Itaú BBA - CHILE – Large trade surplus in 1Q20

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CHILE – Large trade surplus in 1Q20

Abril 7, 2020

With the Chilean economy all but closing down in late March and April, import dynamics will deteriorate further in coming months

A USD 1.2 billion trade surplus was registered in March, broadly in line with our call, but well above the USD 0.6 billion registered last year as domestic demand and lower global oil prices aid a swift correction of external imbalances. The trade data in the month showed both exports and imports dropped significantly, but the impact from lower fuel prices, weakened consumer goods imports (on the back of a CLP depreciation) and hampered investment outlook (affecting capital imports) outweighed the weaker mining and manufacturing sales. As a result, a USD 3.3 billion trade surplus was recorded in 1Q20, up USD 1.5 billion from 1Q19 and lifting the rolling 12-month trade balance to a USD 5.6 billion surplus (USD 4.2 billion last year). At the margin, the trade surplus is at an even larger USD 10.3 billion annualized in the quarter (according to our SA adjustment; USD 5.4 billion in 4Q19). With the Chilean economy all but closing down in late March and April, import dynamics will likely deteriorate further in coming months.

Mining and manufacturing continued to contract in March, but the decline is likely to quicken in coming months as the global economy slows. Exports fell 6.5% in March (5.7% drop in February), as manufacturing exports contracted 10.3% (12.1% fall in February). Mining fell 5.3% YoY (0.2% drop previously), while agriculture sales posted a mild 0.8% gain. As a result, exports fell 4.0% in 1Q20, adding a fifth consecutive quarter of contractions (-9.4% in 4Q19; flat in 4Q18). Thanks to a strong start to the year, mining exports posted growth of 1.3% YoY in 1Q20 (8.7% fall in 4Q19). Meanwhile, manufacturing exports remained the key drag (down 9.9%; 14.0% fall in 4Q19), led by shrinking paper sales. At the margin, exports accelerated to 10.3% QoQ/SAAR, from the 13.4% drop in 4Q19, on the back of mining momentum. Dynamism would moderate ahead as global growth slows amid the coronavirus outbreak.

In March, there was a double-digit decline across all the three main import categories. As a result, total imports dropped 19.4% YoY in March (18.3% fall previously). Consumer goods imports remained weak as the CLP depreciation hampers confidence, while capital goods imports posted its sharpest drop since September 2016, reflecting the bleak outlook for domestic demand. As oil prices plummet, energy imports fell 18.2% (22.2% drop in February), but fuel imports in particular collapsed by 34.2% (6.3% fall in February). In the first quarter of the year, imports shrunk 13.4% YoY, similar to the decline in 4Q19. A 31.3% fall of durable consumption goods imports led the weakness (23.8% fall in 4Q19), while capital goods purchases shrunk 14.2% (6% drop in 4Q19). Energy imports in the quarter improved to 0.5% (-13.4% in 4Q19), but the outlook for imports is unpromising given the recent developments in the global oil market. At the margin, imports fell 19.2% QoQ/SAAR, a similar to pace in 4Q19.

We expect the current account deficit to narrow this year to 0.5% of GDP, from 3.9% last year, as the weaker CLP, a poor internal demand growth, and lower oil prices outweigh weaker global demand.

Miguel Ricaurte
Vittorio Peretti

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