Itaú BBA - CHILE – Industrial production shrinks in 1Q19

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CHILE – Industrial production shrinks in 1Q19

abril 30, 2019

Despite weak industrial activity, the investment outlook remains positive.

Mining dragged down industrial production in the first quarter of the year, but manufacturing also moderated. Industrial production contracted 0.8% yoy in the month of March (-3.5% in February), the third consecutive month of decline. Mining production fell 3.5%, partly due to a high base of comparison. Meanwhile, manufacturing grew a weaker-than-expected 1.3% yoy (Itaú: 2.8%; Bloomberg market consensus: 1.5%; 0.8% in February), and a much softer 0.2% after adjusting for seasonal effects. Given the disappointing data and our expectation that retail sales post a mild gain later this week, we expected the GDP proxy to grow between 1.3%-1.6% in March, capping off a feeble start to the year with growth below 2% in 1Q19 (3.6% in 4Q18).

Machinery and equipment dominated manufacturing growth and, alongside upbeat business confidence and still growing imports of capital goods, point to still robust investment in 1Q19. Manufacturing production increased 1.6% yoy in 1Q19, slowing from 2.8% in 4Q18, yet manufacturing of machinery and equipment (linked to mining and construction) improved to 25.2% yoy (15.6% in 4Q18). Mining growth deteriorated sharply to shrink 5.8% (+0.5% in 4Q18). Going forward, as the base of comparison normalizes and copper prices remain elevated, the contribution from mining to activity would likely improve. Overall, industrial production fell 1.7% yoy in the quarter, down from the 1.6% gain in 4Q18.

At the margin, industrial production slowed sharply in 1Q19 despite some positive developments in the month of March. Industrial production decreased 5.9% qoq/saar (+3.7% in 4Q18 and -4.7% in 3Q18), but gained 2.9% from February to March, interrupting a three-month consecutive drop. Activity momentum in the quarter was dragged down by mining production that fell 21.0% qoq/saar (+11.9% in 4Q18), while manufacturing declined 1.6% qoq/saar (+4.7% in 4Q18). Meanwhile, utility growth improved to 7.6% qoq/saar (-5.0% in 4Q18).

The sluggish activity start to the year is another argument supporting the retention of the current monetary stimulus for a prolonged period. In an environment of low rates, the current levels of copper prices, upbeat business confidence and positive investment signals are consistent with our 3.2% growth forecast for 2019 (from 4% recorded last year).

Miguel Ricaurte
Vittorio Peretti

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