CHILE – Strong activity close to 2Q21

The buoyant activity data is unlikely to alter the 25bp pace of rate hikes for the time-being

Vittorio Peretti 


Activity surprised to the upside in June, boosted by recovering services, as the economic reopening advances and strong stimuli are in place. The monthly GDP proxy (IMACEC) posted a significant 20.1% YoY increase in June (18.1% rise previously). The annual increase came in above the Bloomberg market consensus of 18% (Itaú: 16.5%). Activity increased 2.1% MoM/SA from May, building on the 2.8% rise in the previous month and offsetting the falls in March and April. Services (ex-commerce) increased 2.3% MoM/SA, manufacturing rose by 3.9% and commerce increased 2.0% (after a double-digit rise previously). The 20.1% annual increase was supported by services (+17.8% and 9.0pp contribution), in particular personal services related to education and health. Commerce (both retail and wholesales) increased 46.4% YoY (+3.9pp), aided by the liquidity injection of transfers and pension withdrawals, and manufacturing rose 18.8% YoY (+1.9pp). Mining production dipped 0.5% from last year. Looking ahead, the consolidation of the economic reopening during July and the start of broader and larger fiscal transfers mean upbeat activity dynamism is likely to continue in 3Q21. The buoyant activity data is likely to move growth expectations to towards the upper end of the central bank’s 8.5%-9.5% forecast range, but altering the 25bp pace of the central bank’s normalization process is unlikely for the time-being as the board continues to signal a gradual unwinding amid concern for lagging sectors and the labor market.

During the second quarter of the year, IMACEC increased 17.4% YoY, compared to the broadly flat growth during both 1Q21 and 4Q20. However, activity momentum slowed in the quarter following the reintroduction of mobility restrictions at the close of 1Q21 and start of 2Q21. During April around 90% of the population was placed under the strictest quarantine measure. IMACEC rose 2.6% QoQ/Saar in 2Q21, decelerating from +13.8% in 1Q and 28.5% in 4Q20. Services ex-commerce was key behind the moderation (down 9.1% QoQ/Saar, from +24.5% in 1Q and 29.0% in 4Q). Meanwhile, the latest liquidity injection supported a commerce acceleration to 36.0% QoQ/Saar (+8.4% in 1Q21).

Improving business and consumer sentiment at the start of 3Q21 bode well for the swift activity recovery expected in the short-term Think-tank Icare’s indicator of business optimism (ex-mining; IMCE) sits at 56.8 points (50 = neutral), 22pp higher than July last year, and 4pp up from the previous three months. Meanwhile consumer sentiment remains in pessimistic territory at 37.4% (50 = neutral), but continues to recover as it reached the least downbeat level since the onset of the social unrest in 4Q19.

Large stimuli, significant progress on the health front and a favorable external environment will support upbeat activity for the remainder of the year. We expect GDP growth of 8.5% for this year (5.8% fall in 2020), but risks are tilted to the upside. Additionally, pressure on the government to extend fiscal transfers by a quarter to the end of the year would, on materialization, further consolidate the consumption-led recovery, while downside risks come from the growing possibility of labor strikes at key mining plants. Beyond this year, some moderation is likely as investment-decision making is affected by the uncertain domestic scenario and the expected fiscal consolidation unfolds.

Vittorio Peretti