Chile: The economy cools in Q3
November 19, 2018
According to comprehensive data released by the Central Bank, the economy grew 2.8% year-on-year in the third quarter, slowing from a revised 5.4% (previously reported: +5.3% year-on-year) increase in the second quarter. A contraction in mining activities, softer consumption dynamics and weaker external sector led the result. Although base effects were also at play given that Q3 had three fewer working days than last year, the reading also undershot market analysts’ expectations.
In part, the economy owed its downbeat performance to weaker domestic demand metrics than in the previous quarter (Q3: +4.6% yoy; Q2: +6.1% yoy; previously reported: +6.0% yoy). Household consumption logged 3.8% annually in Q3, down from a revised 4.4% increase (previously reported: 4.5% yoy), amid a softer labor market and higher inflation. On a more positive note, annual growth in fixed investment ticked up to a five-year high of 7.1% in Q3, from a revised 7.0% rise in Q2 (previously reported: +7.1% yoy). This was thanks to sustained machinery and equipment investment, and an uptick in the construction sector. Lastly, government consumption eased to 2.3% year-on-year, from a revised 3.5% in Q2 (previously reported: 2.8% yoy).
On the external side, a sharp drop in export gains (Q3: +1.7 yoy; Q2: +7.5% yoy) dented the net contribution of trade, mostly due to slower shipments of copper. Meanwhile, imports decelerated mildly on an annual basis to 8.4% from the previous quarter’s revised 10.2% increase (previously reported: +10.0%). Overall, the external sector subtracted 2.0 percentage points from GDP in Q3, down from a revised 0.8 percentage points negative contribution (previously reported: minus 0.7 percentage points) in Q2.
Looking at the industry-level performance, third-quarter slowdown was led by a marked contraction within the mining economy. Mining GDP sank 2.7% annually in Q3, from a revised 5.4% in the previous quarter (previously reported: +4.8%), amid lower production of copper-made products. In contrast, non-mining GDP grew at 3.2% (Q2: +5.5% yoy).
On a quarter-on-quarter basis, GDP fell a seasonally-adjusted 0.6%, below Q2’s 0.7% quarter-on-quarter rise.
Despite a softer Q3, the fundamentals of the Chilean economy appear healthy and the economy is expected to finish the year on strong footing. This is summarized by Diego W. Pereira and Lucila Barbeito, economists at J.P Morgan:
“The fact that fixed investment [...] and private sector consumption continued to expand on a sequential basis, albeit decelerating a tad, makes us comfortable in sticking to our baseline scenario: the incoming information, while somewhat weaker than expected, remains consistent overall with an ongoing broad-based economic expansion.”
Author: Nicolás J. Aguilar, Economist