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Private Consumption has adjusted.
2023/08/18 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

The Chilean economy contracted 0.3% (QoQ/SA; +0.4% in 1Q) between 1Q23 and 2Q23, pulled down by net exports (-0.8pp of contribution) and falling government consumption (-0.3pp), while steady sequential private consumption and a gross fixed investment increase limited the decline. The sequential drop was milder than the 0.6% outline from the monthly GDP proxy (IMACEC), with the improvement coming mainly from the non-mining component. After four consecutive quarters of sequential declines, stable private consumption from 1Q signals that the bulk of the consumption adjustment from unsustainable levels has likely unfolded. Fixed investment grew 1.4% QoQ/SA, with machinery and equipment rising 3.6% (construction fell 0.1% QoQ/SA), while the accumulation of inventories also played a positive part in the quarter’s dynamics. In contrast with previous periods, net exports contributed negatively at the margin, as exports fell and imports increased. In annual terms, activity fell 1.1% in 2Q, confirming a marginally weaker print relative to the June IPoM estimate (-0.8%), but +30bps compared to the Bloomberg market consensus and our call of -1.4%. With domestic demand dynamics at the margin somewhat better-than-expected compared to earlier IMACEC indications, along with recent CLP developments, risks regarding the speed of the inflation convergence path ahead will likely augment and give further weight to calls to reduce the magnitude of rate cuts ahead (in line with central bank signaling of a yearend rate around 7.75%).

Private consumption moderated its negative pull during 2Q. Private consumption dropped 6.1% YoY, down from the 7% fall in 1Q23, as milder falls for goods is partly offset by a growing services drag. Durable goods contracted 26%, but easing from the 29% drop in 1Q23, while services shrunk 0.9% YoY (+0.2% in 1Q; the first annual fall since 1Q21). Government consumption rose 1.5% YoY, reducing its pull from 1Q (+2.7%). Gross fixed investment increased 1.6% (-2.3% in 1Q23; the first rise since 3Q22), due to increased investment in machinery and equipment, while partly mitigated by weak construction investment (associated with less demand for specialized services). Exports of goods and services decreased 1.2% (+2.5% in 1Q23), while total imports dropped 13.2% (-20% in 1Q23) leading to a positive contribution from net exports. On the supply-side, activity in the quarter was pulled down by commercial trade (-4.5% YoY; -0.4pp contribution), copper (-2.6%; -0.3pp contribution) and transport (-4.3%; -0.2pp contribution).


At the margin, activity decreased 1.2% QoQ/SAAR in 2Q23, pulled down by government consumption and a negative net exports contribution. Total consumption dropped 1.6% qoq/saar in 2Q23 (5% fall in 1Q), mainly pulled down by government consumption (-8% qoq/saar). Declining sequential exports (-5%), and recovering imports (+13.4%) dampened activity dynamics in the quarter. On the other hand, gross fixed investment increased 5.6% QoQ/SAAR, led by machinery and equipment (15%). 


For 2023 we estimate a GDP contraction of 0.5% this year (+2.4% in 2022), however the 2Q23 upside surprise puts an upside risks to our call. In the short term, we expect activity to remain weak with some improvement towards year end, driven by lower interest rates, falling inflation, and better consumer sentiment and business confidence.