below expectations in November
In November, the economy expanded 3.2% compared to the same month last
year, according to the monthly indicator for economic activity (IMACEC,
Indicador Mensual de Actividad Económica). The reading came in
slightly below the 3.7% growth rate that Consensus Forecast panellists had
expected last month. Moreover, the November figure represents a
moderate slowdown when compared to the 3.6% growth registered in October.
According to seasonally adjusted data, the economy added 0.46% over the
preceding month, which was better than the 0.35% monthly increase observed
in October. The November pace was confirmed by preliminary data for
December released by the Central Bank in February. The Bank stated
that the economy expanded by 3.2% annually in December, which implies 3.3%
growth in the fourth quarter and 3.2% for the full year 2003.
Official data for the fourth quarter and the full year of 2003 will be
published on 23 March.
continues to drop but …
While not all economic indicators came in above or in line with
expectations, the leading gauges suggest that the economy continued to
develop favourably in the last two months of the year, providing a solid
backdrop for more accelerated economic growth in 2004. In the
September-December quarter, unemployment dropped from 8.1% in the
preceding moving quarter to 7.4%. The bulk of the decline was due to
seasonal factors, as hiring in the agricultural sector and additional
commercial activity related to the holiday season absorbed many unemployed.
However, even when these seasonal effects are taken into account,
unemployment is improving, as the 0.4 percentage point decline in the
unemployment rate over the same period in 2002 indicates.
industrial output slumps
While unemployment is improving, the industrial sector continues to raise
concerns about the robustness of the current recovery. In December,
industrial production grew by 1.2% over the same month last year.
The latest reading indicates that a downward trend may be emerging, as the
industrial output growth rate continued to drop for the third consecutive
month after peaking at a 5.8% annual growth in September. As a
result, industrial output increased by only 1.6% in the fourth quarter
over the same period last year, significantly below full year growth rate
of 2.7%. Industrial sales, however, countered the downward trend,
repeating the acceleration pattern observed in the past months,
culminating in a 5.4% growth rate in December (Q4: +3.6% year-on-year,
2003: +3.5%). The outlook for the industrial sector should
improve this year. In 2003, the development was characterised by
weak durable consumer goods, which dragged down the entire sector in
contrast to a rather favourable development in the other components of
industrial output, in particular capital goods, which expanded at a
healthy 9.0% rate last year. If unemployment continues the downward
trend, consumer confidence should rise, which would benefit the durable
consumer goods sector.
international conditions provide good backdrop for growth this year
Despite the ambiguous signs towards the end of the year, a number of
factors suggest that the outlook for the Chilean economy is improving.
On the external front, the economy is benefiting from a recovery in the
United States and in the major Asian economies. Moreover, key
economies in the region, namely Argentina and Brazil, are promising better
economic performance after major setbacks in the past years that had
notable repercussions in Chile. The improved global economic outlook
has already revived commodity prices, in particular copper, Chile’s main
export product, which accounts for more than one third of total exports.
The copper price has rebounded significantly in the past months.
Finally, the country is profiting from favourable international financial
conditions. Just as its regional peers, Chile took advantage of the
international investor appetite for emerging market debt by issuing new
sovereign bonds. On 23 January, Chile placed a US$ 600 million bond
at a spread of 43 basis points over LIBOR (London Interbank Offered Rate),
which corresponded to 3.36% fixed interest rate The new bonds’
interest rate compares very favourably to the 5.5% obtained in the last
issuance in international capital markets. Furthermore, the
international rating agency Standard & Poor’s affirmed its recent
rating upgrade from “A minus” to “A” and on 2 February 2004,
another international rating agency, Fitch, upgraded Chile’s long-term
foreign currency rating outlook from ‘Stable’ to ‘Positive’ and
affirmed its rating in “A-”. Fitch highlighted improved fiscal
transparency and the advancement in adopting growth-oriented economic
policies as key reasons for the improved outlook. Ratings analysts
even indicated that Chile could receive a rating upgrade to “A”· if
there is evidence that economic policies begin to have an impact on the
growth of GDP and exports in the medium-term.