Itaú BBA - CHILE – Activity bounce-back exceeds expectations in December

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CHILE – Activity bounce-back exceeds expectations in December

Fevereiro 3, 2020

Expansionary monetary policy and fiscal stimulus would aid an activity recovery from 4Q19

Activity at the close of 2019 reflected a normalization process was underway following the protest-hit months of October and November. The monthly GDP proxy (Imacec) grew 3.5% from November to December, building on the 1.0% gain in November (-5.3% in October), and above our 2.4% expectation. Dynamism in the month was led by non-mining activity (3.6% MoM amid favorable construction and manufacturing), a positive development for the domestic demand recovery. As a result, Imacec grew 1.1% yoy in December (3.3% drop in the prior two months), exceeding the Bloomberg market consensus of a 0.5% fall and our call of a 0.2% contraction, but still resulted in the weakest quarter (1.8% decline) since the global financial crisis. The surprise means growth in 2019 was 1.2% (to be confirmed with the release of national account data on March 18), a significant slowdown from the 4% recorded in 2018, but above the market and central bank’s 1.0% call. With the central bank likely surprised on activity (to the upside) and inflation (to the downside), all eyes are on the scenario revision in the March Inflation Report (IPoM), but caution regarding future rate moves will likely prevail as the board opts to accumulate additional information.

During 2019, mining was the key activity drag, while the disruptions in 4Q19 meant non-mining activity weakened notably by yearend. In the final quarter of 2019, non-mining activity dropped 2.0% yoy (+3.6% in 3Q19), while mining slowed to 0.1% (from 1.4% in 3Q19), as a higher base of comparison compounded the shock effect of the protests. Activity for the full year increased 1.2% in 2019 (4.0% in 2018), with mining production shrinking 0.6% (+5.2% in 2018), partly hampered by weather conditions in 1H19. Meanwhile, non-mining growth was 1.4%, from 3.9% in 2018.

Activity fell 13.2% qoq/saar (+2.7% qoq/saar in 3Q19) at the margin. Meanwhile, mining production was not significantly affected by the disruptions in 4Q19, expanding 6.1% qoq/saar. Considering the bulk of the shock to non-mining activity unfolded at the start of the quarter, with some recovery towards the backend, there is favorable carry-over effect for 1Q20.

An activity recovery from 4Q19 will be aided by an expansionary monetary policy and the fiscal stimulus, but downbeat private sentiment and still elevated uncertainty would continue to hamper consumption and investment dynamics. Meanwhile, global growth headwinds arising from the coronavirus pandemic is another risk to our 1.2% growth forecast for this year.


Miguel Ricaurte
Vittorio Peretti

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