Itaú BBA - CHILE – Positive activity surprise to end a dismal year

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CHILE – Positive activity surprise to end a dismal year

Janeiro 31, 2020

Despite positive signs that activity is improving, downbeat private sentiment would lead to below potential growth this year

The activity normalization process unfolded at a faster-than-expected pace at the close of 2019. Industrial production – aggregating mining, manufacturing and utilities – grew 3.2% yoy in December, bouncing back from declines in the prior two months. The improvement was aided by upbeat manufacturing growth of 4.2% yoy (led by chemical production; 3.2% in November) and the mining production rebound (2.8% versus a 7.1% drop previously). The manufacturing development exceeded both the Bloomberg market consensus of 1.0% and our 2.2% call. Meanwhile, retail sales posted a significantly milder decline of 2.8% yoy compared to the double-digit drops in the two preceding months and the market expectation of a 5.2% fall (Itaú: 5.5% contraction). As a result, we expect the December GDP proxy (IMACEC) to moderate its rate of decline and post a 0.2% fall (-3.3% in November), aided by an additional working day.

Industrial production and retail sales contracted in 2019. In the final quarter of last year, industrial production shrunk 0.7% yoy (1.5% in 3Q19), as the 2.0% mining drag was only partly offset by the 0.5% manufacturing rise (2.5% in 3Q19). The disruption to operating hours, means of transport, and the confidence fall led to retail sales contracting 7.7% in 4Q19, the first quarterly fall since 4Q14, as durable goods sales fell 15.4% (1.6% fall in 3Q19 and -5% in 2019). Supermarket sales followed suit with a 6.0% drop (+0.7% in 3Q19 and a 0.8% contraction last year). The commercial activity index – aggregating wholesale, retail and vehicle sales – declined 4.5% in the quarter, a sharp reversal from the 4.8% gain in 3Q19, as the previously robust wholesales slowed to 0.2% (9.4% in 3Q19), while retail activity fell. Overall, industrial production contracted 0.4% in 2019 (+3.1% in 2018) and retail sales fell 1.7% (+4.0% in 2018), the first full-year contraction since the series exists.

Sequentially, all activity indicators registered gains from November, but could not offset the sharp momentum slowdown in 4Q19. The industrial production index increased 2.6% from November, but contracted 1.9% qoq/saar in 4Q19 (after expanding 2.1% in 3Q19). Meanwhile, the near 10% monthly rise for retail sales only partially contained the 26.1% qoq/saar decline in 4Q19 (1.8% fall in 3Q19). Nevertheless, signs that activity normalization was under way at the end of last year bodes well for a momentum recovery at the start of 2020.

Despite positive signs that activity is improving, downbeat private sentiment would hamper consumption and investment dynamics and lead to below potential growth this year of 1.2% (1.0% expected for 2019).

Miguel Ricaurte
Vittorio Peretti

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