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Economic activity records best result since Q4 2021 in the fourth quarter

Economic activity bounced back in Q4, expanding 0.1% on a seasonally adjusted quarter-on-quarter basis, contrasting the 1.1% contraction logged in the third quarter. Q4’s reading marked the best result since Q4 2021. However, the result was weighed on by financial services payments to foreigners related to the reorganization of LATAM airlines, and underlying momentum was stronger than the headline GDP reading suggested.

Household spending slid at a softer pace of 0.7% seasonally-adjusted quarter-on-quarter in the fourth quarter (Q3: -1.7% s.a. qoq). Public consumption bounced back, growing 1.1% in Q4 (Q3: -3.5% s.a. qoq). Meanwhile, fixed investment worsened, contracting 0.5% in Q4, contrasting the 2.0% expansion in the previous quarter.

On the external front, exports of goods and services worsened, contracting 0.6% in Q4 (Q3: +0.2% s.a. qoq). In addition, imports of goods and services dropped at a sharper pace of 7.3% in Q4 (Q3: -5.4% s.a. qoq).

On an annual basis, GDP dropped 2.3% in Q4, contrasting the previous quarter’s 0.2% increase.

Taken together, the Q4 GDP data and economic activity readings for January–February suggest the economy remains resilient in the face of double-digit interest rates and inflation. Indeed, our Consensus is for a slight quarter-on-quarter GDP expansion in Q1.

On recent economic developments, Goldman Sachs analysts said:

“Economic activity has proved to be more resilient than expected (e.g., much stronger than expected start of the year), job creation has picked up, households still have significant liquidity at hand, and China’s reopening has led to a positive terms-of-trade shock driven by higher copper prices.”

On the outlook beyond Q1, the EIU said:

“The outlook will, in our view, brighten in the second half of the year as China’s economic recovery begins to be felt through improved export performance, as well as disinflation and easing monetary policy, supporting both investment and private consumption.”