Itaú BBA - CHILE - Retail-led activity rise in October

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CHILE - Retail-led activity rise in October

November 30, 2020

With industrial production improving and retail sales surging, we expect the monthly GDP proxy to rise for the first time since February.

Activity indicators posted strong annual gains in October, supported by the consolidation of the economic reopening, job recoveries, and a favorable base of comparison (given last year’s disruption amid social unrest). Retail sales increased 19.6% YoY in October (+10.1% in September), broadly in line with our expectation of a 19% rise (also the Bloomberg consensus). Vehicles, apparel, and electronics led the gains. Meanwhile, food and beverage processing led manufacturing to rise 6.2% YoY (+5.3% in September), a tick above our 4.5% call (Bloomberg consensus: 4.7%). As a result, total industrial production – consolidating manufacturing, mining and utility activity – increased 3.5% (+1.9% previously), with mining increasing (1.9%) for the first time since July. With industrial production improving and retail sales surging, we expect the GDP proxy (IMACEC, to be released tomorrow) to post a 0.5% YoY increase, moderating from the 5.3% decline in September and the first annual gain since February.

Durable goods consumption is driving the economic recovery. Retail sales (including vehicles) increased 10.6% YoY in the quarter ending in October, a notable improvement from the 1.3% and 28.1% drops recorded in 3Q and 2Q20, respectively. Durable sales growth surged to 23.9% (+6.3% in 3Q and -40.6% in 2Q20), with cars and electronics being key drivers, while non-durable goods sales improved to 6.5% (-3.7% in 3Q and -2.4% in 2Q20). Meanwhile, wholesales increased 5.9% in the quarter (+1% in 3Q; -12.8% in 2Q20). As a result, the commercial activity index – aggregating wholesale and retail sales – rose 7.7% (1% and 21.5% drops in 3Q and 2Q20, respectively). Industrial production increased 0.1% YoY in the quarter, the first positive print since April (-2.2% in 3Q; -4.2% in 2Q20). Manufacturing returned to growth with a 0.9% gain, while mining posted a mild drop.

On a sequential basis, manufacturing increased for the fourth consecutive month, while retail sales ticked down from September, but remains well above pre-pandemic levels. Manufacturing rose 2.8% from September, resulting in a 29.4% increase in the quarter (annualized; +13.1% qoq/saar in 3Q20). Overall, manufacturing is 2% below pre-pandemic levels. Total industrial production accelerated to 10.0% qoq/saar (+3.5% in 3Q and -14.1% in 2Q). Meanwhile, after five consecutive monthly gains, retail sales dropped 1.4% from September, but activity is still around 6% higher than pre-pandemic levels. In the quarter, retail sales momentum accelerated further into three-digit figures, reflective of the consumption-led economic recovery on the back of fiscal transfers and partial pension withdrawals.

The economic activity in Chile is expected to advance in coming months as the benefits from significant monetary and fiscal stimuli, various business-support measures, and individual liquidity injections (through transfers and pension withdrawals) support the recovery, besides a more benign external environment (including high copper prices). Additionally, the likelihood that a second pension withdrawal proceeds means consumption dynamism would persist early next year. We expect a GDP contraction of 5.5% this year with a bounce back of a magnitude at least as strong next year.

Miguel Ricaurte
Vittorio Peretti




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