Recovery, but with significant risks
Economic recovery resumed in November after October’s pause, although less intensely than in August and September. Although the 0.3% 12-month variation was helped by a low comparison base due to the violent protests of Q4 2019, the seasonally adjusted non-mining IMACEC increased by 1.4% m/m. In the short term, substantial risks to activity are emerging.
The 12-month variation of retail sales in November showed a 25% increase, favored by the low base of comparison as well. Nevertheless, the result exceeded even the most optimistic forecasts in the Bloomberg survey, and the monthly variation of the seasonally-adjusted series returned to positive ground. Although the recovery in consumption has a trend component, November sales benefited from the anticipation of the second pension savings withdrawal. Although the trend in manufacturing shows a gradual recovery, the November reading was disappointing. We must take manufacturing monthly data with a grain of salt, because of the high volatility of specific sectors. In 2020 the value of exports increased by 2.6%, acting as a buffer that prevented a further slump in activity. December results were particularly favorable. Mining exports surpassed $4 billion for the first time since 2017, helped by the substantial increase in the international price of copper.
In November, the labor market continued to show progress in line with the flexibilization of mobility restrictions, but it is still lagging behind the rest of the economy. Unemployment continued to fall at a pace similar to that of previous months. The gap relative to last year narrowed, but remains high. The potential unemployment rate remained above 20%, and reflects the severity of the shock that persists in the labor market. The 12-month variation in employment fell from -14.8% in the August-October moving quarter to -12.5% in the September-November moving quarter, scoring the best result since April. By sectors, a three-speed recovery is emerging.
December’s CPI increased 0.34% m/m, above the 0.16% implicit in CLP/UF forwards. 2020 closed with inflation at 3%, right at the Central Bank’s target. The strengthening of social distancing measures had an evident effect on the prices of services in December and the higher demand due to the pensions savings withdrawal pushed up the prices of several goods. As we have previously emphasized, the informational content of the monthly figures is significantly diminished. Uncertainty with respect to inflation will remain particularly high in the coming months. In general, we do not see strong underlying inflationary pressures.
The Central Bank continues to hold the monetary policy rate (TPM) at its “technical minimum” of 0.5%, and it’s highly likely that it will stay there for the remainder of 2021. Beyond the TPM, the Central Bank continues with its QE programs, mostly through the purchase of bank bonds. As we posted in a brief, in an unexpected decision, the Central Bank of Chile on January 13th announced the purchase of $12 billion in the spot market. The timing of this measure seems somewhat odd, given the extreme levels of uncertainty. A way of rationalizing this policy, to which the Central Bank made no reference, is that external debt has increased significantly in the last few years.
The year ahead will be marked by efforts to vaccinate Chile's population, and to recover economically. Yet political attention is firmly placed on the many elections that will be held over the course of the year, starting in April with the election of the Constituent Assembly. The process of forming candidate slates for the Assembly has underscored deep divisions on the left and center-left, while the right has put aside internal squabbling to present a more united front. This is likely to provide electoral benefits not only in the breakdown of the Constituent Assembly, but in the congressional and presidential elections slated for later in the year.
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