Itaú BBA - CHILE – Services leads weak activity in May

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CHILE – Services leads weak activity in May

julio 5, 2019

Downbeat private sentiment amid an uncertain global scenario justify our 2.4% growth call for this year

Activity grew in line with expectations in May, remaining below potential but with some improvement in the non-mining component. The monthly GDP proxy (Imacec) increased 2.3% yoy (2.1% in April), resulting in a year-to-date growth of 1.8% (5.1% in the 2018 corresponding period). Despite the expected recovery in 2H19, the output gap is set to widen this year, limiting inflationary pressures and emboldening our call of further monetary easing by the central bank (2% yearend rate).

After recording its first positive print for the year in April, mining returned to contraction in May (-2.3% yoy) and is likely shrink further in June considering the effects of a labor strike at a key mine. Meanwhile, services are still driving the rest of the economy, which grew 2.8% yoy in May (2.1% previously), the highest print so far this year. In the quarter ended in May, activity grew 2.1% yoy, up from the 1.6% in 1Q19 but still below potential. Mining moderated its drop to 0.5% (-3.6% in 1Q19), while non-mining activity increased 2.3% (similar to 1Q19; 3.7% in 4Q18).

At the margin, activity posted some recovery. Activity increased 3.4% qoq/saar in the quarter ended in May, following a notably weak 0% in 1Q19. The non-mining activity acceleration to 3.5% qoq/saar in the quarter (2.1% in 1Q19; 4.4% in 4Q18) alongside mining improving to 2.5% qoq/saar, following the 17.3% drop in 1Q19, are behind the headline recovery.

Momentum gains are unlikely to persist. The GFK survey for the month of June showed a slump in consumer confidence, a trend that has been unfolding over the last year. Consumer confidence fell 15pp from June 2018 to reach 37.8% (50 = neutral; 40.7% in May). Sequentially, it was the ninth decline in the last twelve months. No sub-index is in optimistic ground, while the five-year economic outlook component reached historic lows. Meanwhile, Icare’s business confidence indicator also showed a retreat in the month to 50.2% (50 = neutral), from 55.1% one year ago. Business confidence has been below last year’s level for every month of 2019. When the mining sector is excluded from the index, business confidence dropped 6.1 points to 46.5 (52.6 one year ago), recording the lowest level since the end of 2017. On the trade front, declining imports of consumer goods reflect the loose labor market, while a slowdown of capital goods imports hints at a milder investment impetus compared to expectations at the start of the year. 

Downbeat private sentiment, an uncertain global scenario and contained copper prices justify our call for growth of 2.4% this year (4% for 2018). The two-week labor strike at a key Codelco mine in June means that activity in the 1H19 is likely to come in around 2.0%.

Miguel Ricaurte
Vittorio Peretti


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