Itaú BBA - Evening Edition – Chilean GDP proxy falls 14% in April

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Evening Edition – Chilean GDP proxy falls 14% in April

Junho 1, 2020

Prolonged mobility restrictions, enduring domestic uncertainties and weak global demand point to a 3.7% GDP contraction this year

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Activity shrank 14.1% yoy in April as the economy feels the effects of social distancing measures underway to combat the spread of the coronavirus. The double-digit decline of the monthly GDP proxy was close to our 15% call (market consensus: -11%; 3.1% fall in March). Mining posted a mild contraction of 0.1% (+2.0% in March), as this sector has been less affected by social distancing measures. Meanwhile, non-mining activity contracted 15.5% yoy (3.6% fall in March), dragged by services, commerce and to a lesser extend construction and manufacturing. Monetary authorities have already signaled that additional stimulus is likely necessary (referring to its liquidity and QE measures), to ensure the shock from the virus remains transitory. Sequentially, activity fell at the sharpest pace since the ‘80s. The 8.7% decline from March built on the prior drop of 5.8%, led by non-mining activity (9.7% fall). Mining activity grew 0.9% from March. In the quarter, activity declined 13.7% qoq/saar, deteriorating from the 12.5% rise in 1Q20. Non-mining sectors shrunk 15.8% qoq/saar (+12.6% in 1Q18; -15.3% in 4Q19). Prolonged mobility restrictions, enduring domestic uncertainties and weak global demand point to a 3.7% GDP contraction this year (+1.1% in 2019). Risks tilt to an even more significant activity fall this year. **Full story here.

ICARE'S business confidence index dropped 16.3 points over twelve months, coming in at 34.3 in May (31.7 previously). All sub-indexes deteriorated in the month, with all but mining staying below neutral levels. The main drag comes from construction, which recorded a 37.8-point fall to 8.8 (6.4 points in April), while retail confidence came at 32.3 (27.1 one month earlier) and industrial confidence retreated to 33.2 from 44.1 one year earlier. With higher copper prices and lower impact by social distancing measures, mining remained upbeat in May at 64 (60.5 in April). When mining is excluded, business confidence fell almost 20pp to record 27.4 (25.1 last year). Stabilizing business confidence could signal the worst of the adjustment has occurred, but risks to the economic outlook remain tilted to the downside.


The minutes of Friday’s decision to lower the policy rate by 50bps to an historic low of 2.75% show that the some in the board prefer to move more gradually so as to retain some firepower that could be required ahead and to consolidate financial market stability. Overall, the board acknowledged the coronavirus shock has severely affected household and business income that, although seen as transitory, is resulting in significant widening of the output gap. In this context, and with inflation expectations falling and financial markets stabilizing, the board saw it viable to boost the monetary stimulus to aid an economic recovery. The two board members that opted for a 25bp cut suggested a more gradual reduction in order to, given the closeness to a negative real interest rate, provide support for both financial market stability (capital flight risk has been raised) and the economic recovery. We note that going forward, concerns about capital flights amid increased risk premia could be an argument to moderate interest rate cuts. Nevertheless, the minutes hint that the door is not closed to additional easing but show division over the appropriate endpoint of the easing cycle. We see room for more easing with the economic collapse underway likely convincing the board that additional monetary stimulus ahead is required to prevent permanent damage to the economy.

Colombian exports recorded the sharpest historical decline in April, dragged down by coal and oil sales. Total exports contracted 52.3% yoy, led by the 78.6% drop of oil exports (driven by price; -56.2% previously), while coal sales dropped 47.7% (30.6% decline previously, mostly due to lower volumes). Exports excluding Colombia’s traditional goods (oil, coal, coffee and ferronickel), accounting for just over a third of total exports, also dropped by a sharp 26.1% yoy (+7.4% in March) amid a weakening global demand. In the quarter ending in April, exports fell 30.4% (8.2% fall in 1Q20 and 8.7% decline in 4Q19), dragged by commodity exports. At the margin, exports declined at a brisk pace of 63.3% qoq/saar, (+1.0% in 1Q20), led by the commodity component, but non-commodity export momentum also fell significantly. Going forward, the unfavorable external scenario means Colombia’s external account imbalances are likely to persist. However, the weakened internal demand and currency depreciation would aid some correction of the current account deficit from the 4.3% of GDP last year. The full trade balance result will be released on June 19.


The BCB released its weekly survey with market participants (Focus). The median of 2020 GDP growth expectations fell for the 16th consecutive week, albeit at a slower pace than the previous two weeks, receding by 36 bps (to -6.25%) and accumulating an 855-bp drop. The median of GDP growth expectations for 2021 and 2022 remained stable at 3.50% and 2.50%, respectively. The median of IPCA inflation expectations for 2020 declined to 1.55% (from 1.57%), accumulating a 165-bp decline over twelve consecutive weeks. The median of inflation expectations for 2021 receded 4 bps to 3.10%, but remained stable at 3.50% for 2022. The median of year-end Selic rate expectations did not change for 2020, remaining at 2.25%. For 2021, the median of Selic rate expectations oscillated to 3.38% (from 3.29%), but did not change for 2022 (at 5.13%). Finally, the median of exchange rate expectations remained unchanged at BRL 5.40/USD for 2020 and BRL 4.80/USD for 2022, while it has oscillated to BRL 5.08/USD for 2021 (from 5.03).

The trade balance in May was positive by USD 4.5 bn, beating our forecast (USD 3.6 bn surplus) and market estimates (USD 4.3 bn surplus). A sharper-than-expected drop in imports in the last week of the month was behind the surprise vs. our call. The balance resulted from USD 17.9 bn exports and USD 13.4 bn imports and is weaker than the USD 5.7 bn surplus posted one year earlier. It is worth mentioning that imports were inflated by the purchase of one oil-drilling rig for USD 2.7 bn. The annualized seasonally adjusted quarterly moving average for the trade balance receded to USD 50 bn from USD 52 bn. Excluding the specific deal involving the rig, the quarterly moving average would have reached USD 61 bn. May figures reflect the slowdown in global trade and, in particular, the decline in economic activity in Brazil due to the coronavirus epidemic. In upcoming releases, exports as well as imports should remain at lower levels than those seen recently. **Full story here.

Itaú Daily Activity Index: Our Daily Activity Index has dropped 2.1 p.p. in the last available day (Friday, May 29th) to 74.5, while the 7-day moving average increased slightly by 0.2 p.p., to 71.3. The index is down 26% when comparing the latest data available with the first half of March.

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