Itaú BBA - CHILE - Recovery of non-mining activity consolidates in 2Q18

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CHILE - Recovery of non-mining activity consolidates in 2Q18

August 6, 2018

Monetary stimulus amid increased confidence will continue to aid the activity recovery this year.

Activity in June remained strong, culminating in the highest quarterly growth since 2012. In the first half of 2018, activity increased 4.7% compared to the 0.1% rise in 1H17. Mining activity is moderating as the base of comparison normalizes, while the monetary stimulus in place, low inflation and solid confidence are likely boosting activity in other sectors. Yet, with a still negative output gap, well-behaved inflation and trade war risks, a tightening cycle starting only by the end of this year (as signaled by the central bank) is likely. 

In June, activity was boosted by non-mining activity, in particular manufacturing and commerce. The annual Imacec (monthly GDP proxy) variation was 4.9% (4.9% in May), slightly below the Bloomberg market consensus (5.3%) and our 5.2% forecast. In 2Q18, the Imacec grew 5.2% yoy, up from 4.2% in 1Q18 and the highest since the quarter ending in November 2012. Non-mining activity gained 5.3% yoy, versus the 3.1% rise in 1Q18, while the improvement was contained by mining activity slowing to 5.1% (19.3% in 1Q18). 

At the margin, non-mining sectors continue to gain momentum, while mining activity slowed. Imacec decreased 0.1% from May, resulting in growth of 2.8% qoq/saar in the second quarter of 2018, decelerating from the 4.7% in 1Q18. The slowdown was led by the 15.4% qoq/saar mining decline (+2.4% in 1Q18). Meanwhile, non-mining posted its eighth consecutive month of gains leading to growth of 5.0% qoq/saar in 2Q18, accelerating from 4.5% in 1Q18.

The monetary stimulus and low inflation amid increased confidence will continue to aid the activity recovery this year. However, rising trade tensions could impact external demand, hamper copper prices and restrict the growth recovery process. Further labor market unease at the country’s largest copper mine is also a potential risk. Given our still favorable global outlook, we see growth in Chile picking up to 3.8% this year, a notable improvement from the 1.5% posted last year. 
 

Miguel Ricaurte
Vittorio Peretti



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