Chile: Signs of Growth Slowdown

Chile: Signs of Growth Slowdown

Nader Nazmi - Market Economics
Latam Macro Snapshot | 28 Mar 2013 13:33 |

Manufacturing output and retail sales growth decelerated in February and the unemployment rate edged up two ticks to 6.2%. February data are providing partial evidence that the slowdown in activity from unsustainable levels that the central bank has been anticipating (and hoping for) may be finally happening. As such, they reduce the likelihood that monetary tightening will be required in the months ahead to cool the economy.

Manufacturing production expanded by just 0.9% y/y falling well short of the consensus and our projections of 2.5% y/y. A part of the slowdown was driven by work stoppages that impacted production in paper and metal industries and will be temporary.

On a 3-month moving average basis, manufacturing production growth remained broadly unchanged at 0.77% y/y (Chart 1). Manufacturing production contracted by a large 4.3% m/m in February, its worst monthly showing since last September. Q1 manufacturing is currently tracking 1.5% y/y below Q4 and 2.7% y/y below Q1 2012, so a quick rebound in March is needed.

Separately, mining production increased 2.6% y/y in February, down from 8.1% y/y in January, while utility (electricity, gas and water) output increased 0.9% y/y. Industrial production, comprised of manufacturing, mining and utility, expanded 1.7% y/y in February, down from 6.1% y/y in January.

Retail sales were weaker than we had projected in February. They increased 7.4% y/y, less than the consensus projection of 8.2% y/y and our 8.9% y/y forecast (Chart 1). In sequential terms, real retail sales fell 1.4% m/m in February.

Given the weakness of the manufacturing sector, the monthly proxy for real GDP (Imacec) due out next Friday is likely to reflect growth deceleration in February. We project a 3.9% y/y rise in the Imacec in February.