Chile's trade balance improving, but trade diminishing

Chile's trade data since March has been bad and the May trade data was particularly disappointing as both exports and imports fell considerably in nominal peso terms even after taking into account the significant pace of CLP depreciation. 

"Nothing has changed meaningfully over the month which prompts us to predict a nearly 21% yoy fall in exports and 18% fall in imports for June leading to a trade balance of USD285m. Year-to-date the trade balance through June, thus, stands at USD5,136m versus USD4,969m in 2014 during the same period", says Societe Generale. 

 The continued weakness in imports signals a lack of improvement in domestic demand growth although it has helped improve the trade balance.

Low commodity prices pushed down the current account balance (CAB) to an all-time low of -3.7% of GDP in 2012 and -3.6% in 2013 as export growth collapsed. The resulting deterioration in domestic demand - particularly investment - led to an even sharper fall in imports in 2014, helping the current account balance to improve remarkably to -1.1% of GDP.

 Import growth remains under pressure this year and could help a further recovery in the current account this year. However, this phase is nearly over and given that growth is stabilising at around 2.5% to 3.0%, the current account improvement should come to a halt.

According to Societe Generale, a current account balance of -0.5% of GDP in 2015 compared with -1.1% in 2014 is expected.