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Data points to a more gradual closing of the positive output gap than initially expected

Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra


The monthly GDP proxy (IMACEC) increased 0.4% over twelve months in January (1% drop in December), with non-mining activity surprising positively. The 0.4% yoy rise was larger than the Bloomberg market consensus of a 0.1% drop and our +0.1% call (EEE: -1.5%). Activity increased 0.5% from December to January (SA), building on the 0.3% increase recorded previously. Non-mining activity rose sequentially, by 0.4% (the same increase in December), with widespread positive sequential gains (commerce: 1.1% mom/sa; manufacturing: 0.9% mom/sa; services: +0.7% mom/sa). Mining increased 1% mom/sa. With this, the Chilean economy has surprised to the upside during the backend of 2022 and the start of this year despite a tight macro policy mix, falling real wages, the utilization of excess liquidity balances and downbeat private sentiment. Overall, the data points to a more gradual closing of the positive output gap than expected in the previous IPoM, that translates into more persistent demand-side inflationary pressures (partly offsetting the FX pass-through benefits) and will likely result in further signaling by the Board that rates will likely remain at the 11.25% for longer than currently priced in the market (rate cut in May). Activity data will be revised when the National Accounts are released on March 20.

The economy still contracted in annual terms during the rolling-quarter, while is broadly steady at the margin. GDP fell 1.1% in the quarter ending in January, moderating from the 1.6% drop in 4Q22. Non-mining activity declined 1.2% (down 1.7% in 4Q22). Services (excluding commerce) increased 1.3% (+1.1% in 4Q22). Meanwhile, the drag from commerce eased to a 6.2% contraction (8.4% drop in 4Q22 and 9.6% fall in 3Q22), while manufacturing contracted 3.8% (5.5% drop in 4Q). At the margin, total activity increased 0.1% qoq/saar (after a 2.4% rise in 4Q22; 5.5% decline in 3Q). Non-mining activity fell 0.1% qoq/saar (+0.2% in 4Q; -4.2% in 3Q).

Business confidence improved at the margin, yet remains deep in pessimistic ground. Think-tank ICARE’s business confidence survey for February does not signal a meaningful activity uptick ahead. Excluding the volatile mining component, business sentiment did tick up to 37.2 points (50 = neutral), but completed 13 months in pessimistic ground. Construction sentiment remains the key drag amid low demand and unfavorable economic outlook (confirmed by notable job destruction in the sector).

While we expect the Chilean economy to contract by 0.9% this year, recent data increase the likelihood of a somewhat milder decline (2.7% increase last year).

Andrés Pérez M.

Vittorio Peretti

Ignacio Martinez Labra