Chile: Manufacturing beat expectations in October; robust GDP reading expected next week

Chile: Manufacturing beat expectations in October; robust GDP reading expected next week

Florencia Vazquez - Market Economics
Latam Macro Snapshot | 29 Nov 2012 14:32 | 46 Kb

Manufacturing production advanced a whopping 9.1% y/y in October, following a 5.6% y/y plunge in September. A strong performance was expected thanks to the fact that October this year had three additional working days, but actual IP growth stood above our already optimistic forecast and the median estimate from the Bloomberg survey (5.0% and 3.0% y/y, respectively).

Overall industrial production advanced 4.3% y/y in October largely thanks to the manufacturing sector that added 3.5pp to the overall reading. Utilities (electricity, gas and water) advanced 6.6% y/y and contributed 0.7pp last month. The contribution from mining was modest at 0.2pp.

In contrast to strong supply-side performance, real retail sales growth disappointed expectations (see details below). That being said, the moderation in demand-side indicators is probably welcome by the central bank that has repeatedly expressed concerns about a potential reacceleration of price pressures medium term and the ongoing deterioration of the current account result amid a context of strong demand. Indeed, despite the recently divergent performance, the pace of retail sales has remained comfortably above manufacturing production growth lately (Chart 2).

Partial activity reports appear consistent with a 6.2% y/y gain for the monthly real GDP proxy in October. The report will be unveiled next week.

Details:

- In seasonally adjusted terms, IP is estimated to have bounced visibly but following a sizable plunge in September. These unusually large changes probably reflect difficulties in adjustments arising from the different number of working days this year compared to 2011. On average, trends in the industrial sector remained weak in October, albeit less so than in Q3. Indeed, the 3m/3m (saar) pace stood at -0.2% last month, but showed a visible improvement from last quarter’s 7.2% q/q (saar) contraction (Chart 1).

- Below the headline, the improvement was mainly driven by the food sector. The latter (that explained 5.9pp of the overall advance) was helped by higher output of dairy and fish products. Production of metals and paper also contributed positively to October’s performance. In contrast, the contributions from editing and printing activities were negative.

- Meanwhile, mining output advanced a modest 0.3% y/y in October and is estimated to have contracted on a sequential basis for a second straight month. Copper production improved 1.4% y/y, but the gain was partly offset by declines in output of molybdenum and other products.

- The pace of retail sales stood little changed at 6.6% y/y in October. In sequential terms, real retail sales are estimated to have stood unchanged last month. This flat performance follows a visible plunge in September. Despite soft readings recently, on average real retail sales were expanding at a robust 12.7% 3m/3m (saar) pace in October. Below the headline, the more dynamic components were clothing, vehicles and electronic equipment.