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Private consumption annual drag continues to ease.
2024/03/18 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

The economy grew 0.4% YoY in 4Q23, above the 0.2% indicated by the monthly GDP proxy (0.6% YoY in 3Q23). Sequentially, the economy rose 0.1% from 3Q23 to 4Q23, slowing from the 0.8% increase in the previous quarter. Dynamics at the margin were lifted by private consumption (+0.4% QoQ/SA, the first increase since 4Q21), and net exports. Gross fixed investment contracted 3.5% QoQ/SA. Overall, the economy grew 0.2% in 2023, as opposed to the -0.2% IMACEC signal, and in part due to less demanding base effects, as 2021 and 2022 were revised down by 0.4pp in each year (to 11.3% from 11.7% in 2021; to 2.1% from 2.4% in 2022). Overall, activity in 2023 came in above expectations improving carryover effects for this year (+10bps), while the January IMACEC increase was revised 30bps up to 2% MoM/SA. With two upside inflation surprises, unfavorable CLP dynamics this year, and better-than-expected activity, we expect the central bank board to reduce the rate cut pace to 75bps on April 2, and reach 4.75% by year-end.


The private consumption annual drag continued to ease, but investment remains weak. Private consumption contracted 2.5% YoY in 4Q23 (4.4% drop in 3Q; mildest drop since 2Q22), with durable goods falling by 9% (-15% in 3Q23) and non-durables dropping 4.8% (-7.9% in 3Q23). Services grew by 1% (+0.7% in 3Q23). Government consumption increased by a mild 0.4% (+1.8% in 3Q23). Gross fixed investment contracted 5.7% (-2.9% in 3Q), with machinery and equipment falling 9.1% and construction down 3.3%, consistent with overall weakness of the sector. Exports fell 1.2% YoY, while imports fell 8.1% YoY, resulting in a positive net export contribution (+2.9pp).  On the supply-side, activity was pulled up by Transportation (+23.8% YoY; +1pp contribution) and Utilities (+24% YoY; +0.5 pp contribution), partially compensated by Copper (-2.5% YoY;-0.5 pp contribution).


At the margin, activity increased 0.4% QoQ/SAAR in 4Q23, pulled up by consumption and net exports. Total consumption (grouping private and government consumption) increased 1.1% QoQ/SAAR in 4Q23 (-0.4% in 3Q), driven by a sequential improvement in all components of private consumption, while government consumption fell 1.2% QoQ/SAAR. Exports decreased 3.5%, but imports dropped by a larger amount (-8.7%). On the other hand, gross fixed investment decreased 13.3% QoQ/SAAR, driven mainly by -23.4% of Machinery and Equipment, while Construction fell by 6%.


Even though activity dynamics have surprised positively, we do not expect a significant change in the BCCh’s growth outlook in its next IPoM (1.25-2.25% for 2024). Private consumption is expected to be the primary activity driver this year, while still high interest rates and downbeat business confidence will weigh on investment. The combination of revisions to prior years’ growth numbers and a better print in 2023 will likely result in no significant alteration in the output gap estimate that was seen to be near closed. We expect GDP growth of 1.7% this year.