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A gradual sequential improvement toward yearend is our base case.
2023/10/01 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

The monthly GDP proxy (IMACEC) surprised significantly to the downside, led by education services. The IMACEC fell 0.9% YoY (+1.8% in July), with mining rising 1.7% YoY (+2.9% in July), while non-mining dropped 1.3% (+1.5% in July). The annual contraction was well below the Bloomberg market consensus of -0.1% and our +0.1% call. In monthly terms, activity fell 0.5% from July (SA; partly reverting the sequential gains in the two prior months), as non-mining activity posted a large sequential decline of 0.5% (while mining also fell). The non-mining sequential drop was concentrated in services (particularly education), while a 0.6% MoM/SA commerce increase was driven by vehicles. Fiscal data shows that real expenditure fell by 12.4% YoY (-2.9% in July), contracting for the second consecutive month, with annual contractions in both current and capital expenditures. Overall, the weaker print in August was led by a transitory downturn in education (education accounts for 10% of services) that is expected to revert in September. In the quarter, core activity as measured by the non-mining IMACEC contracted by 0.6% QoQ/SA (-2.5% in 2Q23), while the total print fell at a similar pace (-1.5% QoQ/SA in 2Q23). While we expect falling inflation and lower rates to gradually provide a better backdrop for activity, the external environment has become increasingly challenging due to tighter global financial conditions and concerns on China’s growth prospects.


Activity in the rolling-quarter was flat over one year (first non-negative print since 3Q22; 1.1% contraction in 2Q23). Activity during the rolling-quarter saw mining boost activity, the negative commerce drag diminish and services still grow. Mining rose by 1.8% (1.2% drop in 2Q23), while non-mining contracted by 0.3% (1.1% fall in 2Q). The services (excluding commerce) pull rose to 0.9% (0.5% in 2Q23), while the commerce drag eased to -3.4% (-5.2% in 2Q). Manufacturing contracted 0.8% (2% drop in 2Q).


Business sentiment improved for the fourth consecutive month, but is still below neutral. Think-tank ICARE’s business confidence during September rose 0.2pp to 43.4 points (50 = neutral), but is still over 4pp below average levels prior to the social unrest (October-2019). Overall, business sentiment completed 19 months in pessimistic ground, but the September level is the least downbeat since May 2022. Non-mining sentiment posted its fifth consecutive month of mild improvements. Even though falling inflation and interest rates should improve sentiment, uncertainty over the reform agenda (pensions and taxes), the constitutional rewrite, and tighter global financial conditions, a return to optimistic ground is not anticipated in the near term. In turn, falling employment in the construction sector and weak imports of capital goods suggest investment dynamics are likely to remain soft, while rising claims for overall unemployment insurance also dents the outlook of the consumption recovery.


We expect a GDP contraction of 0.3% this year with a gradual sequential improvement toward yearend, driven by lower interest rates, falling inflation, and marginally better consumer sentiment and business confidence. For next year, we anticipate below-potential GDP growth of 1.8%, with risks tiled to the downside amid a weakening global backdrop.