Chile - Economic Briefing April 2002

Waiting for a Global Rebound (continued)

January economic performance surprises to the upside
In January, the monthly indicator for economic activity (IMACEC) increased by 2.9% compared to the same month last year. The January performance exceeded market expectations of 2.6%, which had been raised prior to the data release, owing to favourable industrial production figures reported for January. In addition, the January growth rate represented a remarkable improvement over the weak annual growth reading in December, which has been revised downward to 0.8% from 1.4% growth reported earlier due to the aforementioned change of the base year. According to seasonally adjusted data, the economy contracted by 0.6% over the preceding month and thus remained on the negative track observed in December.

… but weak February data suggest continued sluggish domestic demand
Data releases for February squashed hopes for a quick recovery, which had been fuelled by the more robust January performance. Industrial production growth dropped from the 4.5% registered in January to a mere 0.9% in February (flat over January in seasonally adjusted terms) and industrial sales growth slowed from 8.6% to 1.9% over the same period. In addition, exports dropped by 5.6% in February compared to the same month last year and imports plunged 23.7%. The import decline indicates very weak domestic demand, on both the investment and consumption side, as capital goods declined by 23.0% and consumer goods by 20.1%. Unemployment data also picked up at a quicker pace than initially expected. In the moving quarter up to February, unemployment increased to 8.3% from 8.0% in January, as the government has ended some of its employment programmes.

Forecasts for this year lowered despite upside potential from global economy
Owing to the weak February data, Consensus Forecast panellists expect the IMACEC to grow by just 1.4% in February and a meagre 2.0% in March. Nevertheless, the Consensus Forecast for economic growth in 2002 remained unchanged from last month. However, the Central Bank is more optimistic and has indicated that it may revise its current growth outlook upward in May, provided that the tentative signs of global pickup stabilise over the coming months. Consequently, in its regular monthly meeting on 9 April the Central Bank board decided to maintain the benchmark interest rate unchanged, following three consecutive rate cuts this year. The Bank is upbeat about the anticipated pickup in global demand and that recovery will provide the necessary boost to provide some upside momentum to the Chilean economy. However, monetary officials also acknowledge the downside risks emerging from the impact of the current Middle East crisis on the oil price and the global economy.

Consumer prices pick up in March
In March, consumer prices rose by 0.53% compared to the preceding month. The March figure is the first notable increase in consumer prices since November last year and was mostly expected by panellists. Strong monthly increases in the education and recreation category drove prices upward, fuelled further by higher prices for health and, to a lesser extent, housing. Owing to the March spike, annual headline inflation increased from 2.5% in February to 2.6% in March. Furthermore, the price index for core inflation added 0.48% over February but the annual core inflation nevertheless dropped from 3.4% in February to 3.3% in March. Panellists have lowered their forecast for year-end headline inflation a notch.
 

Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing on Chile.  For more details please click here.

For five-year forecasts, please click here.