Itaú BBA - CHILE – Mining drag intensifies in February

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CHILE – Mining drag intensifies in February

March 29, 2019

The mining drag intensified transitorily.

Mining was once again the key industrial production drag in the month of February, albeit transitory climate factors heightened the decline. Overall, industrial production dropped 3.6% yoy (building on the 0.9% decline in January), with mining contracting 9.4% yoy (-4.8% previously). Meanwhile, manufacturing growth was lower (0.8% yoy vs. 2.6% in January), disappointing market expectations (Itaú: 2.2%; Bloomberg market consensus: 1.1%), but the composition remains favorable. Gas production led utilities growth of 0.9% (0% previously). Given this data and our expectation that retail sales was weak in the month, as new car sales plummeted, we expect growth of the monthly GDP proxy (Imacec) to stay low at 2.0% in February (2.1% in January).

Manufacturing is still partly driven by machinery and equipment that reaffirms investment likely remained robust in 1Q19. Other sectors pulling manufacturing up in the month of February included metal related manufacturing and chemicals. In the quarter ending in February, activity moderated, edging towards the recent low recorded in 3Q18. Industrial production fell 0.9% yoy in the quarter, down from the 1.6% gain in 4Q18, and nearing the 1.5% drop in 3Q18. Mining growth deteriorated sharply to shrink 4.2% (+0.5% in 4Q18 and -3.0% in 3Q18). Meanwhile, manufacturing rose 2.1%, down from 2.8% in 4Q18, but above the 0.4% decline in 3Q18, while utilities grew 0.6%, broadly stable compared to 4Q18.

At the margin, manufacturing and utilities remain positive. Industrial production decreased 4.3% qoq/saar (+3.0% in 4Q18 and -5.4% in 3Q18), dragged by the mining production fall of 15.9% qoq/saar (+12.2% in 4Q18 and -2.9% in 3Q18). Manufacturing grew a robust 6.0% qoq/saar (+5.0% in 4Q18 and -7.7% in 3Q18), yet with consecutive monthly declines in the last months, activity dynamism for 1Q19 will likely be lower. Meanwhile, utility growth increased to 5.1% qoq/saar (-5.1% in 4Q18 and -2.5% in 3Q18).

Looking ahead, confidence signals are mixed. Icare’s business confidence index for March shows mining confidence far exceeding levels from one year earlier (63.9 points vs. 50.1 in March 2018; 50 = neutral). This aided headline confidence to stay in optimistic territory at 54.0 points (only a 0.3 points deterioration over twelve-months). Nevertheless, excluding the mining sub-index, total confidence was at a lower 51.7 points, down sharply from the 55.3 recorded last year. The main determinants behind this moderation came from weaker retail confidence (55.5 vs. 61.9 last year) and industrial confidence sinking back to pessimistic ground (47.7 vs. 53.0 last March). On the other hand GFK’s consumer confidence index remained in downtrodden territory for the eight consecutive month reaching 42.3 points (50. 0 one ye ar earlier; 50 = neutral). The sharp deterioration of expectations for the country for both a 1-year and 5-year horizon led the weakening.

Yet, the recovery of copper prices will likely support business confidence and lead to still vigorous investment throughout the year. Low inflation and an expansionary monetary policy will foster a favorable environment for consumption despite pessimistic consumers. We see GDP growth at 3.2% this year (4.0% last year).


Miguel Ricaurte
Vittorio Peretti

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