Politics Overshadows Ho-Hum Economic Performance
The Central Bank has for the second month in a row cut its monetary policy rate by 25 bps, to 2.5%. Surprisingly, the board’s communiqué was 100% neutral. Clearly the current cycle of MPR reductions has ended, and a long pause lies ahead.
GDP in Q1 recorded its lowest y/y growth rate since Q3 2009, powerfully affected by the strike at La Escondida, the world’s biggest copper mine. Y/y GDP growth excluding natural resources (mining, fishing and utilities) was low, at 1.7%, yet higher than in Q4 2016. Q1 growth also marked a recovery from Q4.
Household consumption continued to grow at stable y/y rates. The y/y change in gross capital formation was negative for the third consecutive quarter. Mining exports tumbled 19% from Q4, and 16% from Q1 2016.
The manufacturing production index expanded 1.9% in March y/y, mainly explained by the difference in working days. March retail sales surprised, up 4.9% in 12-month terms. In April, the Monthly Business Confidence Index fell slightly from March, although it remained somewhat above the level of April 2016.
Labor market data remain weak, though deterioration could be ending. Employment data improved a bit. Wages rose in 12-month terms, reversing their February fall. But growth rates are still low compared to previous years. For the Central Bank, especially for its president, the labor market has acquired particular relevance.
Although April’s inflation figure was widely expected, total monthly CPI inflation was the lowest for any April of the last four years. At first glance, the gradual inflation slowdown paused in April, but if we look at core measures, the pause is less evident.
Scandal has hit the entire political spectrum. The latest bombshell hit the Socialist Party, probably the richest party in Chile. What will be the consequence? New regulations? It’s hard to say.
Depending on how seriously one takes their campaigns, there are seven to 15 candidates for president in the November 2017 election. While conservative Sebastian Piñera remains the front-runner, for months his poll numbers have been stuck in the 25%-30% range. Meanwhile, leftist Frente Amplio coalition candidate Beatriz Sánchez has been gaining support, and Sen. Alejandro Guillier has been losing it. We know that Sanchez, an ex radio talk show host, is anti-establishment. Her program starts from the premise that a politician’s role is not to lead or propose, but to follow and implement. She emphasizes consultation, discussion and participation.
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