Itaú BBA - CHILE – A consumption implosion in 4Q19

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CHILE – A consumption implosion in 4Q19

Março 18, 2020

The global expansion of COVID-19 and the resulting measures undertaken only enhance headwinds ahead.

Shrinking consumption in 4Q19 resulted in the weakest year-over-year growth since 2009. In the fourth quarter of 2019, GDP dropped 2.1% yoy, larger than the 1.8% expectation obtained from the monthly GDP proxy series. Amid restrictions to retail operations, consumption was the key drag in the quarter. Investment growth slowed, while the net-export boost increased. On the supply-side, transportation, commerce and personal services were the hardest hit, while construction remained solid. As a result, growth last year came in at 1.1%, down from 3.9% in 2018 (revised down 0.1pp). Despite some encouraging signs from activity during the month of December and at the start of this year, developments on the global front implicate a further activity deterioration.

Consumption dynamics were weak across the board in 4Q19. Durable goods sales fell 13.9% yoy (+2.9% in 3Q19), non-durable goods sales dropped 2.8% (+2% in 3Q19) and the consumption of services shrunk 2.8% (+4.5%previously). As a result, total private consumption declined 4.5% (+2.9% in 3Q19). Public consumption also fell (7.4% yoy), the first drop since 4Q08. Fixed investment continued to contribute positively to activity with growth of 2.7% yoy, albeit at the slowest rate since 1Q18 as investment in machinery and equipment contracted. There was also a diminishing of inventory, in line with the supply-side disruption in the quarter. Overall, domestic demand contracted 3.3% (+2.7% previously). Exports of goods and services declined 3.5% (+1.3% in 3Q19), on the back of shrinking mining and man ufacturi ng sales, while imports contracted 7.5% (the largest decline since 2014). As a result, the net-export contribution increased to 1.1pp (0.6pp previously). For the full year, gross fixed investment moderated 0.6pp to 4.2%, while total consumption growth dropped 3pp to 0.8% yoy. Exports of goods and services fell 2.3% (+5% in 2018), similar to the decline in imports of goods and services (+7.9% in 2018).

At the margin, activity fell at the sharpest rate since 2Q09. Activity dropped 15.5% qoq/saar (+3.1% in 3Q19), as public consumption declined 33.0% qoq/saar (+2.3% in 3Q19) and the 40% drop in durable goods sales led the 23.4% decline of private consumption (+2.8% in 3Q19). Gross fixed investment fell 1.1% qoq/saar, down from the 3.1% gain in the prior quarter as machinery and equipment spending deteriorated. Imports fell for the fourth consecutive quarter, while exports declined 8.0% qoq/saar after posting a swift double-digit gain in 3Q19.

The outlook for growth this year was already unfavorable considering the uncertainty arising from the events unfolding last October, so the global expansion of COVID-19 and the resulting measures undertaken only enhance headwinds. The closure of commercial operations and self-isolation practices are expected to have a meaningful impact on economic activity that could result in a further loosening of the labor market. We see an activity contraction this year as the most likely outcome.


Miguel Ricaurte
Vittorio Peretti


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