Itaú BBA - CHILE – Widespread activity slowdown in 1Q19

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CHILE – Widespread activity slowdown in 1Q19

mayo 6, 2019

Moderating business and consumer confidence amid elevated global risks pose a growing risk to our 2019 growth scenario

Activity in the first quarter of 2019 grew at its slowest pace since 2Q17. The month GDP proxy (Imacec) increased 1.9% yoy in March (1.4% in February), in line with the Bloomberg market consensus and a tick above our 1.7% call. Mining once more led the drag, contracting for the third consecutive month, while services is still driving the rest of the economy. Overall, Imacec growth slowed to 1.8% in 1Q19, from 3.6% in 4Q18. Mining growth is expected to improve ahead as the effects from disruptive weather and a high base of comparison pass, and copper prices remain elevated. The weak activity at the start of the year is line with our view that growth would slow this year after posting an above-potential 4% last year. With activity sluggish, inflation and inflation expectations controlled and external risks still relevant, we continue to expect stable rates by the central bank for the time being (next meeting: May 08-09).

Although mining expectedly slowed in 1Q19, the moderation of non-mining activity (to its weakest year-over-year rate since 3Q17) shows the economy is fragile. Mining declined 4.5% yoy in 1Q19 (weakening from the 1.3% gain in 4Q18), while non-mining activity slowed to 2.5% yoy (3.7% in 4Q18). As a result, Imacec increased 1.8% in the quarter (slowest since the 0.4% in 2Q17).

At the margin the economy also weakened in 1Q19 (to 0.4% qoq/saar, from 5.3% in 4Q18), despite a solid mining-led month-over-month gain in March. Non-mining activity decelerated to 2.8% qoq/saar in 1Q19 (4.5% in 4Q18). Meanwhile, mining contracted a sharp 19.9% qoq/saar in 1Q19 (+12.7% in 4Q18), even though it posted a 4.4% MoM rise in March. 

Weakness in mining activity is likely due to transitory factors, but the recent moderation of business and consumer confidence amid elevated global risks pose a growing risk to our growth scenario of 3.2% for this year. Nevertheless, in an environment of low inflation, expansionary monetary policy and signs of some labor market recovery, an improvement of non-mining activity is still our baseline scenario. Official national account data will be published on May 20.

Miguel Ricaurte
Vittorio Peretti

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