Itaú BBA - CHILE – Activity off to a faster-than-expected start to 2020

Macro Latam

< Voltar

CHILE – Activity off to a faster-than-expected start to 2020

Março 2, 2020

Despite the positive dynamics at the beginning of the year, a continued momentum recovery is unlikely

The monthly GDP proxy (Imacec) surprised to the upside in January as the economy continues to recover from the significant shock registered at the start of 4Q19. The Imacec (SA) gain of 1.3% from December to January, led by non-mining activity (particularly services and construction), builds on the 3.5% rise at the close of 2019. As a result, activity rose 1.5% yoy in January (1.1% in December), above the Bloomberg market consensus of 1.2% and our 1.0% call. The upside activity surprises in the last couple of months, along with a gradual recovery of private sentiment are welcomed developments in the economic normalization process.

In the quarter ending in January, activity declined 0.2% yoy, compared to the 1.8% drop in 4Q19, but far off the rhythm that was underway before the October shock (+3.3% in 3Q19). Mining activity remains broadly flat compared to one year ago, while the fall of non-mining activity moderated to 0.3% (from the 2% shrinkage in 4Q19).

At the margin, activity momentum in the quarter was flat (0% qoq/saar), which represents a significant improvement from the 13.1% decline in 4Q19 (+2.2% in 3Q19). Mining production, not significantly affected by the disruptions in 4Q19, expanded 8.5% qoq/saar (6.5% in 4Q19 and 6.3% in 3Q19), while the non-mining component (absorbing the bulk of the shock), moderated its fall to -0.9% qoq/saar (15.0% fall in 4Q19, +1.8% in 3Q19).

Despite the positive dynamics at the beginning of the year, a continued momentum recovery is unlikely. While business confidence, excluding the volatile mining component, is moving beyond the historical lows recorded in December (31.4%, 50 = neutral), it remained at a still weak 39.8% in February (52.0% registered one year earlier). Hence, considering heightened domestic uncertainty is set to persist, an investment rebound is not expected. 

While the economy is rebounding from the October shock well above expectations, the outlook remains challenging. The better-than-expected activity carry-over at the close of 2019, along with the upside surprise in January and the positive effect of the fiscal stimulus package, would have placed a significant upside bias to our 1.2% growth call for this year (1.2% in 2019). However, the developments to the global economy (related to the spread of the corona virus) would be felt domestically (from weakened China demand in particular), all but wiping out our bias. Given the increased probability that central banks across the globe ease monetary policy in response to the expected activity slowdown, our call of 50bps of further easing in Chile is becoming more likely.  

Miguel Ricaurte
Vittorio Peretti

< Voltar