The monthly GDP proxy (IMACEC) increased 2.5% YoY in January (-1.0% in December), well above the Blomberg market consensus of 0.6% (Itaú: +0.8%). Sequentially, the economy grew 1.7% from December to January (more than unwinding the 1.0% drop in December). Non-mining activity rose 2.6% YoY (-0.5% in December), pulled up by the 5.2% YoY increase of other goods (particularly electricity generation), while commerce (3.7% YoY) and manufacturing (3.6% YoY) were also key drivers. Services grew 1.9% YoY (1.8% in December). While the mining rebound (+6.1% MoM/SA; -4.1% in December) pulled up overall activity dynamics at the margin, all divisions performed favorably. Non-mining activity rose 1.1% in the month (-0.5% in December), supported by commerce (mainly wholesales), services (particularly business) and manufacturing all rising by around 1% MoM/SA.
During the quarter ending in January, non-mining activity advanced on a gradual recovery path. The overall economy increased 0.8% YoY in the quarter (0.2% in 4Q23), with non-mining up 0.9% (0.5% in 4Q). Manufacturing (2.5% YoY ) and services (1.6%) were the key pulls in the quarter. Commerce contracted by a milder 0.7% (2.1% down in 4Q), and is expected to return to positive figures in 1Q24. At the margin, IMACEC increased 1.9% qoq/saar (0.8% in 4Q), lifted by the 2.9% non-mining rise (2.4% in 4Q) as commerce and services advance.
Leading indicators continue to point to a gradual recovery. Think-tank ICARE’s business sentiment improved at the margin in February, rising for the second consecutive month, yet still in pessimistic territory. Business confidence rose to 44.9 points (50 = neutral; 43.7 in January), with the non-mining index at 40.8 (38.8 in January). The BCCh’s quarterly Business Perception Report, published on February 6, also showed a modest improvement in firms’ expectations. Imports of consumer goods have started to increase after a significant period of adjustment, while imports of capital goods are no longer contracting at a double-digit rate. Bank credit turned positive in January for the first time since October 2022.
The strong start to the year likely offsets the weak close to 2023, and will not significantly alter the central bank’s view of the gradual recovery in economic activity. Lower interest rates and inflation, along with an improvement in labor market data, should support a gradual recovery this year, primarily driven by private consumption, as investment should remain weak. We expect GDP growth to rebound to 1.7% from an 0.2% contraction in 2023. The BCCh will publish revised national accounts data on March 18. With inflation expectations anchored and a prior signaling of valuing predictability, we expect the Board to cut by another 100bps in April, as has been priced in for several weeks.
