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Activity during 2Q23 will likely post a notable decline.
03/07/2023 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

The monthly GDP proxy (IMACEC) surprised to the downside in May, as volatile mining slumped. The IMACEC contracted 2.0% YoY (1.1% fall in April), with mining down 7.5% YoY (+3.1% in April), and non-mining contracting 1.1% (milder than April’s 1.6% drop).  The annual contraction was deeper than the Bloomberg market consensus of a 1.7% fall and our 1.2% call (central bank analyst survey: -1.1%). In monthly terms, activity was flat from April (SA), as volatile mining unwound the prior month’s gains with a sequential contraction of 3.5%. Meanwhile, non-mining IMACEC was flat month-over-month (SA; after a 0.7% drop in April). Services ex-commerce rose a mild 0.1%, while commerce increased 0.3% (SA). While volatility in mining activity has been particularly high this year, core activity is not showing signs of a meaningful deterioration, which plays against a rate cut larger than 50-bp in the next policy rate meeting.


Activity during 2Q23 will likely post a notable decline. Activity fell 1.6% yoy during the quarter ending in May (0.6% drop in 1Q23), with non-mining contracting 1.2% (0.6% fall in 1Q), as the services (excluding commerce) pull eased to 0.5% (+1.4% in 1Q23), while the commerce drag increased to 5.3% (-3.8% in 1Q). Manufacturing contracted 1.7% (0.1% drop in 1Q). At the margin, total activity fell 0.6% qoq/saar (partly offsetting the 2.5% rise in 1Q23), as non-mining loses momentum (-0.1% qoq/saar; +3.9% in 1Q23). 


Private sentiment remained weak in June, but with diverging sequential dynamics between the business and consumer outlook. Think-tank ICARE’s business confidence during June fell to 39.5 points (50 = neutral; -1.9pp from May), around 11pp below average levels prior to the social unrest and pandemic. Non-mining business sentiment is even weaker. Overall, business sentiment completed 16 months in pessimistic ground. With the tax reform path unknown, and the constitutional rewrite underway, business confidence will likely remain downbeat. Meanwhile, imports of capital goods during the bulk of 2Q23 continue to post a large decline (6% YoY), signaling that an investment pickup in the near term appears unlikely. While consumer sentiment remains unfavorable (29.6 points in June; 50 = neutral), falling inflation is likely driving a mild improvement at the margin.


We do not expect non-mining activity to rebound in the near-term, amid elevated real rates, the absence of household savings buffers, and downbeat business sentiment. Nevertheless, fiscal spending has been rising at a fast pace this year, accumulating a 7.7% YoY expansion through May, limiting a steeper decline in activity. We expect a GDP contraction of 0.4% this year (2.4% last year), but structurally weak mining adds an additional downside risk.