Itaú BBA - CHILE – Coronavirus shock and lower oil prices boost trade balance in April

Macro Latam

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CHILE – Coronavirus shock and lower oil prices boost trade balance in April

Maio 7, 2020

As social distancing measures stay in place, private sentiment drops and the labor market loosens, import dynamics will remain weak going forward.

A USD 1.2 billion trade surplus was registered in April, USD 0.2 billion above our call, and far larger than the USD 0.4 billion registered last year as poor domestic demand and lower global oil prices aid a swift correction of external imbalances. Exports also fell, but at a much milder rate as mining exports haven’t been significantly affected. As a result, the rolling 12-month trade surplus increased to USD 6.5 billion, from USD 4.2 billion last year. At the margin, the trade surplus in the quarter is at an even wider USD 12.0 billion (annualized according to our SA adjustment; USD 10.1 billion in 1Q20 and USD 5.5 billion in 4Q19). As coronavirus control measures remain in place, private sentiment drops to record lows and the labor market loosens, import dynamics are set to remain weak going forward.

Except for the double-digits fall in agriculture shipments, exports retreated only modestly, but the deterioration at the margin was more significant. Exports dropped 6.3% yoy in April, similar to the fall in March, with agricultural sales shrinking 13.1% (+0.8% in March). Manufacturing exports contracted 7.3% (10.3% fall in March), while mining declined 3.8% (5.3% drop previously). As a result, exports fell 6.2% in the quarter ending in April (4.0% fall in 1Q20 and 9.4% drop in 4Q19), pulled down by manufacturing goods sales. At the margin, exports fell 20.3% QoQ/SAAR, after accelerating to 9.2% in 1Q20 (13.4% drop in 4Q19), as agricultural exports slump and mining loses momentum.

Imports continued to implode in April, reaffirming expectations that the Chilean economy would be hard hit by the current crisis. Total imports dropped 22.7% yoy in the month (19.5% down in March), with double-digit declines across the three main categories. Consumer goods imports shrunk 32.6% (23.5% in March), on the back of further weakening of durable goods purchases (falling by almost 50%). Capital goods imports fell 16.9% (20.2% fall previously), pulled by freight equipment, while mining and construction machinery dropped 9% (the seventh consecutive month of declines). As oil prices plummeted and domestic demand prospects waned, energy imports fell 53.8% (18.2% drop in March). In the quarter ending in April, imports shrunk 20.2% yoy, beyond the 13% drops registered in 1Q20 and 4Q19. At the margin, the imports deterioration intensified to -43.2% QoQ/SAAR, doubling the pace recorded in 4Q19 amid the social unrest, with the weakening widespread.

We expect the current account deficit to narrow swiftly this year to 0.5% of GDP, from 3.9% last year, with risks tilted to an even more significant correction. A weaker Chilean peso, shrinking internal demand growth, and lower oil prices outweigh weaker global demand.


Miguel Ricaurte
Vittorio Peretti

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