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In the short-term, we expect activity to remain weak, with activity bottoming out in 3Q23.
2023/08/01 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

The monthly GDP proxy (IMACEC) surprised to the upside in June, as volatile mining rebounded. The IMACEC contracted 1.0% YoY (-2.0% in May), with mining rising 1.1% YoY (-7.5% in May), while non-mining contracted 1.3% (1.1% drop in May). The annual contraction was smaller than the Bloomberg market consensus of a 1.4% fall and our -1.2% call. In monthly terms, activity rose 0.5% from May (SA; unwinding the previous 0.5% drop), as mining posted a large sequential increase of 4.5%. Meanwhile, non-mining IMACEC continued to trend down, dropping 0.2% month-over-month (SA; the fourth consecutive decline). Services ex-commerce fell 0.5% MoM/SA, while commerce dropped 0.5% (SA). In the quarter, core activity as measured by the non-mining IMACEC contracted by 0.8% QoQ/SA in 2Q23 (+0.9% in 1Q23), while the total print fell by slightly less (0.6% QoQ/SA). Relative to the June IPoM, the print today confirms activity was weaker than expected during 2Q with total activity falling by 1.4% YoY, relative to an expected print of -0.8%. While volatility in mining activity has been particularly high this year, core activity is showing signs of a further correction from unsustainable prior levels that, along with falling inflation, supports a swift easing cycle ahead.


Activity during 2Q23 was dragged down by commerce, while the upside pull from services faded. The 1.4% YoY decline during 2Q23 (0.6% drop in 1Q23) saw mining fall 1.3% (0.4% drop in 1Q), with non-mining contracting 1.3% (0.6% fall in 1Q). The services (excluding commerce) pull eased to 0.2% (+1.4% in 1Q23), while the commerce drag increased to 6.0% (-3.8% in 1Q). Manufacturing contracted 1.9% (0.1% drop in 1Q). At the margin, total activity fell 2.2% QoQ/SAAR (partly offsetting the 2.3% rise in 1Q23), as non-mining lost momentum (-3.2%; +3.6% in 1Q23).


Private sentiment remains weak but is no longer deteriorating further. Think-tank ICARE’s non-mining business confidence during July rose to 38.3 points (50 = neutral; +1.7pp from June), but still around 9pp below average levels prior to the social unrest and pandemic. Overall, business sentiment completed 17 months in pessimistic ground, but the July level is the least downbeat since June 2022. While the annal drop for imports of capital goods during 2Q23 was milder than in 1Q, it remained significant (down 8.9% YoY; -11.2% in 1Q23), signaling that investment dynamics remain soft. Consumer sentiment remained unfavorable at 30.2 points in July (50 = neutral), yet improved for the third consecutive month reaching the highest level since March 2022. Falling inflation and a swift lowering of interest rates expected ahead should gradually improve sentiment, but with the tax reform path unclear, and the constitutional rewrite underway, a significant confidence rebound is unlikely.


In the short-term, we expect activity to remain weak, with activity bottoming out in 3Q23. We foresee an improvement in activity towards yearend, driven by lower interest rates, falling inflation, and better consumer sentiment and business confidence. We expect a GDP contraction of 0.4% this year (2.4% last year). Given favorable base effects, we preliminarily expect IMACEC to increase by around 1.0% in July, before returning to negative prints for most of the remaining year.