Itaú BBA - CHILE – Industrial activity recovery in 4Q18

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CHILE – Industrial activity recovery in 4Q18

January 31, 2019

We expect the monthly GDP proxy to grow around 3.5% yoy in December

Industrial production recovered in the final quarter of 2018. Industrial production increased 1.0% yoy in the final month of 2018 (0.4% in November), resulting in a recovery of 2.9% in the year (1.1% contraction in 2017). Manufacturing in December disappointed with mild growth of 0.8% (Itaú: 1.5%; Bloomberg consensus: 0.9%), but was still an improvement from the 4.7% drop in November. Mining activity grew 1.3% in the month (5.7% in November), and led industrial production growth in 2018. We expect the monthly GDP proxy to grow around 3.5% yoy in December, leading to growth of 4.0% in 2018 (1.5% in 2017).

In the final quarter of 2018, all divisions of industrial production recovered, consistent with the view that the slowdown in 3Q18 was transitory. Industrial production grew 1.1% yoy in 4Q18, bouncing backing from the 2.2% drop in 3Q18. Mining growth improved to 0.9% (-3.8% in 3Q18), as ore-grade improved. Meanwhile, manufacturing rose 1.5% (-0.9% in 3Q18), boosted by construction linked machinery and equipment, a sign that investment remained robust at the close of 2018. Utilities also improved with growth of 0.6% after a 0.5% decline in 3Q18.

A low base of comparison and an improvement of copper prices aided mining in 2018. Overall, industrial production grew 2.9% in 2018, up from the 1.1% drop in 2017, and the highest since 2013. Mining rose 3.8%, the first positive print since 2014 and the highest since the 5.8% in 2013. Manufacturing increased 2.4% in the year, recovering from the 0.9% decline in 2017. 

At the margin, improved mining and manufacturing lifted growth. Industrial production increased 2.3% qoq/saar (-5.8% in 3Q18 and +1.7% in 2Q18), lifted by the mining production acceleration to 13.8% qoq/saar (-2.2% in 3Q18 and -6.8% in 2Q18). Manufacturing recovered with growth of 1.8% qoq/saar (-8.6% in 3Q18). On the other hand, utility growth fell 5.1% qoq/saar (-2.5% in 3Q18). 

Strong credit demand indicators in 4Q18, robust imports of capital goods and a rebound of business confidence back into optimistic ground this month point at favorable activity dynamics in the short term. Nevertheless, uncertainty from the global trade negotiations and weaker activity in the core economies pose a risk to our growth forecast for this year (3.5%).

Miguel Ricaurte
Vittorio Peretti

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