Nader Nazmi - Market Economics
Latam Macro Snapshot | 06 May 2013 14:50 |
Chile’s monthly GDP (Imacec) fell well short of expectations with growth slowing to a 20-month low in March. Real GDP growth decelerated from 3.8% y/y in February to 3.1% y/y in March compared to the consensus and our projections of 4.7% y/y and 5.1% y/y, respectively. A 3.0% y/y contraction in manufacturing output was the main drag on growth, as expected. Growth in the service sector (+4.1% y/y), however, also disappointed. Mining output increased 6.9% y/y.
We already knew that the manufacturing sector had a tough month in March (in part because of a calendar effect that shrank the number of working days in the month) but we were looking for a more buoyant services sector performance on the back of strong retail sales data and strong domestic demand. That did not materialize and the services sector instead registered its slowest y/y growth in 18 months. Imacec growth slowed to 4.4% y/y in Q1, its weakest pace of advance since Q3 2011.
In monthly terms, real output was flat (0.0% m/m) in March, and February growth was revised down from -0.1% m/m to -0.2% m/m. Real GDP increased 3.9% q/q, saar, in Q1, well below Chile’s 5.0% estimated potential growth.
There is increased risk that the growth slowdown that we and the central bank have been anticipating is unfolding faster than expected. A tapering off of large-scale investment projects in the mining sector and a fading commodity boom reflected in weaker terms of trade may trigger a more rapid growth deceleration than anticipated. While our base scenario (75% chance) remains for no policy rate changes this year, we believe the probability of rate cuts in H2 has increased (25%), owing to weakening growth and benign inflation.
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