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Deutsche Bank Say Rhythm Of The Economic Expansion Is Gaining Momentum

CHILE
  • Chile’s February IMACEC followed on the footsteps of the better-than-expected retail sales & industrial production figures released the previous week and extended the economy’s firming trend. The January bounce from the slump the previous month was revised upwards from 1.7% to 2% m/m. In February, both the mining and non-mining components logged positive monthly jumps of 2.5% and 0.61%, respectively.
  • Compared to the previous year, the rhythm of the economic expansion is gaining momentum, primarily bolstered by services and “other goods.” Trade remains in contractionary territory but improving on a 2nd derivative basis. Mining has buttressed overall activity year-to-date, but the inherent gyrations in this sector may keep it from rendering it a more reliable impulse to the economy’s growth outlook. Deutsche continue to pencil in a 2.5% expansion for 2024.
  • While mining output could experience occasional setbacks, we expect the Chilean economy to maintain a firming trajectory on the back of trend-reversion dynamics, recovering real earnings, a moderate fiscal boost, receding monetary drag, a strengthening labor market, improving confidence, an increased impulse from the Chinese economy, and relatively robust demand for copper and lithium owing to the global decarbonization drive.
  • IMACEC’s readings year-to-date signal reduced slack in the economy. However, with headline inflation back within the target range, core approaching the band’s ceiling and anchored expectations, there may still be space for another relatively large rate cut of 75-100 bp.
  • Nevertheless, the fading slack in the economy could be reducing the urgency and space to maintain the rhythm of aggressive monetary going forward.
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