Itaú BBA - CHILE - Mining pain persists in March

Macro Latam

< Back

CHILE - Mining pain persists in March

April 28, 2017

Activity likely contracted in March and in 1Q17.

Industrial production ended the first quarter of 2017 on a weak note. Activity in the month was still hampered by the 43-day labor strike at the country’s largest copper mine. The data reaffirms our view that GDP growth in 1Q17 would be the weakest since the financial crisis. The month of March had a favorable calendar effect, which aided positive growth of manufacturing. Nevertheless, once adjusted for calendar effects, manufacturing contracted–for a third consecutive month– alongside the other components of industrial production (mining and utilities). With partial information (private consumption activity to be released on May 3), we preliminarily expect the GDP proxy (IMACEC) to have contracted 1% year-over-year in March (-1.3% previously), leading to an annual contraction of GDP in 1Q17 (+0.5% in 4Q16).

The industrial production index fell 8.3% year over year in March, the same as the downwardly revised rate for February, pulled down by the 21.4% fall in mining production (-16% in February). This is the largest annual mining contraction since the start of the series in 1991. Utilities also contracted 1.2% in the month, hampered by diminishing electricity production. Meanwhile, manufacturing grew 1.9% year over year (-2.7% previously), a positive surprise compared to the Bloomberg market consensus and our forecast of -1.5%. This gain was principally due to the 14.2% year over year increase in food processing (+4.6 percentage points to the total gain). Overall, the weakness of manufacturing is still evident with 65% of the categories shrinking (compared to 40% one year ago). Meanwhile once the seasonal and calendar effects are excluded, manufacturing dropped 0.7% (as was the case in February). In 1Q17, industrial production fell 6.0% (-2.0% in 4Q16), hindered by the 13.4% drop in mining (-3.5% in 4Q16). Manufacturing fell 0.6% (-2.0% in 4Q16) and utilities growth fell to 0.2% from 4.3% in 4Q16.

At the margin, industrial activity worsened. Industrial production fell 7.3% qoq/saar (-4.9% in 4Q16), dragged down by the 30.5% qoq/saar decline in mining (-4.4% in 4Q16). Manufacturing showed some improvement to +2.1% qoq/saar (-3.1% in 4Q16).

The still low private sentiment, partly due to uncertainty in the lead up to the November presidential election, a weakening labor market and the adverse impact of supply-side shocks put a downside bias to our 1.8% growth forecast this year (1.6% in 2016). After a weak beginning to the year, higher copper prices relative to 2016, low inflation and falling interest rates will provide some support for growth.


Miguel Ricaurte

Vittorio Peretti


< Back