CHILE – Activity surprises to the upside in 2Q21

The rapid economic reopening underway will support activity momentum in 3Q

Vittorio Peretti & Andrés Pérez 


The Chilean economy increased 1.0% from the first quarter of the year, above the 0.7% market expectation, as the economy is better adapted to operate under sanitary restrictions, significant monetary and fiscal stimuli are in place and a third partial pension withdrawal benefited consumers. Favorable base effects (14.2% YoY decline in 2Q20) meant that GDP rose a significant 18.1% YoY (0.5% in 1Q, revised up by 0.2pp). On the demand side, activity was once more pulled up by durable goods consumption, while investment in machinery and equipment continued to recover. As a result, GDP stood 0.3% above the level recorded in 3Q19, prior to social unrest and the pandemic. The swift economic rebound, along with rising inflationary pressures and augmented fiscal stimulus support a swifter normalization cycle by the central bank in coming months.

Consumption of durable goods, particularly technological equipment and vehicles, more than doubled from last year. Total private consumption increased 33.7% YoY in 2Q21, aided by a low base of comparison (down 22.3% in 2Q20), economic support measures and the added liquidity injections from pension withdrawals. Non-durable goods consumption rose 28.9% YoY (6.0% previously), lifted by sales of apparel, food and beverages. Consumption of services was up 24.4% (similar to the drop last year), with restaurants and hotels seeing some recovery over one year. With a significant fiscal package underway in response to the crisis, public consumption grew 20.7% YoY, consolidating on the 3.3% rise at the start of the year (13.1% fall in 2Q20). Fixed investment increased 24.8% YoY (+1.1% in 1Q), boosted by machinery and equipment (particularly cargo vehicles for industrial and mining use). Final domestic demand expanded 29.7% YoY (3.8% previously). With imports rebounding swiftly amid the domestic demand improvement, net-exports subtracted 11.2pp from GDP (-6.1pp previously). On the supply-side, activity in the quarter was mainly pulled up by personal services rising 36.3% YoY (led by spending on education and health), commerce and to a lesser extent manufacturing. Mining activity grew 2.8% YoY, with the opening of a new processing plant and better ore grades helping. Although construction grew 14.8% YoY, activity in this sector remains well below pre-pandemic levels (-10%).

At the margin, activity rose 4.2% from 1Q21 (SA, annualized), building on the double-digit gains in the three previous quarters. Total domestic demand grew 6.4% qoq/saar, led by private consumption of durable goods, while services consumption fell 2.6% qoq/saar amid the reintroduction of greater mobility restrictions during the quarter. Gross fixed investment rose 1.2% qoq/saar (33.2% in 1Q). Meanwhile, the accelerating recovery of imports amid the consumption boom led to a continued net export drag.

The buoyant activity data at the back-end of 2Q21, the rapid economic reopening underway and the expanded fiscal aid lead us to expect growth of 10% for this year (5.8% contraction in 2020). Domestic downside risk for this year stems mainly from the increased negotiating power of Chilean mining workers based on still high copper prices, which could lead to widespread labor strikes during 2H21, as well as the impact of eventual renewed mobility restrictions related to COVID-19’s delta variant. For next year, we see growth at 2.4%, given base effects, expected fiscal tightening and growing feedback from business signaling investment will weaken next year, mainly due to political uncertainty.

Vittorio Peretti
Andrés Pérez