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Weak December Activity Supports Case For Further Large Rate Cuts

CHILE
  • Yesterday’s weak December economic activity data pose downside risks to 2024 GDP growth estimates and support the case for BCCh to continue with its aggressive easing cycle. The 1.1% m/m decline in activity in December was broad-based and brought annual growth to -1.0% y/y, from +1.2% previously (vs. +0.5% exp.). Mining activity fell by 3.6% y/y, but even ex-mining, activity still declined by 0.5% y/y. For 2023, this took GDP growth to -0.2%, vs. +2.4% in 2022.
  • The weak end to 2023 poses downside risks to 1.9% consensus GDP growth estimates for this year. Itau note that the contraction in December will lead to a weaker carryover, of around 30bp. As a result, BCCh continues to have a case for further large rate cuts, following the 100bp move earlier this week. Though some way off, consensus seems to haves shifted to another 100bp move in early April and a year-end rate of 4.5% or less.
  • Ahead, there are no domestic data releases in the calendar today, although January IMCE business confidence will be published sometime in the coming days. Local focus turns to January trade and inflation data, both due next week.
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