Chile – This week’s data would reflect soft activity in February. Focus will be on BCCh publications.

Chile – This week’s data would reflect soft activity in February. Focus will be on BCCh publications.

CHILE

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 finally be 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. Part of the slowdown was driven by work stoppages that hit production in paper and metal industries and should be temporary.

On a three-month moving average basis, manufacturing production growth remained broadly unchanged at 0.77% y/y. 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 utilities (electricity, gas and water) output increased 0.9% y/y. Industrial production, made up of manufacturing, mining and utilities, 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. In sequential terms, real retail sales fell 1.4% m/m in February.

Chile will have some important releases in this week. Today, the central bank meeting minutes should provide more clarity regarding the board’s stance, given the usually neutral and brief post-meeting communiqué. Also look for the central bank’s Q1 Monetary Policy report (IPoM), which will be published tomorrow. Special attention should be paid to the BCCh’s assessment of the inflation outlook, current account imbalances and peso appreciation.

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