Itaú BBA - CHILE – Recovery gains traction

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CHILE – Recovery gains traction

October 5, 2017

In the line with the activity data, business confidence is improving.

Growth momentum is improving in the third quarter of the year. Mining activity is currently the main driver behind better growth figures, however, non-mining activity has shown some consolidation as well. The Imacec (monthly proxy for GDP) grew 2.4% year over year in August (2.8% in July), in line with our forecast (just below the Bloomberg market consensus of 2.7%). Once corrected for seasonal and calendar effects, growth in August was somewhat lower at 2.2% (2.5% in July). With the recovery of mining production from the extensive labor strike earlier in the year along with elevated copper prices, mining will likely continue to lift year-over-year activity growth for the remainder of the year. The mining bounce back and improved non-mining activity led us to revise our growth forecast to 1.7% for this year (1.3% previously), broadly in line with the 1.6% last year. 

Non-mining activity grew 1.8% year over year (2.6% in July), favored by commerce and services, while construction dragged activity down. Sector data released earlier this week revealed that durable consumer goods sales, particularly vehicle sales, remain robust. Mining activity picked up to 9.2% year over year, from 5.2% in July (-8.4% in 1H17). In the quarter ending in August, mining growth accelerated to 4.6% (-3.0% in 2Q17 and -13.8% in 1Q17). Additionally, non-mining activity strengthened to 2.0% in the quarter (1.3% in the first and second quarters of the year). 

At the margin, the temporary boost in mining lifted overall growth to 7.5% qoq/saar from 3.2% in 2Q17 and 0.5% in 1Q17. Mining production accelerated to 60.6% qoq/saar (+26.0% in 2Q17 and -24.7% in 1Q17). Moreover, non-mining activity is growing at 3.9% qoq/saar, up from 1.5% in 2Q17 and 2.9% 1Q17. 

In the line with the activity data, business confidence is improving. Despite posting its 42nd consecutive month in pessimistic territory (< 50), think-tank Icare’s September business confidence index gained 4.6 percentage points from September 2016 to reach 48.3 points (43.2 in the previous month), its highest level since April 2015. The improvement in private sentiment could be associated with higher copper prices and optimism regarding the political cycle.

The recent data is consistent with a recovery of the economy. A favorable global environment is boosting copper prices, while monetary policy in Chile remains expansionary. We also now forecast growth of 2.7% for 2018 (2.5% previously). We note the outcome of the presidential election and the debate over the reform agenda next year could have an impact on confidence and investment, and consequently on growth. Meanwhile, the improved outlook for growth is in line with our updated baseline scenario that no longer includes additional monetary easing; rather, stable rates at the low 2.5% for a prolonged period.  


Miguel Ricaurte
Vittorio Peretti

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