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June
economic performance remains below moderate expectations
In June, the economy stayed behind even the moderate growth expectations
expressed in last month’s Consensus. The monthly indicator for economic
activity (IMACEC, Indicator Mensual de Actividad Económica) expanded by
0.3% compared to the same month last year and thus remained below the 0.8%
expected last month and the 0.9% expansion registered in May. In part, the
torrential rainfalls in early June, which hampered economic activity in
the capital area, were responsible for the dismal performance. In
addition, dropping activity in the mining sector, sluggish performance of
some branches of industry and reduced dynamism in the telecommunications
sector kept June activity below expectations. According to seasonally
adjusted data, the economy even contracted 0.1% over the preceding month.
Domestic side of the economy shows improvement in the second quarter
The disappointing June reading left second quarter growth a notch short of
the 1.8% expected by the Consensus last month. The 1.7% annual growth
rate, represents an insignificant improvement over the 1.6% expansion
registered in the first quarter this year and confirms that the Chilean
economy remains heavily dependent on improvements in the global economy to
pull clear from sluggish growth. However, while the overall economic
performance remained virtually unchanged from the first quarter, the
second quarter reading brought some notable improvements on the domestic
side of the economy. Domestic demand declined at an annual rate of 0.4%, a
substantial improvement when compared to the 2.7% contraction recorded in
the first quarter this year. The improvement is due to a swing in gross
fixed investment, which reverted from a 1.3% decline in the first quarter
to a – still moderate – 0.9% expansion in Q2. The remainder of the
domestic demand, i.e. consumption and the change in inventories (the
Central Bank publishes isolated consumption data only on an annual basis)
also improved notably, as the 3.8% contraction in the first quarter gave
way to a more moderate 0.8% drop. The improvement on the domestic side of
the economy was partially compensated for by a deteriorating net
contribution of the external sector as imports reverted from a strong 6.6%
contraction in Q1 to a 2.9% growth in the second quarter. Export growth,
on the other hand, picked up more moderately, from 6.0% in the first
quarter to 8.6% in the second quarter.
Healthy
expansion of electricity among abundant water supplies
On a sectoral basis, agriculture and fishing led growth, expanding 4.9%
and 5.1% respectively over the same period last year (Q1: 3.4% and 15.4%
respectively year-on-year). The only sector that grew at a faster clip,
was the electricity, gas and water sector, where activity rose by 5.6%
compared to the second quarter 2001. In the first quarter, the sector had
grown 4.5%. However, the performance was fostered by favourable climatic
conditions, as the plentiful rainfall provided the mostly hydroelectric
power plants with abundant resources. Gas and water actually both declined
moderately over the same quarter last year. The industrial manufacturing
sector also improved over the 0.4% growth in the first quarter, adding
1.5% on an annual basis. Mining and construction, on the other hand,
deteriorated compared to the performance in the first quarter. The mining
sector slump deepened from half a percentage point in Q1 to a full 3.0%
contraction, amid output adjustments in state-owned production facilities
and large private sector mining operations. Thus, mining constituted the
only sector entrenched in negative territory. Activity in construction
slowed to 2.6%, compared to 3.4% annual growth in the first quarter.
Higher public sector works projects drove the above average growth rate,
in particular engineering contracts related to concessions. In the private
sector, construction activity was particularly pronounced in energy and
mining. Output in the services sector, in total, rose by 1.6%, down
slightly from the 1.8% growth in the first quarter. Basically, all
sub-sectors in services developed along the same lines observed in the
first quarter.
Growth
outlook revised downward further despite promising signs in July
Economic indicators released for July generally exceeded expectations.
Industrial production expanded by 8.6% compared to the same month last
year, while industrial sales rose by 3.6%. The result was inflated by
seasonal factors, as July this year had two working days more than July
2001, which should account for approximately two percentage points of the
growth rate. The July industrial output reading represents the highest
growth rate since October last year. The positive industry result was
complemented by favourable employment data. In the moving quarter up to
July, the open national unemployment rate dropped to 9.4% from 9.5% in the
preceding month. While not stellar, the July reading was against the
seasonal trend and also above expectations, which had seen unemployment
bordering 10%. Despite the more favourable signs at the beginning of the
current quarter, Consensus Forecast panellists have lowered their
projections for economic growth in the third and fourth quarter.
Projections for the third quarter were lowered 0.9 percentage points over
last month and the forecast for the final quarter was reduced by 1.3
percentage points. As a result of the lower growth prospects in the second
half, the annual growth forecast also dropped 0.4 percentage points from
last month. The downward revisions follow on an increasingly sombre
outlook for the global economy, where the much touted rebound is slow to
develop and more erratic than anticipated earlier.
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