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Evening Edition – Activity declines sharply in Chile

Maio 4, 2020

With the coronavirus advancing in April, social distancing measures consolidated and public sentiment plunged

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Activity plummeted in March, as the first impacts of the coronavirus shock infiltrate the economy. The monthly GDP proxy contracted 3.5% yoy, below our 1.0% call but in line with the market consensus. Mining posted a mild 0.8% rise, the slowest gain this year (10.4% in February), as this activity has been less affected by social distancing measures. Meanwhile, non-mining activity contracted 4.0% yoy (+2.0% in February), dragged by commerce and services (the latter hampered by education, transport, restaurants and hotels). With the coronavirus advancing in April, social distancing measures consolidated and public sentiment plunged, suggesting significant activity contractions will persist ahead. In this context, both monetary and fiscal authorities would stay ready to upscale measures if the economic distress escalates. ** Full story here.

Business confidence reached a minimum in April as the coronavirus wreaks havoc with business operations and domestic demand. According to the ICARE think-tank, business confidence collapsed 20.3pp over one year to reach 31.7 points (50 = neutral), surpassing the lows recorded at the close of 2019 (32.5 points in December) amid heightened social unrest. Excluding mining, which has been less affected by quarantine measures, the business confidence retreat is more striking, reaching 25.1 points. (24.7pp down from April last year). The construction sub-index is the most negatively impacted component, shrinking 45.8pp over 12 months to reach a mere 6.4 points as projects come to a halt. Commerce retreated 28.7pp to 27.2 points with lockdown measures restricting mobility. Meanwhile, the industry division dropped 11.7pp from last year to 32.7 points. With coronavirus mitigating measures persisting and elevated uncertainty levels set to endure, business confidence is likely to remain near historic lows for a meaningful period and support a significant activity contraction this year from the 1.1% gain in 2019.

According to the Central Bank’s quarterly survey of credit conditions, supply conditions for loans tightened across the board in 1Q20, as the spread of the coronavirus raises uncertainty and risk. Meanwhile, credit demand dropped significantly for consumption, mortgages and construction, while there was a mild improvement from businesses, likely to secure operational cash flow. On balance, mortgage demand, which had led credit demand growth in prior quarters, slumped in 1Q20 (-81.8% from +9.1% in 4Q19; index centered at 0). Meanwhile, consumer loans lost further momentum (-91.7% from -33.3% in 4Q19), as expectations of the economic climate worsened drastically. Consolidated construction and real estate loan demand shrunk from 4Q19 (-59.1%), in line with declining imports of capital goods and consistent with the expectation of weak investment ahead. Business credit demand picked up from 4Q19 (+5.2% from -20.8%). With the announced fiscal measures aimed at enhancing liquidity at favorable rates, supply and demand conditions for companies could improve going forward. Nevertheless, as uncertainty remains elevated, credit demand is likely to be weak and contribute to the significant activity contraction expected for this year (+1.1% last year).


The minutes from Thursday's monetary policy meeting, at which the board unanimously opted to ease monetary policy by a further 50-bps to 3.25%, reflect the focus is on liquidity and maintaining the smooth functioning of the financial system. The minutes did not provide any forward guidance (expected in the release of the quarterly monetary policy report on Wednesday), but we know the door is not shut to lower rates from comments by general manager Echavarria during the press conference last week. The activity implosion and oil price shock is expected to severely affect the Colombian economy, driving the board’s approach to inject liquidity to the economy and gradually lay the groundwork, through lower rates, to support the activity recovery once there is some normalization on the health front. Given the significant widening of the output gap, we expect the board to continue to lower rates. The next monetary policy decision will take place on June 29, but during the press conference, last Friday General Manager Echavarria did not rule out interest rate decisions in May's meeting. ** Full story here.

Day Ahead: The Colombian national institute of statistics (DANE) will release the inflation print for April at 9:00 PM (SP time). Inflation accelerated in March (to 3.86% from 3.72% in February), the highest rate since October last year, driven by food prices. However, core inflation indicators remained well-behaved. We expect CPI of 0.22% MoM (0.49% last year), lifted by food and housing expenses, while partly countered by falling fuel prices. Annual inflation would tick down to 3.57%.


The BCB released its weekly survey with market participants (Focus). The median of 2020 GDP growth expectations fell for the 12th consecutive week, receding by 42 bps (to -3.76%) and accumulating a 606-bp drop during such period. The median of GDP expectations for 2021 increased to 3.2% (from 3.0%), while it has not changed for 2022 (at 2.5%).  The median of IPCA inflation expectations for 2020 declined to 1.97% (from 2.20%), accumulating a 123-bp decline over eight consecutive weeks. Inflation expectations for 2021 receded 10 bps to 3.30%, and remained stable at 3.50% for 2022. The median of year-end Selic rate expectations receded to 2.75% for 2020 (from 3.00%) and to 3.75% for 2021 (from 4.25%) for 2021. For 2022, the Selic rate expectations declined to 5.50% (from 5.88%). Finally, the exchange rate expectations increased to BRL 5.00/USD for 2020 (from 4.80), to BRL 4.75/USD for 2021 (from 4.55) and to BRL 4.50/USD for 2022 (from 4.46).

The trade balance in April was positive by USD 6.7 billion, beating our forecast (USD 5.9 billion surplus) and market estimates (USD 6.1 billion surplus). Larger-than-expected exports in the last week of the month were behind the surprise vs. our call. The balance resulted from USD 18.3 billion exports and USD 11.6 billion imports and is slightly stronger than the USD 5.7 billion surplus posted one year earlier. The annualized seasonally adjusted quarterly moving average for the trade balance advanced to USD 52 billion from USD 35 billion. April figures reflect the slowdown in global trade and declining economic activity in Brazil due to the pandemic. In upcoming releases, exports as well as imports should remain at lower levels than those seen recently. ** Full story here.

According to Fenabrave, vehicle sales reached 55.7k in April, dropping 63.5% mom/sa (our seasonal adjustment). In yoy terms, sales receded 76.0%. The breakdown shows a 64.7% mom/sa decrease in “passenger cars + light vehicles”, and a 39.4% mom/sa decline in “trucks + buses”. The sharp decline reflects the impact of social distancing measures adopted in the month.

The Lower House has just approved the base text of the so called “War-budget” constitutional amendment. The bill creates a separate budget, with the purpose of expediting fiscal relief measures to companies and workers during the pandemic, while also helping to prevent that emergency expenditure measures undertaken this year do not perpetuate over time. Additionally, the bill gives more instruments for the Central Bank to act in the crisis, such as the authorization to buy and sell government and corporate debt. The congressmen are now voting the amendments to the bill.

Coronavirus update: the latest official information from the Ministry of Health is that Brazil has 105,202 confirmed cases (up by 4,075 vs 4,588 yesterday), with 7,288 confirmed deaths (up by 263, vs 275 yesterday). 

Day Ahead: March’s Industrial production will be released at 9:00 AM (SP time). We expect an 8.0% mom/sa decline, impacted by lockdown measures that started in mid-March.


Day Ahead: Manufacturing and construction data for March will be released at 4:00 PM (SP time). According to coincident indicators, both indexes showed year-over-year drops in March due to the first impacts of the lockdown.

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