Fear of floating vs. fear of falling
The August IMACEC delivered a pretty big surprise -- and not a good one. Beyond the monthly volatility, economic activity has remained stagnant since late 2022, and the output gap continues to narrow. In August, retail sales recorded a negative monthly change for the eighth consecutive month. In contrast with the weakness in the IMACEC, retail sales and labor market data, there were positive developments in manufacturing production, but we can expect weakness to reappear in the future. Despite the prevailing pessimism in business confidence, there were improvements at the margin.
Similar to previous months, the trade balance continued to improve. This occurred against the backdrop of simultaneous import and export decreases. The negative signals for domestic demand persist, and the impact on investment is increasingly evident.
During the June-August rolling quarter, labor market weakness deepened. The seasonally-adjusted monthly change in the number of employed workers turned negative, and the seasonally-adjusted unemployment rate increased.
With a final plenary vote on October 30th, Chile's Constitutional Council approved the text that will be presented to the public in a December referendum. The draft reflects right and center-right majority on the Council, and as such contains elements that appear to address the right's priorities, such as consecrating the private sector's role in health, education and pensions; protecting the right to life; removing illegal immigrants; and cracking down on crime. The political system would not change much, but the size of the House of Deputies would shrink, and an effort would be made to reduce party fragmentation. Polls show that, once again, the constitutional draft will be rejected, although the “approve” option has slowly increased in popularity over the last month.
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