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The annual drag from private consumption continues to ease.
2023/11/21 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

The economy expanded sequentially by 0.3% QoQ/SA in 3Q23 (-0.3% in 2Q23), pulled up by net exports (+1.6pp contribution) and total consumption (+0.7pp), while lower inventories (-1.4pp) and falling gross fixed investment (-0.6pp) were key drags in the quarter. Private consumption grew 1.2% QoQ/SA (+0.2% in 2Q; -3.4% in 1Q), in line with our view that the adjustment in household consumption has unfolded and should gradually improve going forward. Government consumption increased 0.9% QoQ/SA (-2.2% in 2Q). Gross fixed investment fell 2.2% QoQ/SA (+0.9% in 2Q), with both of its components decreasing (-0.4% for construction; -4.9% for machinery and equipment). The positive net exports contribution was driven by falling imports and greater exports. In annual terms, the economy increased 0.6%, 0.3pp higher than what was indicated by the monthly GDP proxy (IMACEC) and our call, while +0.4pp above the BCCh’s September IPoM estimate. Sequential private consumption growth may prevent a swifter inflation convergence path ahead, a factor that supports calls to maintain the magnitude of rate cuts in the near-term. We see a 50bp cut for the December meeting to 8.5%, along with a 2024 yearend rate of 5.75%.


The annual drag from private consumption continues to ease. Private consumption dropped 3.6% YoY, milder than the 6% fall in 2Q23, with the drop in the goods component moderating further, while services contributed positively. Durable goods contracted 11%, easing from the 26% drop in 2Q23, still dragged by weak automobile purchases. Services increased 0.6% YoY (-0.3% in 2Q). Government consumption rose 3.9% YoY (+1.8% in 2Q; +3.3% in 1Q). Gross fixed investment contracted 4.1% (+1.5 in 2Q23), with construction decreasing 2.6%, and machinery & equipment falling 6.3% (particularly electrical equipment). The decline in total investment was greater (8% drop; -7.2% in 2Q), amid lower inventories. Exports of goods and services increased 0.2% (-1.3% in 2Q23), while total imports dropped 11% (-13% in 2Q23) leading to a large positive contribution from net exports. On the supply-side, activity in the quarter was pulled up by mining (4.6%; 0.7pp contribution) and utilities (+20.8% YoY; +0.5pp contribution), the latter reflecting greater value added in electricity generation from higher rainfalls throughout the quarter.


At the margin, activity increased 1.3% QoQ/SAAR in 3Q23, pulled up by consumption and net exports. Total consumption (grouping private and government consumption) increased 4.6% QoQ/SAAR in 3Q23 (-1.1% in 2Q), driven by a sequential improvement in durable goods (+32%) and government consumption (3.8%). Separately, exports increased 5.3%, while imports fell by 4.9%. On the other hand, gross fixed investment decreased 8.6% QoQ/SAAR, having contracted sequentially in four of the past five quarters.


Slight upside revisions to GDP in previous quarters and the positive surprise for 3Q23 should likely lead to a milder contraction (or even a null variation) for the economy this year, relative to our -0.3% call. Of note, Chile’s GDP has surprised to the upside in the past three consecutive prints, with net exports playing an important role, leading to upward revisions in this year’s growth forecast. However, even as private consumption is expected to sequentially improve, a weak labor market should limit greater momentum, while the outlook for private investment remains challenging. Looking ahead, we see the economy expanding by a below-trend 1.5% in 2024.