Itaú BBA - CHILE – Weakening external and domestic demand in 2Q19

Macro Latam

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CHILE – Weakening external and domestic demand in 2Q19

julio 8, 2019

With low global and internal demand growth, the current account deficit is seen staying broadly stable and wide.

The evolvement of Chile’s external accounts are reflecting the global growth slowdown as exports decline on a widespread scale, while shrinking imports highlight the domestic demand weakening. Overall, a USD 317 million trade surplus was registered in June (USD 297 million one year earlier), below our USD 475 million call and the USD 563 million Bloomberg market consensus. As a result, the rolling 12-month trade surplus came in at USD 3.7 billion, versus USD 4.7 billion in 2018, USD 7.4 billion in 2017. Additionally, our seasonally adjusted series shows a USD 3.4 billion (annualized) trade surplus in 2Q19, down from USD 5.2 billion in 1Q19 when copper prices were higher.

In June, all three export divisions (mining, agriculture and industrial) contracted on a double-digit scale. Total exports dropped 15.6% yoy in June, resulting in a decline of 8.0% in the second quarter of 2019 (-3.9% in 1Q19). Mining fell 8.4% (-5.4% in 1Q19), the fourth consecutive quarter of declines, while industrial exports dropped 6.7% (-1.9% in 1Q19), hinting that weaker global demand goes beyond just China. At the margin, exports fell 15.4% qoq/saar, after the 10.7% drop in 1Q19.

Capital imports contracted for a second consecutive month and is in line with falling business confidence and expectations of an investment moderation. Total imports dropped 16.7% in June, leading to a 7.6% drop in 2Q19 (+0.1% in 1Q19). The decline of durable consumption goods imports consolidated further (-16% vs -6.7% in 1Q19), in line with plummeting consumer confidence levels, while falling energy imports dragged intermediate goods imports (-8.5% vs +2.5% in 1Q19). Capital goods fell 1.5% in 2Q19 (+2.5% in 1Q19). At the margin, imports fell 7.2% qoq/saar, moderating from the 24.4% decline in 1Q19, as energy imports accelerated.

As copper prices stay low, global demand is weak and internal demand growth limited, the current account deficit is seen staying broadly stable and wide at 3.2% of GDP this year.

Miguel Ricaurte
Vittorio Peretti

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