Chile’s economic activity index on a monthly basis surpassed consensus expectations for the past two months. On a quarter-on-quarter seasonally adjusted basis, the Chilean economy is expected to have expanded 0.9% in Q1 2016, noted Societe Generale in a research report. Nominal merchandise exports dropped in the first quarter by the most decelerating pace in four quarters in US dollar terms. Meanwhile, imports fell 10.1% y/y. The capital goods import recovered that shows that investment improved in the first quarter. Moreover, a rebound in prices of copper in Q1 made conditions good for growth, while government spending continued to be strong.
A robust figure for the first quarter also implies that the Chilean economy might expand more rapidly that the current projection of 1.6% in 2016. However, consumer sentiment continues to be negative, while consumer goods import data indicates weakening of consumption demand. Furthermore, the risks on the upside to the growth projection are eased to certain degree by the downside risk of worsening global growth environment.
Currently, it is uncertain if the pickup in investment demand will sustain, especially without solid growth in counter-cyclical government spending. Under this situation, it is unlikely that the economic growth will expand more than its trend pace.
“We continue to expect the economy to grow below trend over the medium term”, added Societe Generale.
