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Andean Macro Weekly Report; Chile: economic activity surprised on the upside


July 9, 2018 ( Newswire) Last week's highlights: Economic activity expanded roughly 5% y/y amid a positive non-mining sectors momentum (full report). The BCCh announced that the Imacec rose 4.9% y/y in May-18, above market consensus and our own forecast, achieving its fifth consecutive y/y expansion above the 4% threshold. Recall that May-18 had one less working day than May-17 and a weak base of comparison. Importantly, the seasonally-adjusted m/m series expanded by 0.7%, representing the biggest monthly advance since Nov-17. In y/y terms, the mining index expanded by almost 7%, while the non-mining Imacec advanced by 4.7%. Moreover, non-mining sectors continued with the positive trend experienced since 4Q17, reflected in 0.5% m/m growth. On its part, we highlight that both La Escondida-BHP negotiations and Chuquicamata's (Codelco) recently-announced likely production stoppage, imply downside, short-term risks for domestic activity. Preliminarily, we project a 4.8-5.3% expansion of Imacec in Jun-18, while anticipate a 5% y/y GDP growth rate in 2Q18.

  • Inflation is moving away from the 2% threshold (full report). The INE announced that CPI increased by 0.1% m/m in Jun-18, surprising market expectations to the downside but standing in line with our forecast. We highlight that the volatile components played a key role in the Jun-18 register, particularly energy due to higher gasoline prices, while core inflation decreased in m/m terms. That said, inflation moved away from the bottom of the tolerance range, standing at 2.5% y/y (vs. 1.9% in average in the last 12 months), as expected. In our view, risks of a low-for-longer inflation decreased, while we expect it to stand close to 2.5-2.8% y/y in the coming months (except in Sep-18). Accordingly, we estimate that the BCCh will start the gradual normalization of monetary policy at the end of this year.
  • Consumer confidence posted its strongest monthly increase since the Presidential election. Adimark published the consumer confidence indicator (IPEC) for Jun-18, which increased by 1.5 pp m/m, up to 52.7 points, above the neutral level for the seventh straight month. Importantly, the m/m increase is the biggest since the Presidential election in Dec-17. The monthly result was mainly explained by the improvement in the current personal economic situation index; all the other categories also contributed, except for the next-12-month economic situation expectation measure. Accordingly, overall optimism about the Chilean economy remains; thus, we still believe that the balance of risks for domestic activity is tilted to the upside.
  • The FX closed at CLP 657 last week, recording a 0.4% w/w depreciation against the previous Friday. The FX posted a relatively depreciative trend amid a significantly lower average copper price (-4.7% w/w), while the multilateral USD depreciated by 0.4% w/w. Also, Chile's 10Y CDS contracted by 1.4bp.

Main data and events to come

  • On Tuesday, the BCCh will publish the Jul-18 Economists Survey

Colombia: headline annual inflation slightly accelerated to 3.20%, though core measures slowed in Jun-18

Last week's highlights

  • Inflation stood at 0.15% m/m in Jun-18, below our estimate of 0.23% but close to the market consensus forecast (0.17% m/m). However, annual inflation accelerated by 4bp m/m to 3.20% y/y, its second consecutive increase amid a relatively unfavorable statistical base (Jun-17: 0.11% m/m; June's ten-year median: 0.22% m/m). Both the housing and the foodstuffs groups (58% of CPI) came in very low at 0.08% m/m and 0.03% m/m, respectively. Moreover, the majority of core measures slowed this month, with the non-tradable gauge standing out (-30bp m/m to 4.27% y/y). However, regulated inflation remained sticky at high levels despite a monthly contraction of utilities' tariffs.
    • With Jun-18 overall results, we maintain our year-end forecast of 3.10%. That said, headline inflation would temporarily accelerate in the coming months (though slightly) on the back of an unfavorable statistical base in the foodstuffs group, which posted five consecutive negative monthly figures between Jun-17 and Oct-17. Tradable goods could also pressure to the upside annual inflation as the comparison base for this group is demanding as well. While not our base case, this risk could intensify if the COP post a relevant depreciation ahead considering the current adverse scenario for EM. Conversely, the still-widening output gap this year, which would only begin to narrow in 2019-end/2020, and the lower indexation mechanisms, will continue to pressure to the downside annual inflation. Considering the expectations of an inflation slightly above the 3% target in the months to come, and the current acceleration of economic activity, we hold our belief that the BanRep will maintain the repo rate at 4.25% during the remainder of the year, while potential hikes would be initially discussed in 1H19 (see full note).
  • Exports increase in May-18. Sales abroad increased 5.0% y/y in nominal terms in May-18, thus accumulating 19 consecutive months in positive territory. Non-traditional exports increased just 1% y/y, strongly decelerating from the 29% y/y increase observed last month, amid a 3.8% decrease in the agricultural group (ex coffee), which was offset by a 9.1% y/y increase in manufacturing sales. Traditional exports growth moderated to 7.6% y/y (down from 47.8% y/y in Apr-18) because of the strong deterioration of coal sales (from 109.1% y/y in Apr-18 down to -29.4% y/y in May-18). Overall, exports continued to post a healthy performance, considering that the statistical base was demanding this month (May-17: +27.4% y/y). We expect further improvements considering the positive global scenario of higher commodity prices.

Main data and events to come

  • Today, the BanRep will publish the minutes of its most recent policy meeting.
  • On Friday, DANE will release the figures of retail sales and industrial production for May-18. We expect retail sales to rose 5.6% y/y, while industrial production would have grown 3.0% y/y (consensus: +5.0% y/y both).

Peru: Central Bank will hold its key rate at 2.75% this Thursday

Last week's highlights

  • We expect no changes from the Central Bank this Thursday. The institution will hold its seventh monetary policy meeting of the year, and will take into account the following information:
    • Monthly inflation stood at 0.33% m/m in Jun-18 (May-18: 0.02%), above the market consensus (Bloomberg: 0.15%). The monthly print responded to higher international oil prices and the increase in the Excise Tax since May 9th (impact of 0.17pp in June and 0.08pp in May). The Central Bank remarks that the Excise Tax increase implies a one-off effect on CPI. Hence, headline inflation accelerated from 0.9% y/y in May-18 to 1.4% y/y in Jun-18, and returned to the Central Bank's target range (1%-3%) after 4 months. Moreover, core inflation increased to 2.2% y/y (May-18: 2.0%) and reached the highest print in 7 months.
    • 12-months-ahead inflation expectations increased from 2.22% in May-18 to 2.28% in Jun-18, reaching the highest print so far in the year.
    • The FX rate continues to fluctuate in the PEN 3.25-3.30 range. In a context of high volatility and uncertainty in the international environment, it reached PEN 3.29. The Central Bank then eased the limits to foreign currency operations for the banks through forwards and swaps in order to avoid higher costs of FX hedging and depreciation pressures of the Peruvian sol.
    • Economic activity continues with an stronger-than-initially-anticipated cyclical recovery. The Central Bank noted that economic activity would have grown above 5% y/y in May-18 due to a strong performance of the fishing sector (+27% y/y) and the increase in domestic cement consumption (8.3% y/y). Hence growth in 2Q18 would stand above 5% y/y (maximum in 18 quarters).
    • Leading indicators of Jun-18 show: i) public investment of the General Government decelerated in real terms (May-18: 37%), ii) electric production expanded 4.4% y/y (May-18: 2.9%), and iii) most of the economic expectations indicators published by the BCRP moderated compared to May.
  • We expect the Central Bank to hold its rate throughout the rest of the year. However, we believe that the discussion on the appropriate moment to withdraw the monetary stimulus will start in 4Q18.
  • PEN registered minor movements despite copper slump. The FX rate closed last week at PEN 3.285 (+0.0% w/w, -1.0% YTD) despite the fall in copper prices (-4.2% w/w). With the exception of the CLP and PEN, all of the currencies in the region strengthened during the week (MXN: +4.4%, ARS: +3.4%, COP: +2.0%, BRL: +0.4%).

Main data and events to come

  • On Thursday, the BCRP will hold its monetary policy meeting (consensus: 2.75%, Credicorp: 2.75%).

For charts, tables and the full report, see the pdf file

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