Itaú BBA - CHILE – Retail surge in August

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CHILE – Retail surge in August

September 30, 2020

Further easing of mobility restrictions, along with added pension payouts would consolidate a retail-led recovery

Activity indicators came in mixed in August, with a deep manufacturing decline and the first mining production drop since April being more than offset by a 28.9% MoM retail sales rise. Despite no meaningful recovery in the labor market (19.4% yoy job shedding as of August), the start of pension withdrawal payments (around USD12.5 billion during August; 5% of GDP) during the month was likely the key driver behind the retail boost. Retail sales increased 2.8% yoy (17.3% drop in July; 23.3% fall during the March to July period), exceeding our expectations of a 14% drop (Bloomberg consensus: -7%). We had expected to see most of the pension withdrawal impact during the month of September. Activity in the month was led by household electronics. Meanwhile, supermarket sales also bounced to growth of 18.2% yoy (0.3% in July), likely reflecting increased liquidity during the month. Meanwhile, industrial production, grouping manufacturing, mining and utilities, posted a 4.8% yoy decline (down 3.4% in July) as mining activity shrunk 2.0% (+1.3% previously) and manufacturing dropped 8.2% (-7.5% in July), sharper than our -3.7% expectation (Bloomberg market consensus: -5.4%). Manufacturing in the month was dragged by food processing as demand from the service industry remained weak. Although manufacturing disappointed, the scale of the retail surprise leads us to revise our August forecast for the GDP proxy (IMACEC) to a contraction of 8.4% yoy, from our previous call of 9.2% (10.7% fall in July).

he industrial activity recovery is advancing more slowly. Industrial production fell 3.7% yoy in the quarter ended in August, only slightly less than the 4.2% drop in 2Q20. Manufacturing fell 8.0% (9.5% down in 2Q20) and utilities shrunk 2.6% yoy (3.7% fall in 2Q20). Meanwhile, mining production slowed to 0.7% (1.5% in 2Q20 and 4.3% in 1Q20). On the consumption front, retail sales (including vehicles) slump eased to 12.6% from 28.2% in 2Q20, as the durable sales contraction moderated to 13% (-40.6% in 2Q20). Meanwhile, wholesales also dropped a milder 3.2% (-12.8% in 2Q20). As a result, the commercial activity index – aggregating wholesale and retail sales – fell 8.5% in the quarter (21.5% drop in 2Q20).

On a sequential basis, manufacturing posted a mild 0.2% gain from July, remaining 10% below pre-pandemic January levels, while retail sales have more than fully recovered. In the quarter, manufacturing dropped 9.3% annualized (33.5% down in 2Q20), and mining fell 0.7% qoq/saar (+5.6% in 2Q20). Overall, the industrial production index decreased 3.9% qoq/saar (-15.1% in 2Q20). Meanwhile, retail sales (including car sales) gained 28.9% from July, taking sales to around 2% above pre-pandemic levels. In the quarter, retail activity accelerated to 65.5% qoq/saar (-67% in 2Q20).

On the back of further easing of mobility restrictions in September, along with the reopening of various hospitality services and further pension payouts (currently sitting at USD 15 billion), the consolidation of a retail-led recovery is expected. We expect a GDP decline of 5.5% this year (+1.1% in 2019), with a rebound of 5.5% next year. Today’s data shows that the possible materialization of a second round of pension withdrawals would boost the pace of the recovery further.
Miguel Ricaurte
Vittorio Peretti 


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