Itaú BBA - Trade tensions delay recovery

Scenario Review - Chile

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Trade tensions delay recovery

May 13, 2019

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.

For the full version with all charts and tables, please open the attached pdf file
 

• Activity weakness at the start of the year is partially due to transitory factors, but a moderation of confidence amid raised uncertainty and lower global growth outlook have led us to downgrade our growth forecast to 3.0% for this year (3.2% previously; 4% last year) and to 3.5% for 2020 (3.7% previously).  

• Our view that activity this year would be driven by investment in tradable sectors (keeping capital goods imports strong), the risks for the exchange rate linked to the wider current-account deficit are mitigated. Nevertheless, a deteriorated global outlook (lower copper prices) mean we now see the CLP ending the year at 670 per dollar (655 previously; 694 in 2018).

• As domestic demand consolidates and tradable inflation normalizes, we expect inflation to pick up as the year unfolds. However, a higher-than-expected adjustment to electricity tariffs leads us to revise our year-end call to 2.8% (2.6% previously).

• Low inflation, weakening activity, the Fed’s looser policy stance and lower global economic growth suggest that there is no need to remove stimulus rapidly in the near term. We now expect stable rates at 3% for the remainder of 2019 (one hike was previously expected). Two hikes during 2020 are expected, assuming the economic recovery consolidates. 
 

João Pedro Bumachar
Vittorio Peretti
Miguel Ricaurte


 

For the full version with all charts and tables, please open the attached pdf file



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