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June
economic activity comes in strong as expected.
In June, the monthly indicator for economic activity (IMACEC)
increased at an annual rate of 5.1% over the same month in 2000. The
positive reading was largely expected as strong industrial production data
for June had indicated a healthy economic expansion for that month. Even
so, the economic growth rate reported for June represents a marked
improvement compared to the 2.4% growth rate registered in May this year.
According to seasonally adjusted data, the economy added 2.5% over May.
Second quarter growth only
driven by external sector amid Peso weakness.
As a result of the strong June data, second quarter GDP growth of 3.4%
over the same period last year came in slightly above the Consensus
Forecast expectations. The second quarter figure was virtually unchanged
from the upward revised (+0.2 percentage points) 3.5% growth registered in
the first quarter. Thus, growth in the first half was 3.5% compared to
the same period last year. Despite the global softening, growth was
exclusively driven by the external sector, whereas domestic demand
reverted from 4.0% growth in the first quarter to a 2.8% contraction.
Gross fixed investment growth dropped from 9.9% in the first quarter to
just 3.4% in the second quarter. The rest of domestic demand, i.e.
consumption and inventories, dropped from 2.2% growth in first quarter to
a 4.9% contraction. Weak domestic demand was compensated for by strong
exports, which increased 12.9% over the second quarter last year, more
than twice the 5.9% growth registered in the first quarter. However,
rather than an increase in volume the jump in exports was prompted by the
weaker peso, which augmented the peso value of exports. Imports dropped
2.1% year-over-year in the second quarter, following the 6.9% expansion in
the first quarter, as the softer domestic demand lowered consumer imports.
Most sectors show
improvement over first quarter.
On a sectoral basis, agriculture and fishing led the second quarter
expansion with 9.0% growth, up from 7.1% in the first quarter. The
industrial sector grew 3.3% according to our calculations, which include
mining, manufacturing, electricity, gas and water as well as
construction. This marks a significant improvement over the first
quarter, when industry expanded by just 1.4% compared to the same period
last year. A strong energy sector, which profited from surging capacity
in hydroelectric power plants amid abundant rainfalls, drove the
improvement in the industrial sector. The manufacturing industry reverted
from the 0.8% contraction observed in the first quarter to a still modest
1.6% growth. Capital and consumer goods production dropped but was
compensated for by a healthy pick up in intermediate good output. Growth
in construction remained virtually unchanged from the 4.7% in the first
quarter. Services also registered a modest improvement from 3.3% in the
first quarter to 3.6% in the second quarter. Growth in the transport and
communications sector dropped from 6.2% in the first quarter to 4.0% in
the second quarter. However, the weaker result in transport and
communications was compensated by a notable uptick of 3.9% (+2.4% in first
quarter) in financial services activity.
Economy off to a poor start
in third quarter. The
positive second quarter GDP reading had spawned some optimism among
observers that the Chilean economy would experience a pronounced pickup in
the second half this year. These hopes, however, were quickly squashed by
dismal July industry data. According to the National Statistical
Institute (INE), industrial production added a meagre 0.3% over the same
month last year, with all sub-sectors except consumer durables showing a
deterioration in growth compared to June. Unemployment also continued to
rise slightly to 9.8% from 9.7% in June. As a result, panellists have
further lowered their forecasts for GDP growth this year by an additional
0.2 percentage points. Next year’s outlook also suffered a small
adjustment, as uncertainty over a sound global economic recovery in 2002
continues to rise.
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