Itaú BBA - CHILE – Private consumption slump leads activity decline in April

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CHILE – Private consumption slump leads activity decline in April

Maio 29, 2020

Reduced global demand, mobility restrictions and lingering domestic uncertainties point to a 3.7% GDP contraction this year

With social distancing measures consolidating in April, the labor market loosening significantly and private sentiment plunging to historic lows, activity was expectedly weak. Retail sales contracted 31.3% yoy (14.8% drop previously), sharper than our 25% call (also the Bloomberg consensus). Meanwhile, industrial production is deteriorating but at a slower pace as lockdown restrictions left manufacturing zones broadly untouched, while most mining operations have been uninterrupted. Manufacturing declined 5.9% (+0.6% previously), below our 5.5% call (Bloomberg market consensus: -5.0%). Overall, the sectorial activity for April points to the GDP proxy (IMACEC) contracting 15% (3.1% fall in March). With the economy still significantly affected by social distancing measures in May, including some tightening during the second half of the month, GDP shrinkage would persist. 

Manufacturing is weakening as domestic demand falls, while fragile global dynamics led to the first mining contraction of the year. The 5.9% manufacturing drop was driven by lower food processing as demand from the hospitality sector disappears. Utilities shrunk 7.4% yoy (3.8% down previously) as gas distribution to generation sites dropped notably as demand wallows, while mining fell 0.5% (+2.3% in March). Overall, industrial production dropped 3.8% in April (+0.8% previously). On the consumption front, the 31.3% drop of retail sales (including vehicles) was led by apparel (-9.9pp contribution) and car sales (-8.5pp). Wholesales (a key activity driver for most of last year) dropped 15.7% (deteriorating from 0.2% fall in March). As a result, the commercial activity index – aggregating wholesale and retail sales – fell 24.7% in the month (8.9% drop in March).

On a sequential basis, manufacturing fell for the third consecutive month, while the retail decline intensified. Manufacturing fell 6.7% from March, resulting in a fall of 16.4% annualized in the quarter (8.4% rise in 1Q20). Mining was the outlier, rising 0.8% from March, but still dropped 2.4% qoq/saar (-1.8% in 1Q20). Overall, the industrial production index decreased 8.8% qoq/saar (after rising 2.5% in 1Q20). Retail sales declined 38.0% qoq/saar (+10.4% in 1Q20), sharper than the 26% decline during the 4Q19 social unrest period.

The combination of reduced global demand, mobility restrictions and lingering domestic uncertainties make us expect a GDP contraction for this year of 3.7% (+1.1% in 2019). Significant job shedding would hamper consumption dynamics, while the unfavorable economic outlook would contribute to gross fixed investment contracting at double-digit rates (+4.2% last year). Risks tilt to an even more significant activity fall this year.

Miguel Ricaurte
Vittorio Peretti

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