CHILE – A larger-than-expected trade surplus in June

CAD correction to continue.

07/07/2023 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

A trade surplus of USD 1.5 billion was registered in June, above the market consensus of USD 0.8 billion and our USD 1.0 billion call. The large surplus in June was also a significant swing from the USD 0.3 billion deficit in June last year. Total exports fell by 3.6% YoY (10.8% drop in May), as the 3.6% rise in copper exports was offset by a significant decline in lithium (-31% yoy; levels broadly stable at roughly USD 450 million since April). Meanwhile, total imports continued to contract at double digit rates (down 25.5% YoY, deeper than the 18.9% drop in May), with large drops in durable consumer goods (-39%), energy (-46%), and capital goods (-13%; in line with May). During the second quarter of 2023, a large USD 3.6 billion trade surplus was registered, USD 2.6 billion larger than in 2Q22, signaling that the swift narrowing of the CAD will persist. The 12-month rolling trade surplus rose to USD 13.9 billion, from USD 10.3 billion as of March and USD 3.8 billion in 2022. At the margin, our seasonal adjustment shows the trade surplus at USD 12.4 billion in the quarter (annualized; USD 26.1 billion surplus in 1Q23). Overall, still elevated copper prices, along with lower global oil prices and falling domestic demand are leading to a swift correction of external imbalances (CAD of 9% in 2022), significantly reducing the CLP’s vulnerability to global shocks.

Total exports fell during the quarter, amid more demanding lithium base effects. Exports contracted 6.0% in 2Q23 (+11% in 1Q23). Total mining dropped 6.4% (+8.6% in 1Q23), despite copper rising 4.5%, returning to positive quarterly numbers for the first time since 4Q21 (-3.6% in 1Q23). Lithium exports reached USD 1.4 billion in the quarter (USD 3.0 billion peak in 2Q22), a 53.9% YoY contraction. Manufacturing exports fell 4.6% (+12.9% in 1Q23; +2.8% in 4Q22). Sequentially, exports decreased 40% qoq/saar (+32.4% in 1Q23).

Energy imports are falling, while durable consumption remains weak. Imports contracted 20.6% during 2Q23 (-16.2% in 1Q23). Consumer goods imports fell 26.2% (33% down in 1Q), with durable goods imports falling 33%, as high inflation, the absence of household savings buffers and elevated interest rates hinder consumption dynamics. Capital goods imports fell 8.9% YoY (11.2% drop in 1Q23), in line with the weak investment dynamics for the short term. Meanwhile, energy imports decreased 32.2% (+4% in 1Q23) as global oil price adjust down. At the margin, imports rose 4.8% qoq/saar (-24% in 1Q23). Excluding energy, imports rose 10% qoq/saar (-2% drop in 41), signaling that while domestic demand is set to remain weak, the bulk of the adjustment has likely taken place.

The domestic demand correction unfolding, along with still high copper prices and lower global transportation fees point to a significant narrowing of the CAD this year to 3.9% of GDP (9.0% last year). However, a further moderation in lithium prices and weak local mining activity may pose risks to the pace of the correction.