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Domestic demand remains a key drag to activity.
18/04/2023 | Andrés Pérez M., Vittorio Peretti  & Ignacio Martinez Labra  

The Chilean economy grew 0.8% (QoQ/SA; +0.2% in 4Q) between 4Q22 and 1Q23, pulled up by net exports (+2.5pp contribution), government consumption (+0.8pp) and to a lesser extent services (+0.2pp). Total private consumption and investment expectedly fell from 4Q22, resulting in a negative domestic demand contribution (-1.6pp). The growing net export pull is being led mainly by softening imports (an indication of further domestic demand weakening ahead). In annual terms, activity fell by 0.6% in 1Q, in line with the BCCh’s IPoM central scenario, while not as deep as indicated by IMACEC (-0.9%), due to upside revisions to mining. With activity and inflation unfolding in line with the central bank’s expectations, rate cuts are not expected to materialize before 3Q23.

Domestic demand remains a key drag as durable private consumption and gross investment post double-digit contractions. Private consumption dropped 6.7% yoy (-4.7% in 4Q22), dragged by the near 30% fall in durable goods. In contrast, government consumption rose 3.9% yoy (2.1% drop in 4Q22). Gross fixed investment contracted 2.1% yoy (1.7% drop in 4Q22), with construction and machinery falling by a similar magnitude. Total investment fell 16.8% (broadly in line with 4Q22), amid an accelerating destocking of inventory. Exports of goods and services rose 2.4% (1.6% in 4Q22), while total imports dropped 17.4% (-15.8% in 4Q22) leading to a growing positive contribution from net exports. On the supply-side, activity in the quarter was pulled down by commercial trade (-3.8% YoY; -0.4pp of contribution) and agriculture (-4.1% YoY; -0.3pp of contribution).


Activity increased 3.4% qoq/saar in 1Q23, pulled up by net exports and  government consumption. Total consumption dropped 4% qoq/saar in 1Q23 (1% fall in 4Q22), mainly pulled by the strong fall of durable goods (-56% qoq/saar). Non-durable goods continued to fall, registering a 10.3% fall (8.4% drop in 4Q22). Meanwhile, consumption of services had a positive performance, with growth of 3.4% qoq/saar (following the payback in transport). Government consumption rose 23.4% qoq/saar (8.4% in 4Q22). Gross fixed investment fell 3.5% qoq/saar, continuing its weak performance (2.8% drop in 4Q). Exports increased 2%, while imports declined at a double-digit rate (17.2%).


We expect a GDP contraction of 0.4% this year (+2.4% in 2022). The lagged effect of tight monetary policy and reduced household savings will support a further consumption adjustment during the remainder of the year. Government spending during 1Q23 rose by 5.4% YoY, yet is set to decelerate throughout the year to the government’s projected 0.6% YoY rise during 2023. Business confidence remains weak, suggesting investment is unlikely to pick up. Our preliminary forecast for April’s IMACEC, to be released June 1, considers a contraction of 1.2% YoY.