Itaú BBA - CHILE – Weak August activity, despite mining recovery

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CHILE – Weak August activity, despite mining recovery

September 30, 2019

Below potential growth reinforces the expectation of another rate cut in October.

Shrinking manufacturing points to underwhelming growth for the month of August. A higher base of comparison and an unfavorable calendar effect amplified the headline fall as manufacturing dropped 1.5% yoy (6.2% rise in July). The manufacturing decline was milder than our 2.0% call and the Bloomberg market consensus of 2.3%. Meanwhile, after adjusting for seasonal and calendar effects, the fall was a milder 0.5% yoy. As mining encountered a low base of comparison due to maintenance operations last year, it posted growth of 5.0% in August (0.5% previously), the highest gain year-to-date. As a result, industrial production (aggregating mining, manufacturing and utilities) rose 1.4% yoy (2.9% increase in July). In the quarter ending in August, manufacturin g fell 0 .4% yoy (-1.5% in 2Q19 and +1.6% in 1Q19), while mining activity grew 1.9% (0.1% in 2Q19 and -5.9% in 1Q19) and utilities weakened further to post a 2.0% drop (-1.0% in 2Q19 and +0.7% in 1Q19). Overall, the industrial production index increased 0.4% yoy in the quarter, a mild recovery from the 0.8% drop in 2Q19 (1.7% decline in 1Q19). The industrial production data along with our expectation of weak retail activity in the month points to below-potential growth of 2.8% for the GDP proxy in August (3.2% in July), consolidating our expectation that the central bank will continue to ease monetary policy, with a rate cut of 25-bps (to 1.75%) in October.

At the margin, activity momentum slowed as all the industrial production components weakened. Industrial production increased 0.9% qoq/saar (4.1% in 2Q19) with manufacturing broadly flat (+5.2% in 2Q19). Mining production slowed to 5.3% qoq/saar (16.3% in 2Q19), while utilities decelerated further with a fall of 8.2% qoq/saar (2.6% drop in 2Q19).

As global uncertainty continues to hamper domestic sentiment, affecting investment and consumption decision-making in Chile’s small and open economy, growth is set to come in this year at just 2.2 (4% last year). Going forward, stimulus on both the monetary and fiscal fronts would aid some recovery next year.

Miguel Ricaurte
Vittorio Peretti


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