Itaú BBA - CHILE – Mining recovery lifts industrial production in July

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CHILE – Mining recovery lifts industrial production in July

August 30, 2017

With mining recovering, inflation and interest rates low, a modest activity recovery in 2H17 is likely

Industrial production started the third quarter of the year on a stronger footing, boosted by a temporary rebound of mining production. Mining output is improving from a major labor strike that paralyzed the largest operation in the sector in 1Q17 and is now at the highest level since October 2015 (on a seasonally-adjusted basis). However, in our view stabilization of mining output at the current levels is unlikely as we expect ore grades to continue low and subdued investment in the sector (in spite of the recent recovery of prices) limit any improvement. We expect private consumption activity (to be released on September 1st) to rise 3.5% in the month, lifted by durable consumption, leading to a mild recovery in total activity from the 1.4% recorded in June.

The industrial production index grew 3.3% year over year in July, up from the 1.8% drop in the previous month as mining’s contribution turned positive for the first time since December 2016. Mining production increased 4.7% year over year after falling every month during the first half of the year (-6.1% in June). Meanwhile, manufacturing production rose 2.6% from July last year (partly due to a low base of comparison), from the upwardly revised 1.8% in June (0.9% initially). Manufacturing growth was above the Bloomberg market consensus of 2.0%, but in line with our call of 2.7%. Production in the month was boosted by vehicle manufacturing (0.7pp contribution to the total gain), followed by metal related manufacturing (0.6pp). The main drag in the month was from paper production and printing industries (-0.7pp). Meanwhile, strong electricity generation led to growth in utilities of 1.1% (1.6% previously). In the quarter ending in July, industrial production increased 0.7%, improving from the 1.7% drop in 2Q17 and 5.9% fall in 1Q17. Mining in the quarter is still contracting but more mildly at 1.4% (-3.4% in 2Q17 and -13.4% in 1Q17). Manufacturing pulled industrial production up with growth of 2.5% in the quarter (-0.9% in 2Q17 and -0.4% in 1Q17).

Industrial production accelerated at the margin, posting growth of 9.9% qoq/saar (+1.9% in 2Q17 and -4.1% in 1Q17). This is mostly due to a payback of mining production following the end of the mining strike. Mining activity expanded 52.5% qoq/saar (+31.8% in 2Q17 and -31% in 1Q17). Meanwhile, manufacturing fell 0.2% (+0.5% in 1Q17 and 3.0% in 1Q17).

With mining recovering, low inflation and an expansionary monetary policy in place, a modest activity recovery in the second half of the year is likely. After the economy expanded 1.6% last year, we expect GDP growth of 1.3% for 2017, with a recovery to 2.5% next year.


Miguel Ricaurte

Vittorio Peretti



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