Itaú BBA - CHILE - Larger-than-expected activity boost in August

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CHILE - Larger-than-expected activity boost in August

October 1, 2019

Given the strong August print, growth could come in above our 2.2% forecast this year (4% last year).

Activity posted a large upside surprise in August as the monthly GDP proxy (Imacec) grew 3.7% yoy (Itaú: 2.8%; Bloomberg consensus: 2.6%; 3.2% in July), boosted by mining, services and construction. The result is unexpected given the contraction of manufacturing in the month along with the sharpest drop in new car sales since 2015 and still declining exports. Additionally, private sentiment remains entrenched in pessimistic territory. Activity during 3Q19 was always targeted to lift growth for the year partly due base effects, with the growth print for September likely to be the year’s peak near 4%. Despite the surprise, an uncertain activity outlook endures and with September inflation (traditionally high) set to underwhelm, the central bank would likely proceed w ith addi ng stimulus at its October meeting (with a milder 25-bp cut).

Mining activity advanced as expected, aided by favorable base effects and some ore-grade improvement. However, non-mining activity was more robust that anticipated. Mining grew 5.3% yoy in August (1.1% in July), the highest gain since November last year. Non-mining activity increased 3.5% yoy, similar to the previous month and far superior to the 2.2% in 1H19. In the quarter ending in August, mining rose 2.3% (0.2% in 2Q19), while non-mining activity growth improved to 2.9% (2.1% in 2Q19). Overall, Imacec increased 2.8% in the quarter (1.9% in 2Q19).

At the margin, activity gained 0.9% from July, the fastest increase year-to-date, while quarterly growth remains near potential. Activity increased 3.1% qoq/saar, decelerating mildly from the 3.4% in 2Q19. Non-mining activity grew 2.8% qoq/saar in the quarter (2.9% in 2Q19), while mining grew 6.2% qoq/saar (7.8% in 2Q19). Going forward, as global uncertainty endures, decision-making (investment and consumption) within the Chilean economy would likely be negatively affected resulting in some momentum moderation. In fact, ICARE’s ex-mining business confidence for September slipped 5.1pp from last year to 47.2 points (50 = neutral), and the sub-index covering construction is the most distressed (42.7 points). The latter suggests that the continuation of the current construction boost to acti vity (li kely projects that were initiated early last year when confidence rebounded) is not guaranteed.

Given the strong August print, growth could come in above our 2.2% forecast this year (4% last year). Additionally, the added monetary and fiscal stimulus measures would support some recovery next year.


Miguel Ricaurte
Vittorio Peretti


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