Itaú BBA - CHILE – Near-balanced current account in 3Q20

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CHILE – Near-balanced current account in 3Q20

November 18, 2020

Going forward, the consolidation of an activity recovery would lead to gradually wider current account deficits

The balance of payment statistics showed a mild USD 25 million current account deficit for 3Q20, after posting an upwardly revised USD 2.7 billion surplus previously. The deficit was narrower than our USD 700 million deficit forecast and the USD 3.5 billion deficit recorded one year earlier. Accumulated in four quarters, the current account recorded a mild surplus of USD 36 million (versus a USD 10 billion or 3.9% of GDP deficit in 2019), while the seasonally adjusted series show a wider 1.2% of GDP surplus in 3Q20 (+4.4% in 2Q20) supported by a still wide trade surplus. On the financial account side, the highlight was the largest portfolio investment net inflow on record (close to 4% of GDP), as Chilean pension funds liquidated assets abroad to help fund the 10% pension withdrawal.

Robust exports of goods mean trade continues to positively contribute to the current account, but recovering imports from the 2Q20 slump limited the boost. The trade balance posted a USD 2.2 billion surplus, larger than the USD 1.1 billion deficit recorded one year earlier, but far smaller than the USD 4.9 billion surplus at the peak of the pandemic in 2Q20 (upwardly revised from USD 3.7 billion on the back of stronger exports of goods). In 3Q20, exports of goods were broadly flat from one year earlier. Meanwhile, imports fell by almost a fifth, moderating from the 27% YoY fall in 2Q20, in a sign that the reopening of the economy, stimuli measures and rising oil prices are supporting an import improvement. Meanwhile, both imports and exports of services remain weak (falling by 30% and 41% YoY, respectively). The income deficit moderated to USD 2.3 billion (USD 2.7 billion in 3Q19), amid lower dividend payouts for foreign investments in Chile.


The halving of the financial account deficit compared to 3Q19 is overshadowed by sharp changes in its components. On the portfolio investment front, Chile saw a net inflow of USD 10 billion in the quarter, led by shrinking portfolio investments abroad by USD 11.5 billion, as pension fund administrators liquidated assets to comply with payouts to individuals. This was partially mitigated by foreigners decreasing equity investments in Chile in the quarter. Meanwhile, there was a net direct investment outflow of USD 2.9 billion (USD 0.1 billion in 3Q19), as foreigners decreased investments in Chile (by a total of USD 1.0 billion) through the payment of loans to non-resident related companies and a lower reinvestment of profits. If net direct investment is added to the current account balance for a one year period, there was a surplus of USD 1.5 billion, showing the funding of Chile’s external needs is comfortably met.

Overall, the 3Q20 data is in line with our expectation of a broadly balanced current account this year, driven by better terms of trade and still-weak internal demand.
 We expect the consolidation of an activity recovery to lead to gradually wider current account deficits, particularly as domestic demand growth leads to larger imports over coming quarters. We see the current account deficit coming in at 2% of GDP in 2021.

Miguel Ricaurte
Vittorio Peretti 

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