Itaú BBA - GDP surprises to the upside in Chile but is set to fall ahead

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GDP surprises to the upside in Chile but is set to fall ahead

Maio 19, 2020

Under such circumstances, monetary and fiscal authorities’ will remain ready to augment their response

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In the first quarter of the year, GDP increased 0.4% yoy, partially recovering from the 2.1% decline in 4Q19, which was hit by social unrest. The activity gain was above market expectations of a 0.1% drop. The surprise came from upside revisions to both mining and non-mining components for the first two months of the year, while March dynamics were broadly unchanged. There was a sharp drop of durable goods consumption and a near double-digit fall of investment in machinery and equipment (a good lead indicator of overall investment dynamics ahead). The combination of reduced global demand, mobility restrictions and lingering domestic uncertainties leads us to estimate a 3.7% growth contraction this year (+1.1% in 2019). Gross fixed investment is expected to contract at near a double-digit rate (+4.2% last year). Under such circumstances, monetary and fiscal authorities’ will remain ready to augment their response in a bid to avoid the transitory shock leading to repercussions that are more permanent. ** Full story here.

The current account balance recorded a larger-than-expected USD 1.0 billion deficit in 1Q20. Still, there was a significant improvement of USD 0.9 billion relative to 1Q19, mainly explained by a larger surplus in the balance of traded goods, while the primary deficit remained broadly stable from last year. For the rolling-year, the current account deficit narrowed to USD 10 billion (3.7% of GDP), from USD 10.9 billion (3.9% of GDP) in 2019. We expect the current account balance to improve significantly this year, after recording a 3.9% deficit in 2019. A larger trade surplus, given our expectation that the contraction in domestic demand and lower average oil prices would dominate the effect of weaker global demand and copper prices, would be the key driver of the correction to a near-balanced position this year. ** Full story here.


The BCB released yesterday its weekly survey with market participants (Focus). The median of 2020 GDP growth expectations fell for the 14th consecutive week, receding by 101 bps (to -5.12%) and accumulating a 742-bps drop during such period. Meanwhile, the median of GDP growth expectations for 2021 and 2022 remained at 3.20% and 2.50%, respectively. The median of IPCA inflation expectations for 2020 declined to 1.59% (from 1.76%), accumulating a 161-bps decline over ten consecutive weeks. Inflation expectations for 2021 receded 5 bps to 3.20%, and remained stable at 3.50% for 2022. As for the Selic rate, the median of year-end expectations receded to 2.25% for 2020 (from 2.50%). Recently, the BCB cut the Selic rate by 75 bps and, in our view, pointed towards another 75-bp move in the coming meeting (June 16-17) – see more here. For 2021, the median of Selic rate expectations remained at 3.20%, while it has declined to 5.25% for 2022 (from 5.50%). Finally, the median of exchange rate expectations depreciated to BRL 5.28/USD for 2020 (from 5.00), to BRL 5.00/USD (from 4.83), and to BRL 4.78/USD for 2022 (from 4.54).

According to local news, the Senate has decided to cancel the legislative break (July 17th to 31st) due to the pandemic. The decision was taken after a meeting between the party leaders of the Senate. Speaker Davi Alcolumbre has affirmed that the Senate will continue to work to soften the impacts of the Covid-19.

Itaú Daily Activity Index: Our Daily Activity Index has decreased 5.1 p.p. in the last available day (to 69.0), while the 7-day moving average dropped 0.7p.p., to 75.0. The index is down 31% when comparing the first half of March with the last data available (Saturday, May 16th). See our report here.

COVID-19 update: the latest official information from the Ministry of Health is that Brazil has 254,220 confirmed cases (up by 13,140 vs 7,938 from the day before), with 16,792 confirmed deaths (up by 674 vs 485 from the day before), which implies a 6.6% mortality rate. There are now 100,459 recovered cases (up by 6,337 vs 4,450). The ICU occupation is still high: in São Paulo, for instance, the rate now stands at 89%% in the capital (from 92%) and 70% in the state (from 74%).

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