wholesale activity. Meanwhile, car and part sales were up by a much more moderate 8.9% (25.5% previously), while retails sales (excluding vehicles) was a drag, contracting 0.7% (+4.9% in June ). The combined retail and car sales grew 0.1% (6.2% previously), compared to our 3.3% forecast and the Bloomberg market consensus of 3.5%. The weaker retail performance can in part be due to fewer Argentinian tourists that boosted activity last year, but moderate supermarket sales of 0.6% (4.2% in 1H18) points to a more widespread weakening. In the quarter ending in July, the commercial activity index grew 6.1% (8.4% in 2Q18 and 6.9% in 1H18), lifted by the 17.2% rise in vehicle sales (20.9% in 2Q18 and 17.7% in 1H18), wholesale growth of 6.8% (9.7% in 2Q18 and 7.8% in 1H18). Retail (excluding vehicles) slowed to 2.1% (3.4% in 2Q18 and 2.9% in 1H18).

If the recent weakness is transitory, the impressive start to the year (partly aided by a low base of comparison) still means Chile’s economy would expand 3.8% this year, from 1.5% last year. However, headwinds are forming, as global trade tensions could affect external demand, hampering copper prices. Additionally, lower confidence could translate into slower implementation of investment projects and dent growth prospects. Adimark’s August public opinion survey showed president Sebastian Piñera’s approval rating dropping 4pp in one month to 48%, consumer confidence in July dipped to neutral levels, while Icare’s business confidence for August also moderated to 50.8, its lowest level since December last year (44.0; and 52.2 in July). 

Miguel Ricaurte
Vittorio Peretti

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