Itaú BBA - CHILE – Strong activity to close 3Q20

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CHILE – Strong activity to close 3Q20

October 30, 2020

With the economic reopening consolidating, as health indicators remain controlled, the activity recovery is expected to persist ahead

Activity indicators were upbeat in September as the reopening of the economy consolidated, and the affect from pension withdrawals and fiscal transfers remained evident. Such measures, along with job gains at the margin, supported retail sales growth of 9.5% YoY in September (3.2% in August), exceeding our expectation of a 6% rise (Bloomberg consensus: 7%). Household electronics and construction materials led activity in the month. Meanwhile, manufacturing posted its first annual gain since March, rising 5.3% YoY (8.2% drop previously), also bettering our call of a 3.5% drop (Bloomberg consensus: -2.3%). Manufacturing in the month was driven by food and beverage processing as demand increased during the Independence celebrations. As a result, total industrial production – consolidating manufacturing, mining and utility activity – increased 1.9% (4.8% fall previously), despite mining still contracting (0.8%). With industrial production returning to growth and retail sales strength consolidating, we expect the GDP proxy (IMACEC) to post a 6% YoY contraction, moderating from the 11.3% decline in August. As a result, GDP would have shrunk 9.4% in 3Q20, compared to the 14.1% drop in 2Q20, in line with our scenario of a gradual recovery.

As expected, an activity recovery unfolded in the third quarter of the year, despite weaker mining production. Industrial production fell a milder 2.2% yoy in the quarter, compared to the 4.2% drop in 2Q20.
anufacturing dropped 3.8%, versus the 9.5% decline in 2Q20. Meanwhile, mining production dropped 0.5% (+1.5% in 2Q20 and +4.3% in 1Q20). On the consumption front, retail sales (including vehicles) fell 1.5%, a notable improvement from the 28.2% drop in 2Q20, as durable sales returned to growth of 6.1% (-40.6% in 2Q20) and non-durables moderated their fall. Meanwhile, wholesales increased 1.0% (-12.8% in 2Q20). As a result, the commercial activity index – aggregating wholesale and retail sales – slumped 1.5% in the quarter (21.5% drop in 2Q20).

On a sequential basis, retail sales gained for the fifth straight month, while manufacturing posted 6.4% MoM. As a result, manufacturing levels are now around 4% down from pre-pandemic highs, compared to peak shortfall of close to 13% in June.
In the quarter,
manufacturing returned to growth of 13.2% annualized (31.3% down in 2Q20), while mining fell 5.3% qoq/saar (+6.1% in 2Q20). Overall, the industrial production index increased 3.3% qoq/saar (-14.1% in 2Q20). Meanwhile, retail sales (including car sales) rose 227% in the quarter, annualized, more than offsetting the 66.5% drop in 2Q20.

With the economic reopening consolidating, as health indicators remain controlled, the activity recovery is expected to persist ahead. The increased likelihood that a second pension withdrawal materializes would further boost consumption dynamics.
We expect a GDP decline of 5.5% this year (+1.1% in 2019), with a rebound of 5.5% next year.

Miguel Ricaurte
Vittorio Peretti 

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