Itaú BBA - Scenario Review - Chile

  • Faster growth, higher interest rates  

    Scenario supports a start of the normalization cycle as soon as July

  • Losing grip on the agenda  

    Despite the latest mobility restrictions, the vaccine advancement, and additional support measures mean risks for our forecast tilt to the upside.

  • Lockdown despite fast vaccination  

    Quarantine measures would hinder domestic activity in the short-term, but prospects for the rest of the year remain favorable.

  • Upside risks emerging  

    Strong terms of trade and the vaccination roll-out could lead to growth above our current 6.5% forecast.

  • Vaccination hope  

    Improving sanitary conditions would favor the expected recovery ahead

  • A delicate start to 2021  

    A swift vaccination rollout could compensate a weaker start to 2021.

  • Second pension boost and tighter mobility restrictions  

    While support measures would boost inflation and growth in the short-term, the central bank will retain the monetary stimulus.

  • Overwhelming support to rewrite constitution  

    The transitory nature of the CPI increase is unlikely to change the central bank’s stance of stable rates at 0.5%

  • The road to a new constitution begins  

    The reopening of the economy, pension payouts and a sentiment improvement are supporting the activity recovery.

  • Firming recovery signs   

    Signs of a recovery likely prompted the guidance for higher rates in 2022.

  • Entering a slow recovery phase, amid a return of domestic risks  

    Pension boost to consumption to lead to a midler GDP decline

  • Not out of the woods  

    An intensification of domestic lockdown measures will result in a deeper GDP contraction this year

  • Extended lockdowns dent growth  

    The significant loosening of the labor market means the policy response may need to be stronger to prevent a permanent economic damage.

  • Using policy buffers  

    The reduced global demand, mobility restrictions and lingering domestic uncertainties led us to reduce our GDP forecast to a 3.7% activity contraction.

  • The calm before another storm?  

    Caution on future rate moves will prevail, but Fed rate cuts in response to the expected global activity slowdown makes our call for 50 bps

  • Still too many unknowns  

    The central bank will remain cautious regarding future rate moves in the short term

  • Some semblance of normalcy  

    As the CLP recovers following the intervention program and a more upbeat global outlook, inflationary pressures may be more contained

  • Resetting expectations  

    Increased uncertainty hurt asset prices and expectations, leading to a large fiscal response and a robust FX intervention package.

  • Turned upside down  

    Amid an uncertain domestic scenario, growth risks are tilted to the downside

  • Turning the corner?  

    Favorable August activity data lifts the growth outlook, but would not bring easing cycle to an end.

  • Shock therapy  

    The added monetary and fiscal stimulus measures would support some recovery next year

  • Another 50-bp cut in September?  

    We expect a 25-bp rate cut in the September meeting, but the likelihood of a larger cut has increased following the recent escalation in global trade tensions.

  • Outlook for the economy still weak  

    Momentum gains are unlikely to persist as private sentiment slumps, the labor market weakens and the global slowdown consolidates.

  • An insurance move  

    The effects of an unresolved trade war on Chile will lead to further interest rate cuts

  • Trade tensions delay recovery  

    Low inflation, weakening activity, the Fed’s looser policy stance and lower global growth suggest that there is no need to remove stimulus in the near term.

  • Postponing normalization  

    International and domestic factors provide room to retain monetary stimulus for longer

  • Low inflation for longer  

    Short-term uncertainty over inflation dynamics and still elevated external risks support a more cautious central bank

  • A more patient central bank  

    We revised our growth forecast to 3.2% for this year (from 3.5%), due in part to uncertainty over global trade negotiations and weak data at the end of 2018

  • Gradual hiking cycle to continue  

    The consolidation of the activity recovery continues, but there are still headwinds

  • Confirming a gradual monetary policy normalization cycle  

    Dipping inflation in the coming months and unconsolidated economic recovery means a hike in January not a given.

  • The start of a gradual hiking cycle  

    Amid mixed activity and inflation signs, gradual hiking would be prudent

  • Preparing for liftoff  

    Tightening cycle will be gradual, particularly given the still-loose labor market and low underlying inflation

  • The first reform  

    The proposed tax reform will face a tough passage in congress

  • The recovery continues  

    Despite the favorable outlook, rising trade tensions could hamper copper prices and restrict the growth recovery.

  • Rate hikes on the horizon  

    The strong start to the year puts an upside bias to the activity outlook

  • Looking bright amid darkening global clouds  

    Investment is benefitting from improved sentiment and higher copper prices

  • Recovery consolidates  

    With a broad-based activity recovery and still-low inflation, there is no rush for rate hikes

  • Looking at global factors  

    With improved domestic conditions, the main risks to the expected recovery come from abroad.

  • Gaining momentum  

    We now expect GDP growth of 3.6% this year, with risks tilted to the upside

  • Tailwinds begin to help  

    Stronger global growth, high copper prices, recovering private sentiment and expansionary monetary policy will boost a recovery in activity

  • Turning the page  

    We have improved our growth outlook on more favorable external and domestic conditions.

  • Resuming the tightening cycle  

    Higher-than-expected inflation is putting pressure on the Central Bank

  • Neck-and-neck in the presidential race  

    Activity recovery for 2018 requires a private sentiment improvement.

  • Easing-cycle discussion still alive  

    Limited inflationary pressures mean that we cannot rule out additional rate cuts.

  • No further rate cuts  

    Recovery gains traction

  • Sluggish growth persists  

    With weak activity and low inflation, the upcoming Inflation Report would point to more easing.

  • More easing ahead  

    Weak growth and a stable currency have led to subdued inflationary pressures.

  • Waiting for a glimmer of hope  

    Weak activity will likely show some improvement through this year as the mining drag subsides.

  • Ending the easing cycle, despite economic weakness  

    Government expenditure prevented a technical recession in 1Q17, and a meaningful recovery remains elusive.

  • Clarifying the appetite for easing  

    The central bank would implement another 25bps rate cut before the end of 2Q17.

  • A cautious central bank  

    We still expect a 100-bp easing cycle, taking the policy rate to 2.5% by yearend

  • Easing cycle under the microscope  

    A treacherous year will call for more policy support.

  • No option but to cut  

    Monetary loosening would continue amid elusive growth.

  • Monetary easing about to begin  

    We expect a 100bps loosening cycle this year.

  • About to cut  

    Low growth and disinflation will lead to rate cuts beginning in January.

  • Scope for extra monetary easing  

    Rate cuts next year would come amid a faster disinflationary process.

  • Less fiscal support, more monetary stimulus  

    We now expect two 25-basis points rate cuts in 1Q16 amid faster disinflation and weak growth.

  • Officially Neutral  

    Despite weak growth, faster disinflation is needed to trigger rate cuts in 2017.

  • Nearing a neutral stance  

    A bleak outlook for growth and disinflation could lead to a looser monetary stance next year.

  • Activity continues to disappoint  

    We now expect GDP growth of 1.5% this year, below the 2.1% rate from last year.

  • No recovery yet  

    Low copper prices, less fiscal support and pessimistic private-sector sentiment are weightening on activity.

  • The debate on labor reform goes to the justice  

    Low commodity prices, less fiscal support and low confidence will continue to limit a recovery.

  • Losing Momentum  

    Weak growth, a stronger currency and falling inflation confirm our view of no rate hikes.

  • Tighter fiscal policy, looser monetary policy stance  

    Low copper prices limit the room for fiscal policy and weigh growth down.

  • Starting the year on the back foot  

    We reduced our 2016 growth forecast to 2.0%.

  • Growth to remain low for another year  

    A less-intense depreciation and a sluggish economy would help to bring inflation down.

  • Details of constitutional reform unveiled  

    The entire process will extend into the next administration, easing political tensions.

  • Rate hikes around the corner  

    Partial withdrawal of monetary stimulus amid a weaker economic recovery.

  • Latam in Depth - CHILE: Life with lower copper prices  

    The economy remained weak during 2Q15, and lower copper prices have dampened the expectations for a significant recovery

  • Lower copper prices weigh on the economy  

    We have reduced our 2016 forecast to 3.0% (from 3.2%).

  • A further deterioration in the growth-inflation trade-off  

    Amid higher-than-expected inflation and lower-than-expected growth, we continue to anticipate unchanged policy rates both this year and in 2016.

  • Expectations weigh on activity  

    We have reduced our growth forecasts to 2.5% from 2.8% for this year and to 3.4% from 3.5% in 2016.

  • Political Noise  

    President Michelle Bachelet announced that the government will start a constitutional reform process in September.

  • A more cautious Central Bank  

    As a response to the worsened inflation outlook, the Central Bank introduced a tightening bias in the first Monetary Policy Report of the year.

  • A turning point?  

    We have revised our GDP growth-rate and inflation forecasts for 2015 to 2.8% and 3.0%, respectively.

  • Reforms advance  

    the December indicators came in significantly better than expected.

  • Inflation Hits the Brakes  

    Industry continues to perform poorly.

  • Oil prices speed up the external adjustment  

    Chile’s 3Q14 GDP grew 0.8% from the previous year

  • The Easing Cycle Ends  

    Chile’s IMACEC (monthly proxy for GDP) fell 0.2% between August and September,

  • One Final Cut to Come  

    We expect a modest 0.5% year-over-year increase in August’s IMACEC (monthly proxy for GDP).

  • The Government’s Grace Period Is Over  

    Chile’s economy weakened further in 2Q14.

  • Weaker Growth, Lower Interest Rates  

    The IMACEC (monthly proxy for GDP) contracted by 0.8% from May to June

  • Monetary Policy Board Is Split on Rate-Cut Timing  

    The IMACEC (monthly proxy for GDP) increased by 0.6% from April to May

  • Consumption Following the Footsteps of Investment  

    The economy once again grew at a below-trend pace in 1Q14.

  • The Easing Cycle Will Likely Continue  

    The Chilean economy grew at a below-potential rate in 1Q14.

  • First Step in the Government Reform Program  

    Investment led the deceleration in 4Q13.

  • A Sharper Deceleration and Further Rate Cuts  

    Chile’s economic activity has continued to slow, led by investments.

  • An Easing Bias Amid Higher Volatility  

    Chile’s economy slowed substantially during the last quarter of 2013, bringing growth for the full year to 4.0%.

  • Investment-Led Slowdown  

    We maintain our GDP estimate at 4.2% for 2013, but we increased our 2014 forecast to 4.2% (from 4.0%).

  • Waiting for the Run-Off  

    Chile’s GDP was up 4.7% year over year during 3Q13, following 4.0% growth the previous quarter.

  • Easing Cycle to Continue  

    The Chilean peso has weakened, led by the earlier-than-expected start of the easing cycle.

  • Consumption Continues to Post Rapid Growth  

    We expect Chile’s GDP to grow 4.2% in 2013 and 4.4% in 2014.

  • Not So Sluggish After All  

    Chile’s economy posted weak growth in 2Q13, but the number’s breakdown shows strong final demand growth.

  • Slower Growth  

    The economy posted a below-expectation growth during the first half of the year.

  • Downside Risk for Growth  

    We maintain our growth forecasts (4.5% and 4.7% for 2013 and 2014, respectively), but downside risks for activity are increasing.

  • Slower Growth Leaves Room for Rate Cuts  

    We now expect Chile’s economy to grow by 4.5% this year and by 4.7% in 2014.

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