Chile: COVID-19 and domestic events are the main challenges to sustain the recovery in activity

In accordance with the BCCh, financial exercise, as measured by the Imacec index, posted a rise of 1.5% y/y in Jan-20, barely above market consensus (1.2% based on Bloomberg’s survey), and that means an acceleration after the +1.1% y/y recorded in Dec-19. The mining Imacec superior 2.2% y/y in Jan-20, a slowdown vs the three.7% y/y of Dec-19, however nonetheless reflecting the low influence of the social disaster on the sector. On its half, non-mining exercise grew 1.5% y/y, dashing up from 0.8% y/y in Dec-19, led by companies and building as reported by the BCCh’s. Jan-20 had the identical variety of enterprise days of Jan-19. Whereas financial progress stays properly under the tempo noticed previous to the beginning of the social disaster (~3.5% y/y), information since Dec-19 has been higher than anticipated, suggesting an obvious extra speedy restoration of some sectors than initially projected. That stated, we proceed to imagine that the developments round subsequent weeks’ key home occasions will likely be important for projections. As well as, sadly, we’re of the view that the coronavirus (COVID-19) is probably going so as to add additional pressures on the Chilean economic system because it maintains the most important publicity to China within the area by way of commerce (exports to China characterize ~32% of whole exterior gross sales or ~8% of GDP, properly above the remainder of nations in LatAm). Certainly, we imagine that the exterior backdrop will probably offset the upside surprises noticed in Dec-19 and Jan-20. As well as, an enchancment of each enterprise and client sentiment is a decisive issue. All-in, we preserve our 2020 GDP progress projection at 1.2%.

Essential information and occasions to come back

On Friday, the INE will launch the CPI figures of Feb-20 (consensus an Credicorp each at 0.2% m/m).

Colombia: blended indicators from the labor market in Jan-20, whereas enterprise confidence continued to enhance

Final week’s highlights

• Combined indicators from the labor market in Jan-20. On one hand, the nationwide labor market deteriorated once more, as each the participation fee and jobs creation retreated (-1pp y/y to 62.5% and -0.5% y/y, respectively), that means that the unemployment fee rose +0.2pp y/y to 13%, the best degree for a month of January since 2011. Nonetheless, this continues to be primarily defined by the roles destruction in agriculture (-6.3% y/y; -235ok payrolls), as job creation excluding that sector stood at +1.5% y/y, the best degree since Mar-19, signaling a reasonable restoration after a really weak 2H19. Thus, contemplating that within the labor city market there are barely none agriculture jobs, its metrics improved remarkably in Jan-20. Particularly, the unemployment fee fell 0.9pp y/y to 12.9%, the strongest enchancment since Jul-18, amid the rise in each the participation fee and jobs creation (+0.3pp y/y to 65.6% and +2.8% y/y, respectively).

All-in, we see the noticed in Jan-20 as constructive regardless of the rise within the nationwide unemployment fee, as there have been a number of indicators of enchancment prior to now Four months after the abysmal dynamics in most of 2019, particularly in jobs creation. Whereas there are nonetheless pressures on the labor market just like the robust enhance within the minimal wage (6%) and the migration influx from Venezuela, with the enhancing financial progress we predict that the most probably end result is a stabilization of unemployment charges forward, quite than a sustained and quick restoration.

• Widespread enchancment of Fedesarollo’s enterprise confidence indicators in Jan-20. Commerce confidence jumped +2.6pp m/m to 32.3% in Jan-20, its highest degree since Aug-06. The development was defined by all of the elements of the index (stock, expectations and present scenario), however this was notably noticeable in these associated to present demand, consistent with the continuing robust dynamics of personal consumption. Industrial confidence additionally improved in Jan-20, reaching 12.2% (+3.7pp m/m), its highest degree since Feb-11. The rise was virtually fully defined by the robust enchancment of expectations for the subsequent quarter (+17.4pp m/m to 43%).

Extra curiously, in an annual survey carried out by Fedesarrollo, 64.9% of producing firms elevated capital expenditure in 2019 vs 2018, and 66.8% count on funding to extend additional this 12 months (vs 64.6% in early 2019). This reinforces our view of personal funding being a serious supply of GDP progress from the demand facet this 12 months, even contemplating the robust efficiency noticed in 2019. Furthermore, expectations for exports, a quarterly survey by Fedesarrollo, additionally improved as 40.5% of commercial firms count on a rise in exterior gross sales within the coming three months, whereas simply 10.4% count on a discount of orders, regardless of the unsure situation for the worldwide and regional economic system.

Essential information and occasions to come back

• On Thursday, DANE will launch the CPI figures of Feb-20 (Consensus: 0.67% m/m; Credicorp: 0.52% m/m).

Peru: headline inflation remained under the midpoint of the goal vary in Feb-20

Final week’s highlights

• Metropolitan Lima’s CPI rose 0.14% m/m in Feb-20, consistent with market expectations (Bloomberg: +0.15% m/m). Therefore, headline inflation remained at 1.9% y/y, accumulating six consecutive months under the midpoint of the goal vary of the Central Financial institution (1%-3%). Furthermore, core inflation remained unchanged at 2.3% y/y for the fifth consecutive month, and throughout the goal vary for greater than Three years.

The month-to-month outcome was primarily defined by the Meals and Drinks group (+0.28% m/m), which had a 78% incidence within the headline determine. There have been notable will increase in sugar costs (+6.6% m/m) and contemporary legumes (+2.8%) because of seasonal and local weather points (rainfall and landslides) in productive areas, whereas gutted rooster costs rose 1.9% m/m, posting the best incidence on the headline quantity in Feb-20 (+0.04pp.). Conversely, the Rental Housing, Fuels and Vitality group declined 0.25% m/m, principally because of a decease in pure gasoline tariffs for households (-2.0%).

• We count on the BCRP to stay on maintain within the Mar-20 financial coverage assembly. As we’ve identified beforehand, we foresee that an extra fee minimize from the BCRP can happen if: i) inflation expectations decline in direction of 2% (Jan-20: 2.05%), ii) public funding disappoints (after a 117% y/y enlargement in Jan-20 it superior 30% y/y in feb-20), and iii) the deceleration of non-primary exercise deepens (in 4Q19 it posted the weakest tempo in 10 quarters). We imagine that, with the obtainable info, a fee minimize from the BCRP within the Mar-20 assembly is unlikely. Nonetheless, amid the latest deterioration of the worldwide surroundings because of COVID-19 and the potential influence on the native economic system, the Central Financial institution might go for a fee minimize within the upcoming months. We additionally imagine {that a} change within the tone on the official assertion would precede this potential motion.
• Native belongings register losses consistent with the worldwide risk-off temper. Upon markets opening on Monday, Sovereign 2029 yield stood at 3.92% (+16bps w/w, -30bps YTD), whereas Sovereign 2034 reached 4.61% (+18bps w/w, -28bps YTD). Furthermore, the unfold between Sovereign 2029 and the 10-year UST at the moment sits at 286bps, so it widened by 47bps final week (YTD: +56bps) to a 9-month excessive, whereas the unfold between World 2030 and the 10-year UST stands at 106bps (+36bps w/w, +50bps YTD), a degree not noticed in 38 months. Moreover, the PEN is buying and selling at 3.441, so it has weakened 1.2% w/w and 4.1% YTD, although it retreated from the 4-year excessive of USDPEN 3.458 noticed final week.

Essential information and occasions to come back

• On Thursday, the BCRP will publish the macroeconomic expectations survey of Feb-20.

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Regards,

Credicorp Capital

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