Itaú BBA - CHILE – Strong activity start to 2018

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CHILE – Strong activity start to 2018

February 28, 2018

Recovering internal demand and strengthening global growth will support a further manufacturing improvement

Manufacturing and mining started 2018 with vigor, in line with the expected activity recovery this year. Mining will remain a clear driving force in the coming months as copper prices stay elevated and production encounters a very low base of comparison given the extended labor strike at a principal mine early last year. Meanwhile, signs of recovering internal demand and strengthening global growth will aid a manufacturing improvement. With further evidence of activity consolidating at higher levels, we expect the central bank to stay on hold at its second monetary policy meeting (March 20), and the possibility it removes the easing bias increases.

Industrial production – which aggregates mining, manufacturing and utilities – grew 5.3% year over year in January (0.1% in December). Once corrected for seasonal and calendar effects, the growth improvement was a milder 4.0% (1.8% in December). Mining rose 5.9%, from 3% at the close of last year, while manufacturing recovered from the 2.5% drop in December (impacted by negative calendar effects) to growth of 5.7% (following from a downwardly revised 1.0% contraction in 2017). Manufacturing growth came in above the Bloomberg market consensus of 2.8% (and the highest forecast of 3.7%) and our call of 3.5%. Mining and manufacturing together contributed 5.1 percentage points (evenly shared) to the total industrial production variation of 5.3%. The remaining contribution to industrial production came from the 1.4% increase in utilities (-0.9% in December). For the quarter ending in January, industrial production grew 2.5%, up from the 2.1% in 4Q17, but still below the 2.8% in 3Q17. Compared to 3Q17, recovering manufacturing (from -0.1% to 2.1%) has been countered by mining slowing to 3.8% (from 6.0%).

At the margin, manufacturing is accelerating. With mining production near capacity operational levels, production fell 7.8% qoq/saar, similar to 4Q17 and down from +41.6 qoq/saar in 3Q17. Meanwhile, manufacturing accelerated to 11.6% qoq/saar, from 2.2% in 4Q17 and 3.5% in 3Q17. Overall, industrial production increased 0.7% qoq/saar (-5.5% in 4Q17 and 21.8% in 3Q17).

Stronger global growth, high copper prices, recovering private sentiment and expansionary monetary policy will all boost activity this year. Private consumption indicators for January will be published at the close of the week. Given the industrial production indicators, we currently expect the January Imacec (monthly GDP proxy) to rise between 2.7% and 3.2% (to be released on March 5). For the year, we expect an activity recovery to 3.3%, from the 1.6% last year.


Miguel Ricaurte
Vittorio Peretti

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