Itaú BBA - CHILE – Favorable activity dynamics ahead of global shock

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CHILE – Favorable activity dynamics ahead of global shock

Março 31, 2020

We expect the GDP proxy for February to grow 3.3%.

Activity indicators for the month of February continued to show the advancement of the activity recovery from the 4Q19 shock. However, the recent developments in March amid the coronavirus spread and adoption of mitigating measures would halt any further progress. Retail sales accelerated to 4.5% yoy (0.2% previously), above our 1.0% call and the 2.5% Bloomberg consensus, while supermarket sales increased for the first time since September. Industrial production – aggregating mining, manufacturing and utilities – grew 5.6% yoy in February, following the 2.0% gain in January. Growth was lifted by a strong mining growth of 9.9% yoy (1.3% previously), in part favored by a low base of comparison due to floods last year, but also due to favorable operations at some plants. Meanwhile, manufacturing growth remained stable and upbeat at 3.7% yoy (led by non-machinery related metal production and food processing), albeit below our 6.5% call (3.5% Bloomberg market consensus). Overall, widespread growth in the month points to an upbeat February GDP proxy (IMACEC). Nevertheless, given manufacturing underwhelmed our expectations, we are revising our call to 3.3% yoy (1.5% in January).

Despite still-low private sentiment, the retail sales drag was diminishing as of February. In the quarter ending in February, retail sales rose 0.3% yoy, the first gain since 3Q19 (7.4% fall in 4Q19), as the decline moderated for durable goods sales (3.7% from 15.2% drop in 4Q19) and non-durable goods sales increased 1.4% (5.0% fall in 4Q19). Meanwhile, wholesales (a key activity driver for most of last year) recovered from stalled activity in 4Q19 to post a 5.3% increase in the quarter ending in February. As a result, the commercial activity index – aggregating wholesale, retail and vehicle sales – increased 1.9% in the quarter, improving from the 4.5% drop in 4Q19. Meanwhile, manufacturing output increased 4.0% yoy (0.5% in 4Q19), and mining rose 4.4% (1.9% drop in 4Q19). 

Sequentially, the activity acceleration endured in February. Retail sales posted its third consecutive monthly activity gain, leading to a rise of 30.1% qoq/saar in the quarter (25.9% drop in 4Q19). Meanwhile, manufacturing increased 16.5% qoq/saar gain (2.7% fall in 4Q19) and mining gained 13.5% qoq/saar. Overall, the industrial production index increased 14.0% qoq/saar (after falling 1.7% in 4Q19). Given the disruption to domestic activity in March and the decline in global demand, the pick-up in activity will be not be sustained.

The outlook for growth this year was already unfavorable considering domestic uncertainty (affecting private sentiment and investment dynamics), and the COVID-19 pandemic only enhances the pessimism. While the announced fiscal stimulus packages and added monetary impulse would contain the decline, the closure of commercial operations and self-isolation practices are expected to have a meaningful impact on economic activity that would result in a further loosening of the labor market. We see an activity contraction of 1.6% this year as the most likely outcome (+1.1% last year).


Miguel Ricaurte
Vittorio Peretti

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