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We foresee a further improvement in activity towards yearend.
2023/09/01 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

The monthly GDP proxy (IMACEC) surprised significantly to the upside in July, led by non-mining. The IMACEC increased 1.8% YoY (-0.8% in June), with mining rising 2.9% YoY (1.0% in June), while non-mining rose 1.5% (-1.1% in June). The annual increase (favored by less demanding base effects given the extension of school vacation last July) was well above the Bloomberg market consensus of 1.1% and our 0.9% call. In monthly terms, activity rose 0.3% from June (SA; building on the prior 0.4% gain), as non-mining activity posted a large sequential increase of 0.6%. The non-mining sequential gains were widespread, but particularly boosted by value-added electricity generation (likely a result of rainfalls in June and hydro production). Meanwhile, mining IMACEC partially unwound the large sequential increase registered in June. In the quarter, core activity as measured by the non-mining IMACEC contracted by 0.8% QoQ/SA in the quarter (-2.1% in 2Q23), while the total print fell by slightly less (0.2% QoQ/SA). Relative to the June IPoM, the print today likely solidifies the BCCh’s above market consensus call for 2023 growth between -0.5 to +0.25% (BCCh’s analyst survey: -0.5%). As significant rainfall persists, the benefit for electricity generation is set to continue. Growing signs that the economic adjustment is bottoming out, while supply-side inflationary risks rise mean the Board will likely evaluate lowering the rate cut magnitude to 75bp along with the option to persist with 100bps in the September 5 monetary policy meeting.


Activity during the rolling-quarter saw the momentum in services improve, while the contraction in commerce and manufacturing fades. The 0.3% YoY decline during the quarter ending in July was smaller than the 1.1% drop in 2Q and 0.8% fall in 1Q23. The quarterly contraction was the smallest since the economy entered negative ground post 3Q22. Mining fell by a broadly stable 1.3%, while non-mining contracted by 0.1% (1.1% fall in 2Q). The services (excluding commerce) pull rose to 1.5% (0.5% in 2Q23), while the commerce drag eased to -3.8% (-5.2% in 2Q). Manufacturing contracted 1.2% (2% drop in 2Q).


Business sentiment improved for the third consecutive month, still below neutral. Think-tank ICARE’s business confidence during August rose 2.1pp to 43.2 points (50 = neutral), but is still over 4pp below average levels prior to the social unrest (October-2019). Overall, business sentiment completed 18 months in pessimistic ground, but the August level is the least downbeat since May 2022. Falling inflation and interest rates should gradually improve sentiment ahead, but with the tax reform path unclear, and the constitutional rewrite underway, a significant confidence rebound appears unlikely. In turn, falling employment in the construction sector and weak imports of capital goods suggest investment dynamics are likely to remain soft.


Activity likely reached its minimum level in the cycle. We foresee an improvement in activity towards yearend, driven by the stabilization of private consumption, lower interest rates, and falling inflation. We expect a GDP contraction of 0.5% this year (+2.4% last year), but the bias tilts to a smaller drop. Given more demanding base effects for August, we preliminarily expect IMACEC to fall slightly in year-on-year terms, while the risks of a contraction in 3Q23 have fallen.