Itaú BBA - CHILE – Another sharp activity drop in November

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CHILE – Another sharp activity drop in November

Janeiro 2, 2020

As activity operations normalized during the final month of 2019, we expect a milder year-over-year activity contraction in December

Activity fell 3.3% yoy in November, similar to the outcome in October and in between our 3.0% call and the Bloomberg market consensus of a 3.5% drop. Protest action persisted in November, but partial normalization of activity operations led to a monthly activity gain of 1.0%. Nevertheless, this is still far from offsetting the 5.3% MoM contraction registered in October. Mining activity was the key drag in the month with a drop of 5.1% yoy (+2.0% in October), while favorable manufacturing and construction dynamics were unable to offset the commerce and services decline that led to a non-mining activity fall of 3.1% (-4.0% in October). As activity operations normalized during the final month of 2019, we expect a milder year-over-year activity contraction in the next Imacec reading.

In the rolling-quarter ending in November, activity turned negative (-1.3% yoy vs 3.3% in 3Q19) for the first time since early 2017 when a strike at a major mining company hampered growth. Mining production fell 1.7% yoy (+1.4% in 3Q19), while the non-mining component dropped 1.3% yoy (+3.6% in 3Q19).

After contracting in the prior two months, activity grew 1.0% from October to November. Nevertheless, activity momentum in the quarter deteriorated further (11.3% qoq/saar drop; -4.0% as of October; +2.6% in 3Q19). Non-mining activity fell 12.3% qoq/saar in the quarter (-4.8% as of October; 2.2% in 3Q19), while mining activity fell 1.1% qoq/saar (+4.3% as of October; +6.0% in 3Q19).

With activity imploding in the final quarter of 2019, the weak carry-over into this year, along with historically low confidence means the likelihood of an activity recovery is slim. ICARE’s business confidence index for December showed the sharpest drop over 12 months (-16.3pp) since the global financial crisis and reached a new multi-decade low of 32.5 points (48.8 recorded in December 2018 and 36.6 one month ago; neutral = 50), that would likely translate into weak investment. Some activity boost would come from the ambitious fiscal stimulus package and supportive monetary policy. However, with growth expectations of only 1.2% for this year (1% seen for 2019; 4% for 2018), along with some CLP appreciation, lower rates are possible at some point. 
 

Miguel Ricaurte
Vittorio Peretti



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