No Bounce Back
In 2016, total exports were the lowest since 2009, but there was a rebound towards the end of the year. This rebound was widespread. The value of imports of capital goods continued the upward trend, which is good signal on investment. That’s the good news.
In November, the Monthly Index of Economic Activity (IMACEC) was disappointing, once again. Although the 12-month variation of the IMACEC in November went back to positive ground after being negative in October, it remained among the lowest since the 2009 crisis.
The Retail Sales Index, pushed by durable goods, surprised markets on the upside. But the level of the non-durable goods sub-index, remained flat. Both manufacturing and mining production continued their annual decline in November.
The Monthly Index of Business Confidence (Imce) closed the year in pessimistic ground. The construction sector continued to be the most pessimistic.
Labor market data for the September-November moving quarter were moderately positive. Despite the economic slowdown, the resilience of the employment rate continues to stand out. Nevertheless, most new jobs are low quality, corresponding, to a great extent, to unskilled unsalaried workers in the commerce sector.
The CPI data for December was clearly indicative of lower inflationary pressures. The monthly variation of -0.20% was a significant surprise on the downside. The December CPI surprised not only the market, but also the Central Bank. This has obvious implications for monetary policy.
In the next Monetary Policy Meeting, which will take place on January 19th, the Board of the Central Bank almost surely will lower the Monetary Policy Rate (TPM). In the last meeting, there was a split. The dissident was Pablo García, who voted to cut the TPM. Mario Marcel was also in favor of lowering the TPM, but voted to keep it at its current level, for tactical reasons. He will undoubtedly vote for a 25bps cut in January. It is worth noting that for the last meeting there were only four governors on the Board. But that situation has changed. On Friday January 13th, the government nominated Rosanna Costa, a respected conservative economist, and the former Budget Director under President Piñera, for the vacant chair.
On the political front, the Nueva Mayoría seems to be settling on Senator Alejandro Guillier as its presidential candidate for November's elections. He represents some continuity of the Nueva Mayoría's aims, but is also adept at channeling public indignation, while remaining vague in terms of public policy detail. In this respect, he is much like President Bachelet; a good communicator, removed from the parties that support him, and short specifics. Given Chile's political and economic challenges, is this enough?
ENAP, Chile’s emblematic state-owned petroleum company, has recently started to come back to life. Will this last? It can, but only if its corporate governance structure is radically reformed. Since 2016, the government has been working with Congress on a bill which intends to do just that. But is it on the right track?
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