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As interest rates and inflation fall, the economy is expected to gradually recover.
2023/12/01 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra



The monthly GDP proxy (IMACEC) grew 0.3% over one year in October, the second consecutive annual increase (of the same magnitude), suggesting that the economy could have a smaller-than-expected adjustment this year. Growth in services, manufacturing and rest of goods pulled activity up in the month, but was partially offset by a large 4.0% YoY contraction for the volatile mining component. The total IMACEC increase of 0.3% was somewhat below expectations (Bloomberg consensus: 0.4%; Itaú: 0.7%), but the 1.0% YoY increase of non-mining IMACEC consolidates the view that the gradual recovery is underway. On a sequential basis, total activity fell 0.1% MoM SA from September, dragged by the 5% drop in mining. Excluding mining, however, activity rose 0.7% MoM SA, with positive contributions across sectors. While core activity is showing signs of improvement, demand-side inflation pressures remain low. Furthermore, medium-term inflation expectations remain anchored, the CLP has appreciated significantly since the October meeting, and external financial conditions have improved. Thus, we expect the Board to continue cutting rates by between 50bps and 75bps in December.

The economy grew 1.3% QoQ/SAAR in the quarter ending in October. In annual terms, the economy grew by a mild 0.1% YoY, pulled up by mining, while core activity contracted 0.3% YoY (-0.1% in 3Q and -0.8% in 2Q). At the margin, core activity rose 0.7% QoQ/SAAR (+1% in 3Q and -2.4% in 2Q), lifted up gains in commerce (+5%) and manufacturing (+6.6%), while services fell (2.9% QoQ/SAAR).  

Business sentiment for November fell, ending the four-month recovery sequence. Think-tank ICARE’s business confidence dropped 1.25pp to 42.66 points (50 = neutral) in November. Business sentiment completed 21 months in pessimistic ground, and remains below the average levels prior to the social unrest (October-2019). By sectors, the deterioration in the month was widespread. With only a gradual activity recovery underway, a meaningful business sentiment recovery is not anticipated, consolidating expectations of weak investment dynamics ahead.

As interest rates and inflation fall, the economy is expected to gradually recover. The upside surprise of 3Q23 GDP and favorable core activity dynamics at the start of 4Q23 suggest a smaller activity contraction this year versus our official -0.3% call. We see the economy recovering slightly to 1.5% growth in 2024. For November we preliminary expect the economy to increase by 0.5-1.0% YoY.