Latam Economic Update
Chile: New central bank survey adjusts GDP forecast for 2020—in line with Scotiabank’s view
Mexico: June industrial production recovers slightly from historic decline; retail sales remain weak
Peru: Cabinet gets confidence vote from Congress
CHILE: NEW CENTRAL BANK SURVEY ADJUSTS GDP FORECAST FOR 2020—IN LINE WITH SCOTIABANK’S VIEW
On Tuesday, August 11, the Professional Economist Survey was released by the central bank. The survey shows an upward revision in the median GDP forecast for 2020 to -6.0%. The revised forecast is in line with our current projection of -6.0% (chart 1), which we still maintain with an upward bias, as the latest economic indicators have shown resilience in the mining and external sectors. For 2021, the survey shows no change, with a median expected expansion of 4.5% for GDP, slightly above our forecast of 4.4%.
As a reminder, June’s IMACEC GDP proxy, published Monday, August 3, showed a contraction of -12.4% y/y (consensus: -15% y/y), with a surprising seasonally adjusted expansion of 1.7% m/m. The June economic activity numbers mean that Q2 GDP likely saw a contraction of -14% y/y (-43% q/q saar). This implies that April–May was the bottom for economic activity in Chile amidst strong quarantine measures. Due to some short-term transitory factors and better-than-expected monthly activity numbers, the contraction in aggregate GDP in 2020 should be at the better end of the -5.5% to -7.5% range forecasted by the central bank. Therefore, the next Monetary Policy Report—to be released on September 2—will probably adjust the forecast to the range of -5% to -6% for GDP 2020 and 4% to 5% for 2021.
—Carlos Muñoz
MEXICO: JUNE INDUSTRIAL PRODUCTION RECOVERS SLIGHTLY FROM HISTORIC DECLINE; RETAIL SALES REMAIN WEAK
Figures published on August 11 for June industrial production showed a slight improvement in real annual terms. Industrial production registered a drop of -16.7% y/y in June (chart 2), above market expectations (-17.9% y/y). The decline is still alarming but considerably less than the record decline recorded in May (-30.6% y/y), indicating a partial recovery in activity. On a monthly basis, industrial production picked up from -1.2% m/m in May to 17.9% m/m in June as a number of industries including the automotive sector resumed activities.
- The June results were driven by a smaller decline in manufacturing, from -37.1% y/y to -16.5% y/y (versus -1.1% y/y in June 2019), resulting in nine consecutive months of decline, as well as a lower, though still strong, decline in construction, from -36.3% y/y to -26.1% y/y. The fall in electricity, gas and water generation was almost unchanged from -13.1% y/y in May to -13.3% y/y in June, and mining went from -5.9% y/y to -5.2% y/y.
- As a result, in the January-June period, the industry averaged a drop of -14.2% (versus -1.6% in the same period of 2019), the lowest rate recorded since 1993 (chart 3).
The Mexican retailers' association (ANTAD) reported on Tuesday, August 11 that same-store sales fell by -9.1% y/y in July. The decline shows a moderate improvement over the double-digit drops reported in April (-22.9% y/y), May (-19% y/y) and June (-17.9% y/y). Figures show that sales remain weak, as the COVID-19 pandemic has reduced household consumption.
—Paulina Villanueva
PERU: CABINET GETS CONFIDENCE VOTE FROM CONGRESS
Congress (finally!) awarded the government cabinet, this time led by retired General Walter Martos, its vote of confidence. The vote was, actually, impressively favorable, with 115 yays to only five nays and four abstentions. There were a couple things of note from Martos’s presentation and the responses of member of Congress. One is that Martos gave the impression that—whereas the previous Cabinet Head, Pedro Cateriano, seemed more concerned about the economy—Martos would apparently tilt the balance of concerns back again towards health and COVID-19. There were suggestions in his presentation, and in earlier days by Health Minister Pilar Mazzetti, that new COVID-19 containment measures were under discussion in the Cabinet. The second issue of note, was that the focus of criticism by members of Congress was Finance Minister María Alva. The risk is that there may be members of Congress that now have her within their crosshairs.
—Guillermo Arbe
DISCLAIMER
This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.
Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.
Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.
This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.
™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.
Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including, Scotiabanc Inc.; Citadel Hill Advisors L.L.C.; The Bank of Nova Scotia Trust Company of New York; Scotiabank Europe plc; Scotiabank (Ireland) Limited; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Scotia Inverlat Casa de Bolsa S.A. de C.V., Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorised by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorised by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.
Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V., and Scotia Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.
Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.