Itaú BBA - CHILE – Large trade surplus to end 2019

Macro Latam

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CHILE – Large trade surplus to end 2019

Janeiro 7, 2020

An export normalization amid constrained imports would lead to a sharp narrowing of the current account deficit this year

In the final month of 2019, the normalization of exports (following protest disruptions in the prior two months) amid the continued contraction of imports (as internal demand remains weak) led to a large trade surplus of USD 1.5 billion (USD 0.3 billion one year earlier). The surplus came in above the Bloomberg market consensus of USD 0.6 billion and our USD 1.0 billion call. As a result, a USD 1.3 billion surplus was registered in 4Q19 (USD 0.3 billion in 4Q18), leading to a USD 4.2 billion surplus in 2019 (USD 4.7 billion in 2018). The narrowing from 2018 is explained by declining mining and industrial exports (amid slowing global demand) offsetting a generalized import weakening. Our own seasonal adjustment points at a higher trade balance surplus of USD 5.5 billion annualized in 4Q19 (USD 3.5 billion in 3Q19). 

Exports grew 1.3% YoY in December (from double-digit declines in October and November), the first gain since January last year. Still, in the final quarter of 2019, exports dropped 10.4% YoY (5.2% decline in 3Q19), dragged by mining sales (10.9% fall; 3.1% drop in 3Q19) and manufacturing weakness (13.4% decline; -8.2% in 3Q19). Agriculture-related exports boosted exports with a gain of 17.1% in the quarter (3.1% fall in 3Q19). For the full year, there was an export contraction of 7.6% after double-digit gains in 2017 and 2018. At the margin, exports shrunk 12.7% QoQ/SAAR (+1.4% in 3Q19).  

Meanwhile, import weakness remained widespread at the close of the year, falling 17.7% YoY in December and 15.7% in 4Q19 (5.9% drop in 3Q19). In 4Q19, capital imports shrunk 16.2% (4.0% fall in 3Q19), signaling the downbeat investment-outlook, while the 17.4% consumer imports fall (down 10.9% in 3Q19) does not bode well for consumption activity. At the margin, imports fell 23.4% QoQ/SAAR (-5.0% in 3Q19).

Going forward, we expect the export normalization amid constrained imports to persist, leading to a sharp narrowing of the current account deficit this year to around 0.4% of GDP (from close to 3% expected for last year). The swift external deficit adjustment would alleviate some pressure on the Chilean peso. 

Miguel Ricaurte
Vittorio Peretti

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