Itaú BBA - CHILE – Stark retail sales contraction, while outlook is bleak

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CHILE – Stark retail sales contraction, while outlook is bleak

Dezembro 3, 2019

With consumer confidence at historic lows and the labor market set to loosen, consumption will slow significantly ahead

Retail sales posted a double-digit decline in October, reflecting the impact of protest action that led to the closure of retail operations. The October monthly GDP proxy (Imacec, released yesterday) shrunk 3.4%, with services, manufacturing as well as commerce highlighted as the key drags. Retail sales (including car sales) fell 12.1% yoy (-1.1% in September), sharper than the Bloomberg market consensus and our call of a 6.0% drop. At the margin, retail sales posted the largest monthly drop (9.0%) in the history of the series (2005), resulting in a considerable momentum retreat in the quarter. While part of the contraction is transitory, an expected weakening of the labor market and the plummet of consumer confidence to historic lows in November implies very weak consumption data in coming months. GFK’s consumer confidence measure reached 28.3 points in November, a 17pp decline over twelve months (50 = neutral). 

In the quarter ending in October, the commercial activity index that aggregates retail, vehicles and wholesales fell 0.8% yoy (+4.8% in 3Q19), the first quarterly year-over-year decline since the start of the series in 2015. Apart from the weak retail numbers, the sharp slowdown can also be attributed to a wholesale slump in October, after previously being the key activity driver. Wholesales fell 6.4% in October, leading to a growth moderation of 2.9% in the quarter (9.4% in 3Q19 and 7.3% in 2Q19). Meanwhile, retail sales (including vehicles) shrunk 3.9% yoy in the quarter (+0.8% in 3Q19) as durable goods sales (partly vehicles) declined 9.5% yoy (-1.6% in 3Q19), while non-durable sales fell 2.0% yoy (+1.6% in 3Q19). Additional consumption data shows supermarket sales were (surprisingly) only mildly affected, posting a 1.9% yoy drop in October, with broadly stable growth of 0.4% in the quarter. At the margin, retail sales (including vehicles) fell 13.0% qoq/saar (-1.3% in 3Q19 and +3.2% in 2Q19), while supermarket sales declined 1.4% qoq/saar (-0.8% in 3Q19).

With consumer confidence at historic lows and the labor market set to loosen, consumption will slow significantly ahead. The developments in Chile during 4Q19 point to activity growth for 2019 of between 1.0%-1.5%, well below our prior call of 2.0% call. The weak carry-over into 2020 along with historically low business and consumer confidence (that would likely translate into reduced investment and consumption) means the likelihood of an activity recovery next year is slim. Nevertheless, some boost to activity would come from the ambitious fiscal stimulus package (close to 2% of GDP). Just over half of the package seeks to lift activity and employment by increasing investment expenditure and improving the unemployment insurance scheme, with the remainder favoring SMEs affected by the recent events (via tax rebates and deferred tax payments) and reconstruction efforts of public infrastructure. Besides, monetary policy remains supportive, with real market interest rates at negative levels.  

 

Miguel Ricaurte
Vittorio Peretti



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