Itaú BBA - CHILE – Activity recovery advances in January

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CHILE – Activity recovery advances in January

Fevereiro 28, 2020

Sectorial indicators point at a January GDP proxy (IMACEC) expansion of 1.0%.

Activity indicators surprised to the upside at the start of 2020 as the normalization process following the protests in 4Q19 advances. Industrial production – aggregating mining, manufacturing and utilities – grew 1.8% yoy in January, following the 3.2% gain in December (contractions in the prior two months). Growth was lifted by upbeat manufacturing growth of 3.4% yoy (led by chemical production and machinery; 4.4% in December), while gas production dragged down activity. Manufacturing output exceeded both the Bloomberg market consensus of 1.7% and our 2.4% call. Meanwhile, retail sales posted mild growth of 0.1% yoy, the first gain since September (2.6% decline in December, 7.4% fall in 4Q19), and above the market expectation of a 1.5% fall (Itaú: 2.0% contraction). As a result, we expect the January GDP proxy (IMACEC) to grow 1.0%, similar to the performance in December.

Manufacturing is driving activity, but rising global headwinds and domestic uncertainty could hamper its advancement. In the quarter ending in January, manufacturing output increased 3.6% yoy (0.5% in 4Q19 and 0.8% in 2019), while mining dropped 1.6% (similar to the drop in 4Q19). Retail sales dropped 3.8% yoy in the quarter (7.4% fall in 4Q19), as the declines for durable (8.9% from 15.2% drop in 4Q19) and non-durable (2.2% fall from 5.0% in 4Q19) sales moderate. Meanwhile, wholesales (a key activity driver for most of last year) recovered from stalled activity in 4Q19 to post a 4.2% increase in the quarter ending in January. As a result, the commercial activity index – aggregating wholesale, retail and vehicle sales – declined 0.9% in the quarter, improving from the 4.5% drop in 4Q19.

Sequentially, activity continues to improve. Manufacturing grew 1.1% from December, the third consecutive monthly gain (4.2% drop in October), leading to 16.8% qoq/saar gain (2.4% fall in 4Q19 and 1.3% decline in 3Q19). Overall, the industrial production index increased 8.6% qoq/saar (after the 1.7% fall in 4Q19). Meanwhile, retail sales built on the near 10% monthly rise in December with half a percentage point gain at the start of 2020, leading to a milder drop in the quarter (6.2% qoq/saar vs. 26.3% drop in 4Q19). 

The activity momentum will be favored by the significant fiscal stimulus package. Nevertheless, going forward domestic uncertainty would remain heightened as the summer holiday comes to an end and the constitution referendum nears, while developments on the global front (corona virus) point to a significant activity headwind. As a result, we see below potential growth of 1.2% this year, in line with the weak performance last year.
 

Miguel Ricaurte
Vittorio Peretti



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