Consequences of the awakening
The effects of the protest that began on October 18th on the Chilean economy haven’t been as devastating as we’d feared. November’s Monthly Index of Economic Activity (IMACEC) was positive, given the context. The seasonally adjusted non-mining IMACEC increased 0.9% in monthly terms, after falling 6% in October. We estimate that the effect of the disruptions on November’s non-mining IMACEC was around -5%. Business confidence continued to fall in December, deepening November’s collapse. It is striking that, in spite of the pessimism (except in consumption credit, which continued to slow down), in December bank credit seemed to ignore the social crisis.
November retail sales figures indicate that, though the initial harm from demonstrations was considerable, and sales fell precipitously, there has been a significant recovery. Among November's sectorial figures, manufacturing production exhibited the best performance. The social unrest had an imperceptible effect, if any, on industrial production. Contrary to the positive tone in manufacturing, mining activity remained weak.
Fortunately, external conditions have remained favorable, and there was no visible impact of the social crisis on international trade. On the contrary, the 12-month variation of the value of exports turned positive, after living in negative territory since January 2019.
INE employment data continues to show that it is not reliable. Although the labor market report for the September-November moving quarter showed some signs of deterioration, it fell far short of accounting for the impact of the social unrest.
December’s CPI left behind practically 39 consecutive months of inflation below 3%, the Central Bank's target point, with the sole exception of September 2018, when it reached 3.1%. The increase in the 12-month variation is mostly explained by the price of automotive fuels, while core inflation remained stable.
During the second week of November there was a selloff of liquid assets in pesos, and a strong demand for dollars, both cash and forwards, and both corporate spreads and the peso/dollar exchange rate reached historic highs. On November 13th the Central Bank announced “preemptive” measures to “facilitate the management of liquidity in the financial sector.” The BCCh offered CLP/dollar currency swaps and over-the-counter 30-day REPO operations in pesos. The next day, the Bank broadened the scope of the measures. Most notably, it offered to repurchase its own debt: the Central Bank of Chile joined the QE club.
Not only did the run on the currency not stop, but it then intensified, reaching almost 830 pesos per dollar on November 28th. On November 29th, the Central Bank decided to intervene directly in the dollar market. After the announcement, the peso/dollar exchange rate gradually fell, to 746 on December 26th. On January 3rd, the Bank announced that it would suspend interventions.
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