Itaú BBA - CHILE – Record activity decline in April

Macro Latam

< Back

CHILE – Record activity decline in April

June 1, 2020

With the health situation deteriorating in May, mobility restrictions were extended, hence activity momentum is set to worsen before it gets better

Activity shrunk 14.1% yoy in April as the economy feels the effects of social distancing measures underway to combat the spread of the coronavirus. The double-digit decline of the monthly GDP proxy was close to our 15% call (Bloomberg market consensus: -11%; 3.1% fall in March). Mining posted a mild contraction of 0.1% (+2.0% in March), as this sector has been less affected by social distancing measures. Meanwhile, non-mining activity contracted 15.5% yoy (3.6% fall in March), dragged by services, commerce and to a lesser extend construction and manufacturing. Affected services include education, transport, restaurants, hotels, and entrepreneurial activities. Monetary authorities have already signaled that additional stimulus is likely necessary (referring to its liquidity and QE measures), to ensure the shock from the virus remains transitory.

Despite dynamic growth in February, activity in the rolling-quarter slumped to a 4.9% contraction, already deeper than the 2.1% drop during social unrest hit 4Q19. Mining activity was least affected and contained the activity fall with growth of 4.1% yoy (5.1% in 1Q20; 2.0% drop in 4Q19). The consolidation of reduced global demand would likely lead to a reduced mining impulse ahead. Non-mining activity contracted 5.8% in the quarter (0.1% drop in 1Q20 and 2.2% decline in 4Q19). 

Sequentially, activity fell at the sharpest pace since the ‘80s. The 8.7% decline from March built on the prior drop of 5.8%, led by non-mining activity (9.7% fall). Mining activity grew 0.9% from March. In the quarter, activity declined 13.7% qoq/saar, deteriorating from the 12.5% rise in 1Q20. Non-mining sectors shrunk 15.8% qoq/saar (+12.6% in 1Q18; -15.3% in 4Q19). 

With the health situation deteriorating in May, mobility restrictions were extended, hence activity momentum is set to worsen before it gets better. For May, business confidence excluding mining fell by close to 20pp from last year to reach 27.4% (50 = neutral), broadly unchanged from the 25.1% in April (a record low). Construction is the sub-index dragging business sentiment down the most as the economic outlook falters. Electricity generation during working hours declined around 5% yoy in May (+0.6% in 2019), unemployment insurance claims continue to spike and imports of consumer and capital goods have dropped 40% and 20%, respectively, in the first three weeks of the same month.

Prolonged mobility restrictions, enduring domestic uncertainties and weak global demand point to a 3.7% GDP contraction this year (+1.1% in 2019). Risks tilt to an even more significant activity fall this year.
 

Miguel Ricaurte
Vittorio Peretti



< Back