Itaú BBA - CHILE - Weak April activity despite improved mining

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CHILE - Weak April activity despite improved mining

mayo 31, 2019

Robust machinery and equipment activity along with solid construction activity in 1Q19 bodes well for the investment recovery

Mining posted some improvement as expected in April as the effects of adverse weather and a high base of comparison pass, but primary sector-related manufacturing activity was a key drag in the month (continuing the trend that unfolded in 1Q19 GDP). Industrial production grew 0.7% yoy in the month of April (-0.8% in March), the first rise posted this year. Mining production bounced back with growth of 2.6% (-3.7% in March), while utility activity continued to advance. Hampering growth was the 1.4% yoy drop of manufacturing (+1.4% in March), well below the Bloomberg market consensus of 0.3% growth and our +0.2% call. The manufacturing decline was the first such case since November last year. After adjusting for calendar effects, the manufacturing drop was a milder 0.2% (+0.3% in March). Overall, the industrial production data along with our expectation of weak retail activity in the month suggests that the GDP proxy grew 1.9% in April, similar to the March performance.

On the positive side, robust machinery and equipment activity along with solid construction activity in 1Q19 bodes well for the investment recovery. Containing the 1.4% manufacturing drop in April was the double-digit rise in machinery and equipment production, contributing +0.4pp to the annual variation. Still, in the quarter ending in April manufacturing weakened to 0.2% year over year (1.6% in 1Q19 and 2.8% in 4Q18). Mining still contracted in the quarter, but moderated its drag to 3.5% (-5.9% in 1Q18). Overall, industrial production fell 1.2% yoy in the quarter, down from the 1.6% gain in 4Q18.


At the margin, industrial production fell 3.8% qoq/saar (similar to the performance in 1Q19), a slowdown from the 3.7% rise in 4Q18. Nevertheless, some acceleration ahead is likely as mining production (a key drag for quarter-over-quarter growth) has posted two consecutive monthly gains. Manufacturing declined 1.8% qoq/saar (-1.5% in 1Q19 and +4.7% in 4Q18). Meanwhile, utility growth accelerated to its fastest pace since early 2017.

Activity has been sluggish so far this year, while an increasingly complex external scenario is affecting Chile’s outlook. We see activity increasing 3% this year (4% for 2018). As uncertainty grows, the central bank will likely retain current level of monetary stimulus for an extended period, while the debate on whether additional easing is required gains space.

Miguel Ricaurte
Vittorio Peretti

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