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Economy
in line with expectations in May
In May, the economy expanded 4.8% compared to the same month last year,
according to the monthly indicator for economic activity (IMACEC,
Indicador Mensual de Actividad Económica). The actual result was
precisely in line with the Consensus Forecast and fell short only slightly
of the 5.0% expansion rate observed in April. A month-on-month
comparison, however, does not corroborate the continued robustness
suggested by the annual figure. According to seasonally adjusted
data, the economy expanded only 0.25% over the preceding month, just a
third of the 0.74% pace registered in April. However, despite the
slump in the month-on-month comparison, the Chilean economy remains poised
to live up to its growth potential this year. The annual average
growth rate inched upwards another 0.2 percentage points from 3.7% in
April to 3.9% in May, consolidating the higher growth trend observed in
the past months.
Industrial
sector slows down slightly in May
The overall economic development is also reflected in the industrial
sector. In May, industrial production increased 4.5% over the same
month last year, somewhat below the 4.9% pace observed in April but
consistent with the robust trend of past months. The slight
deterioration over April was due to a massive slump in durable consumer
goods, which retreated from an 18.6% expansion in April to a just positive
1.7% growth rate in May. Growth in non-durable consumer goods also
slowed, albeit on a more moderate scale (May: +3.0% year-on-year; April:
+4.3% yoy). The deterioration was mitigated by higher output of
intermediate consumer goods (May: +5.9% yoy; April: +4.7% yoy) , which
account for the lion share of industrial production. Further
deterioration was also averted by a more moderate decline in capital goods
(May: -8.3% yoy; April: -8.9% yoy).
Buoyant
exports remain key engine of rebound
Trade data suggest that the resilience of the Chilean upswing continues to
hinge on the external sector. In May, exports totalled US$ 2.8
billion, which was 54.2% above the exports recorded in May last year.
Imports increased by 19.4% over May 2003. Rather than being a
one-time surge, the May data reflect a trend that began in the second half
of last year and accelerated in the first half of this year. As a
result, in May, annual exports were 30.5% above the same period last year
and imports exceeded last year’s level by 13.9%. The huge increase
in exports mainly reflects higher copper revenues in the wake of higher
prices and increased demand from recovering economies around the globe.
As a result, copper exports more than doubled over May 2003.
Industrial goods also benefited from the higher global demand and expanded
14.0%, suggesting that domestic demand for Chilean manufactures was weak.
…
unemployment rises unexpectedly
Unemployment data confirm that the rebound of the domestic economy remains
fragile. In the moving quarter from March to May, the unemployment
rate rose to 9.4% from 8.7% in the February-April quarter. In part,
the increase follows a seasonal pattern, which typically has unemployment
rising in the first half of the year. However, when compared to the
same period last year, the unemployment rate increased by 0.6 percentage
points, which was notably worse than the 0.2 percentage point
deterioration observed between April last year and April 2004.
Moreover, the May data puts an end to long-term trend of improving
unemployment data. In fact, April constituted the first month with a
year-on-year increase in unemployment since June 2001. The reason
behind the increase in the unemployment rate is the declining number of
new jobs created in the current upswing. While the Chilean economy
continues to add new jobs, the number dropped sharply in March and April
and deteriorated further in May. In the first quarter, the economy
added 114,000 new jobs compared to the same period the year before.
In May, this number dropped to just 19,000 and, as a result, was
insufficient to absorb the number of new job seekers resulting from the
increase in population. A number of reasons account for the timid
job creation in midst of the strongest upswing since the Asian crisis
seven years ago. To a large extent the current rebound is
attributable to a recovery in the copper sector, which is more capital-
than labour-intensive. In contrast, the construction sector that
typically generates a host of new jobs during an upswing is actually
shedding jobs. The recent rise in unemployment, which contrasts more
optimistic private as well as public sector projections, is beginning to
raise concerns. In early July, the Senate demanded a report from the
government on the increasing divergence between projected an actual
unemployment numbers. In addition, the private sector has also
voiced concern about the economy’s dependence on public sector
programmes to ensure job creation during a time when the economy is
booming.
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