Itaú BBA - CHILE – Large manufacturing drop in first major protest-affected data print

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CHILE – Large manufacturing drop in first major protest-affected data print

Novembro 29, 2019

Record-low business confidence and weak activity point at no recovery of growth next year.

Activity data for the protest-affected month of October showed a meaningful manufacturing slowdown, while mining production remained weak. Manufacturing contracted 5.8% yoy (+2.8% in September), broadly in line with our 5.0% call (Bloomberg market consensus: -7.8%), pulled down principally by the food and beverage divisions (together contributing -4.2pp). Favorable chemical production the month (+1.6pp contribution) contained the manufacturing weakness. Total mining production declined 1.7% yoy, building on from the 2.4% fall in September, despite copper growth of 0.1%. Overall, industrial production (aggregating mining, manufacturing and utilities) declined 3.4% yoy (0.1% increase in September). The industrial production data, along with our expectation of shrinking retail sales as protests led to the shutdown of operations, would lead to a 0.5% decline for the GDP proxy in October (+3.0% in September).

In the quarter ending in October, manufacturing dropped at the fastest pace since 2017. Manufacturing fell 1.7% yoy (+2.5% in 3Q19 and -1.5% in 2Q19), mining activity grew a mild 0.3% (1.1% in 3Q19 and 0.1% in 2Q19), while utilities moderated its drop to 0.3% (-0.6% in 3Q19 and -1.0% in 2Q19). Overall, the industrial production index decreased 0.6% yoy in the quarter, undoing the recent recovery (+1.5% in 3Q19 from the 0.8% decline in 2Q19).

At the margin, a notable activity slowdown is underway. Industrial production decreased 6.1% qoq/saar in the quarter (+0.1% in 3Q19 and +4.4% in 2Q19) with manufacturing falling 10.6% qoq/saar (-2.2% in 3Q19 and +5.1% in 2Q19). Mining production declined 2.5% qoq/saar (-0.4% in 3Q19 and +14.2% in 2Q19), while utilities posted a mild pick up at the margin (2.0% qoq/saar).

A business confidence drop to a historic low bodes poorly for investment dynamism ahead. ICARE’s business confidence indicator for October slipped only 2.6pp over twelve months to 48.4 points (50 = neutral), but most of the survey’s groundwork was conducted prior to the beginning of the protests (October 18). Meanwhile, the November reading shows a 12.4pp drop from last year, reaching 36.6 points, the lowest level on record (since early 2000’s). Excluding the still upbeat mining component, business confidence fell 15pp to an even lower 33.2 points.

With domestic uncertainty persisting and operations still not running at full-speed, weak growth ahead is set to persevere. Growth for 2019 is likely to come in below 2% (4.0% last year), while the weak carryover effect would likely mean no improvement next year. The size and speed of the reconstruction effort, the impact on expectations and the effect of the government’s measures will be crucial to monitor the activity evolvement ahead.


Miguel Ricaurte
Vittorio Peretti

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