Itaú BBA - CHILE – We reduced our growth forecast for this year to 1.3%

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CHILE – We reduced our growth forecast for this year to 1.3%

August 18, 2017

We still expect an improvement in 2H17.

Despite the improvement from 1Q17, activity in the first half of the year confirms Chile’s economy remains weak. Activity expanded 0.9% from one year ago, below the 1.0% growth estimated from the monthly GDP proxy (IMACEC). This is an improvement from the 0.1% in 1Q17, when activity was negatively affected by wildfires and an extended mining strike. Growth in 2Q17 was higher (at 1.3%) after correcting for the unfavorable calendar effect in the quarter, but is still sluggish. Domestic demand picked up from the previous quarter, aided by an improved performance of consumption. Meanwhile, investment and net exports continue to pull activity down. Although, we expect activity to continue recovering throughout the remainder of the year, we have lowered our 2017 growth forecast to 1.3% (1.6% previously).

Domestic demand excluding changes in inventories stayed weak (1.1% in 2Q17, from 1.2% in 1Q17). Internal demand in the 2Q17 was lifted by the 9.7% increase in durable consumption (mainly explained by robust new car sales). A recent business perception report published by the central bank of Chile notes the pick-up in car sales likely come from the need for replacement after several years of postponing that decision, so a slowdown of consumption of durable goods is likely. In fact, other private consumption categories remain weak (service consumption grew 2.1% and consumption of non-durable goods expanded by 1.9%). So total private consumption grew 2.6% (1.8% in 1Q17). On the other hand, public consumption weakened to 2.7%, from 4.9% in 1Q17, consistent with the fiscal consolidation. Meanwhile, the disappointing investment performance endured, with a fourth consecutive quarter of contraction (-4.1%, after shrinking 2.4% in 1Q17). 

Net exports continue to contribute negatively to growth. Net exports dragged growth down by 2.9 percentage points in the 2Q17 as mining production is recovering more gradually than expected from the first quarter strike at Escondida mine. 

Activity improved sequentially, but this is mostly due to the end of the mining strike. While GDP expanded by 3.0% qoq/saar, following a 0.5% expansion in the previous quarter, excluding the mining sector the economy grew a mild 1.1% qoq/saar (3.8% in 1Q17). 

A modest recovery in the second half of the year is still likely. Activity will be favored by firming growth in Chile’s trade partners, higher copper prices, the monetary stimulus applied by the central bank and low inflation. However, uncertainties linked to the fate of reforms after the presidential elections will continue to weigh negatively on confidence and investment, curbing an activity improvement. In any case, if our full-year growth forecast of 1.3% (1.6% in 2016) materializes, growth would be the weakest since the global financial crisis in 2009 (-1.6%). 

Miguel Ricaurte

Vittorio Peretti



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