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March
economic activity slightly below expectations. In March,
the monthly indicator for economic activity (IMACEC) increased at an
annual rate of 2.4% over the same month in 2000. The figure was well
below the 3.7% growth reached in February and also slightly below market
forecasts of 2.6%. March market forecasts had been trimmed due to
weak industrial production data released earlier and owing to one working
day less compared to March 2000. According to seasonally adjusted
data, the economy remained flat over February.
Growth
slows further in Q1. In the first quarter, Gross Domestic
Product (GDP) expanded by 3.3% over the same period last year and 0.5%
(seasonally adjusted) over the previous quarter. The modest
expansion, which represents a marked slowdown from the 4.5% growth
registered in the fourth quarter of last year, was driven primarily by
strong investment, which expanded 9.7% (Q4: +12.0%). Consumption
(including change in inventories) increased by 2.1% over the first quarter
last year, unchanged from the 2.1% growth rate registered in the fourth
quarter. Despite weak consumption, imports added 6.9% annually (Q4:
+6.1%), whereas export growth dropped from 5.7% in the fourth quarter to
5.6% amid lower copper shipments.
Manufacturing
industry only sector with negative growth. On a sectoral
basis, GDP growth varied strongly. Agriculture and fishing expanded
by 4.8%, propelled by healthy live stock and fish farming output.
The industrial sector grew 1.3% over the first quarter last year.
This was the lowest growth rate since the second quarter of 1999, when the
Chilean economy recovered from recession. The manufacturing industry
actually contracted by 0.8% and thus was the weakest subsector. The
groups that contributed to the decline in manufacturing were
export-oriented branches, consumption and investment. Manufacturing
related to intermediate good output, on the other hand, registered
positive growth. Mining increased 1.3% year-over-year, the lowest
growth rate since the fourth quarter 1993, despite increased copper
production as iron, gold and silver output dropped. Electricity, gas
and water experienced the strongest growth (+8.9% year-over-year) amid
continued favourable climatic conditions, which boosted output of the
hydroelectric power plants. Services increased 3.4%, down from 4.1%
growth in the fourth quarter. Commerce, restaurants and hotels
output grew 3.0% (Q4: 3.3%), assisted by strong supermarket sales.
Transport and communications increased 6.8% over the same period last year
(Q4: 7.4%) driven by particularly strong growth in communications-related
activity. Growth in financial services dropped significantly from
the 4.5% registered in the fourth quarter to 2.5%, as a result of the
slumping economy.
The
downturn in economic activity reflected in the modest first quarter
reading has been confirmed by weak data releases for April.
While industrial production surprised to the upside, with an annual
expansion of 3.1%, after five consecutive months of contraction, other
indicators continued to point downwards.
Unemployment rose from 8.8% in the first quarter to 9.1% in the
quarter up to April, remaining on a upward trend since December 2000;
supermarket sales growth dropped off from double digit rates in March to
4.5% in April; mining contracted 3.5% annually and non-oil imports dropped
5.6%.
Central
Bank and government reduce growth projections. While
largely expected, the weak first quarter GDP reading has further
undermined optimism about growth prospects for this year. In
mid-May, the Central Bank cut its previous 5.6% GDP growth estimate for
this year to 4.3%. Finance Minister, Nicolás Eyzaguirre, followed
suit, admitting that economic growth could remain below 4.5% this year
compared to the previous 5% government forecast. The more conservative
assessment coincides with the LatinFocus Consensus Forecast, which has
been revised downward yet again.
For 2002, forecasts have also been pared.
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