Itaú BBA - CHILE – November activity surprise solidifies case for a rate hike this month

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CHILE – November activity surprise solidifies case for a rate hike this month

January 7, 2019

The positive data puts an upside bias to our 3.9% growth forecast for 2018 (1.5% in 2017).

Despite both manufacturing and retail sales posting notable declines in November, according to the National Institute of Statistics, the central bank’s monthly GDP proxy (Imacec) surprised significantly to the upside. The monthly GDP proxy (Imacec) grew 3.1% in November, far above the Bloomberg market consensus of 2.0% and our 1.6% call. Activity in the month was boosted by a mining bounce back (as the base of comparison normalizes and ore-grade improved) and services (reflecting domestic demand remains robust). With activity still dynamic at the close of 2018, the central bank will likely feel comfortable, bar a significant downside surprise in inflation, to continue with its normalization cycle later this month (given their view that the output gap is narrowing). Stable nominal wage growth of 4.1% in November could also support the central bank’s favorable view of labor market developments. Going forward, the board will likely revaluate whether ongoing global trade uncertainties, softening global growth and lower confidence are hampering the growth outlook enough to alter its trajectory for the policy rate (reaching 4.0%-4.5% in 1H20). 

Mining grew for the first time since June, but non-mining activity remains steady in the moving quarter. Mining activity grew 5.5%, up from the 6.1% drop in October, while services led the 2.7% non-mining activity rise (5.1% previously). For the quarter ending in November, the Imacec grew 3.1%, up from 2.8% in 3Q18, as mining moderated its fall to 0.8% from 2.7% in 3Q18. Meanwhile, non-mining activity grew 3.3%, broadly stable from the 3.2% in 3Q18 and near potential.  

At the margin, both mining and non-mining activity are accelerating. Imacec gained 3.3% qoq/saar in the quarter ending in November (0.9% in 3Q18), only surpassed last year by the pace registered in 1Q18 (4.8%). The pick-up is due to mining activity consolidating its recovery (to 9.7% qoq/saar from 8.4% in 3Q18), while non-mining activity accelerated to 2.6% qoq/saar, from 0.1% in 3Q18, but remains inferior to the 4.4% pace registered in 1H18. 

The Imacec data for November puts an upside bias to our 3.9% growth forecast for 2018 (1.5% in 2017). We expect a deceleration to a still-solid 3.5% pace this year, but persistent headwinds are downside risks. Concluding 2018, Icare’s business confidence moved further into pessimistic territory (to 48.8 points) after dropping below the neutral 50 points to 49 points in November for the first time in the year. Meanwhile, Adimark’s consumer confidence indicator ended 2018 at 44.6 points (44.9 in November and 55.1 at the close of 2017).

Miguel Ricaurte
Vittorio Peretti

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