Itaú BBA - CHILE - Weak activity in 4Q16

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CHILE - Weak activity in 4Q16

January 30, 2017

We expect growth below 1% for the December GDP proxy.

High frequency activity indicators ended 2016 on a mixed note. In spite of weaker than expected private consumption related activity, it remains forceful. Meanwhile, mining and manufacturing stayed weak, but did come in above market expectations. Overall, activity in the final quarter of 2016 will most likely be the weakest of the year with growth likely below 1% (1.6% in 3Q16). Last year, shrinking mining and manufacturing characterized activity, leading to another year of below potential growth. The latest data leads us to expect growth of below 1% for the December GDP proxy (+0.8% in November).

Private consumption related activity remained firm in December, lifted by durable consumption and apparel sales. Retail sales increased 4.1% year over year (+5.0% in November), below our +5.8% forecast and the Bloomberg market consensus of +5.3%. Once adjusted for seasonal and calendar effects, retail sales increased by a more modest 2.6% (5.2% previously). The month was once again characterized by strong vehicle sales, supporting the 7.4% rise in durable goods consumption. The 6.4% annual gain in apparel sales led the 3.4% rise in non-vehicle related sales. Retail sales could be favored by falling pricesalongside an influx of consumption tourism. In 4Q16, retail sales posted growth of 4.7%, up from 4.0% in 3Q16, while supermarket sales grew 4.4% year over year (2.7% in 3Q16). In 2016, retail sales growth recovered from 2.5% in 2015 to 4.0% last year.

Industrial production improved at the close of 2016, but was the principal hindrance on activity in the year. The industrial production index - which aggregates manufacturing, utilities and mining - increased 0.3% in December (-1.3% previously). The return to positive growth was inspired by the 0.3% increase in mining production and the 2.6% rise in utilities. Meanwhile, manufacturing is still declining, but the 0.3% drop (-1.9% previously) was less than the -1.2% and -1.5% expected by the market and us, respectively. Weaker demand, rather than supply shocks seen in previous months(like the drop in salmon and trout populations and mining disruptions), was the main drag on overall manufacturing. In the 4Q16, industrial production fell 2.8%, from +0.2% in 3Q16, resulting in a decline of 1.7% in 2016 (-0.3% in 2015).

At the margin, private consumption related activity is picking up. Retail sales momentum lifted to 7.6% qoq/saar, from 3.3% in 3Q16, and supermarket sales increased to 11.6% qoq/saar, from 0.1% previously.Meanwhile, mining posted a decrease of 4.6% qoq/saar, after the 1.6% rise in 3Q16, while manufacturing dropped 7.5% qoq/ssar (+2.3% in 3Q16). So, industrial production fell 4.9% (+1.8% in the previous quarter).

We expect an activity recovery this year to 2.0% (from 1.5% expected for 2016), as average copper prices improve, inflation declines and interest rates fall. However, uncertainty on both the global and local political stage could hamper a notable private sentiment recovery, stifling an investment bounce back.


 

Miguel Ricaurte

Vittorio Peretti

 



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