Itaú BBA - CHILE – Abrupt retail decline in March as virus strikes

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CHILE – Abrupt retail decline in March as virus strikes

Abril 30, 2020

The monthly GDP proxy is set to contract 1% YoY in March.

With the implementation of social distancing measures from mid-March, activity weakened significantly in the month and a deeper deterioration is expected for April. Retail sales contracted 14.9% yoy (+4.5% previously), well below our call of a 6.3% drop and the -6.8% Bloomberg consensus. Apparel and car sales were the key drags. Supermarket sales, on the other hand, increased 9.8% yoy (1.3% previously), likely due to fears of shortages and hence the drive to stockpile. Meanwhile, mining production rose 2.3% (9.9% previously), reflecting a milder impact from the mitigation measures, while manufacturing rose 0.6% (3.3% previously), below our 1.8% call but above the Bloomberg market consensus expectation of a drop of 1.5%. One explanation for the manufacturing growth could be that the lockdown orders did not affect meaningfully manufacturing districts. Overall, sectorial activity in March was already affected by the social distancing measures adopted, and points to a GDP proxy (IMACEC) contraction of 1% (+2.7% in February). This would result in growth of 0.9% in 1Q20, a mild recovery from the 2.1% fall in the social unrest hit 4Q19.

The activity bounce back in 1Q20 will be short-lived. Manufacturing output increased 2.5% yoy in 1Q20 (0.5% in 4Q19), and mining rose 4.3% (1.9% drop in 4Q19), boosting the industrial production recovery of 2.6% (0.6% fall in 4Q19). Meanwhile, retail sales (including vehicles) fell 3.9% yoy, milder than the 7.4% decline in 4Q19 as durable goods sales remained the key drag (shrinking 13.5%, in line with 4Q19). Wholesales (a key activity driver for most of last year) recovered from stalled activity in 4Q19 to post a 3.1% increase in the quarter. As a result, the commercial activity index – aggregating wholesale and retail sales – fell 1.4% in the quarter (4.5% drop in 4Q19).

Given the favorable start to the year, activity recovered from 4Q19 on a sequential basis, however most indicators posted meaningful declines from February to March, in line with a sharp decline expected for 2Q20. Retail sales accelerated to 10.0% qoq/saar, following from the 25.9% decline in 4Q19, despite posting a drop of 14.3% MoM in March. Meanwhile, manufacturing fell a milder 1.2% from February, resulting in an increase of 8.5% in the quarter (3.5% fall in 4Q19). Mining was the outlier, declining 1.8% qoq/saar (+0.3% in 4Q19). Overall, the industrial production index increased 2.6% qoq/saar (after falling 2.3% in 4Q19), favored by the upbeat manufacturing performance at the start of the year. 

Although economic data is only starting to reflect the impact of the coronavirus shock, there is already evidence of a sharp activity deterioration ahead. The swift deterioration in retail data is likely to persist given the rapid loosening of the labor market and downtrodden confidence. Meanwhile, heightened uncertainty and lack of demand would halt investment projects. We see activity shrinking 1.9% this year (+1.1% last year), but risks are tilted to a sharper decline. While the announced fiscal stimulus packages and added monetary impulse would contain the fall, the closure of commercial operations, self-isolation practices and lingering fear could restrain a domestic demand bounce back.

Miguel Ricaurte
Vittorio Peretti

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