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The domestic demand adjustment, amid contractionary monetary policy is supporting a narrowing of external imbalances.
2023/08/07 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

A trade surplus of USD 0.8 billion was registered in July, below the market consensus of USD 1.25 billion and our USD 1.0 billion call. Nevertheless, the surplus in July was once more a significant swing from the USD 72 million surplus in July last year. Total exports fell by 7.2% YoY (3.6% drop in June), as copper mining exports retreated (falling 2.8% YoY; +3.6% in June), while lithium continues to normalize (levels below USD 450 million, the lowest since March last year). Meanwhile, total imports continued to contract at double digit rates but there are signs that the worst of the adjustment has unfolded. Imports dropped 17% YoY, milder than the 25.5% drop in June. Durable consumer goods 27% (-39% previously), while imports of capital goods dropped 1.1% (13% fall in the previous two months). Energy imports continue to adjust quickly (35% contraction vs. -46% previously). The 12-month rolling trade surplus rose to USD 14.6 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 14 billion in the quarter (annualized; USD 26 billion surplus in 1Q23). The domestic demand adjustment, amid contractionary monetary policy is supporting a narrowing of external imbalances.


Total exports in the rolling-quarter continued to adjust downwards and mining and manufacturing softened. Exports contracted 7.4% in the quarter end in July (6% down in 2Q; +11% in 1Q23). Total mining dropped 7.3% (6.4% fall in 2Q; +8.6% in 1Q23), as the copper pull moderated and the lithium drag remained notable (contracting 54%). Manufacturing exports fell 7.9% (4.6% drop in 2Q; +12.9% in 1Q23). Sequentially, exports decreased 36% qoq/saar (+33% in 1Q23).


The energy import drag is significant, while domestic demand related imports remain weak. Imports contracted 20.5% in the rolling-quarter (similar to in 2Q; -16.4% in 1Q23). Consumer goods imports fell 26% (31.8% down in 1Q) as the absence of household savings buffers and elevated interest rates hinder consumption dynamics. Capital goods imports fell 9.5% YoY (8.9% fall in 2Q; 11.2% drop in 1Q23), in line with the weak investment dynamics for the short term. Meanwhile, energy imports contracted 36% (deeper than the 32.2% fall in 2Q and a significant swing from the 4% increase in 1Q23) as global oil price adjust down. At the margin, imports fell 16% qoq/saar (-24% in 1Q23). Excluding energy, imports dropped 8% qoq/saar (-21% drop in 1Q), signaling that while domestic demand is set to remain weak, the bulk of the adjustment has likely materialized.


The domestic demand adjustment, global oil price correction, roughly stable copper exports and normalizing global transportation fees will support a swift correction of external imbalances, significantly reducing the CLP’s vulnerability to global shocks. We expect the CAD this year to narrow to 3.9% of GDP (9.0% last year). However, moderating lithium prices and weak local mining activity may pose risks to the pace of the correction.