Itaú BBA - CHILE – Mining drags activity down in January

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CHILE – Mining drags activity down in January

Março 5, 2019

The positive evolvement of non-mining activity bodes well for the expected recovery.

Mining led to a weak activity start in 2019, but there are positives from robust services. Activity grew 2.4% yoy in January, below the 2.6% Bloomberg market consensus, while in line with our revised 2.4% call (following weaker retail data yesterday). Mining contracted 4.3% (+0.5% previously), but was offset by a 3.1% rise in non-mining activity (particularly services; 2.8% previously). The positive evolvement of non-mining activity bodes well for the central bank’s view that the output gap is near closed. While further rate hikes can be justified in this context, uncertainty regarding inflation dynamics and still elevated external risks support a more cautious central bank. Hence, we see a low likelihood of further rate hikes during the first semester.

In the quarter ending in January, growth moderated, reflecting the weak end to 2018. Non-mining activity increased 2.9% yoy (3.5% in 4Q18 and 3.2% in 3Q18), while mining grew a mild 0.7%, an improvement from previous quarters (-0.1% in 4Q18 and -2.7% in 3Q18) but is unlikely to last during 1H19. Overall, imacec increased 2.7% in the quarter (3.3% in 4Q18 and 2.8% in 3Q18).

At the margin, non-mining activity continued to grow at a brisk pace, near potential. Imacec gained 3.8% qoq/saar in the quarter ending in January (3.4% in 4Q18 and 0.9% in 3Q18), with mining growing 8.7% qoq/saar (4.2% in 4Q18 and 7.9% in 3Q18). Nevertheless, with two consecutive monthly declines and unfavorable weather affecting activity in February, mining growth would slow going forward. Meanwhile, non-mining activity posted a notable 0.7% gain from December, leading to growth of 3.3% qoq/saar (as was the case in 4Q18; 0.1% in 3Q18). 

Activity in the 1H19 is set to underwhelm with mining activity hampered by a high base of comparison. Nevertheless, the recovery of copper prices will likely lead to still vigorous investment throughout the year, while low inflation and an expansionary monetary policy foster a favorable environment for consumption. We see GDP growth of 3.2% this year (4.0% in 2018).

Miguel Ricaurte
Vittorio Peretti

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