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After a brief respite in April, May data
readings squashed hopes for a pronounced economic recovery in the second
quarter. The country is failing to find the necessary stimulus for a rebound
and is instead waiting for the much anticipated global rebound to stimulate
demand for its products and kickstart the lethargic economy. On a positive
note, sluggish demand has kept a lid on inflation, which continues to drop
to levels not seen in more than half a century. |
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Economic performance surprises positively in April
In April, the Chilean economy expanded by 3.9% as measured by the monthly
indicator for economic activity (IMACEC, Indicador Mensual de Actividad
Económica) and thus easily exceeded market expectations of 2.7% growth. In
part, the strong performance is due to seasonal factors. Since Easter was
in April last year but in March this year, April 2002 counted one working
day more than the same month in 2001. The Central Bank pointed out that
one working day accounts for between half a percentage point and a full
percentage point of growth. However, even when taking the seasonal effect
into account, the economy developed favourably in April. According to
seasonally adjusted data, the economy added 0.6% over the preceding month,
the strongest monthly growth rate recorded since November last year. The
strength was most pronounced in the country’s industrial sector (for
details see last month’s edition).
Industry
slumps again in May and unemployment increases above 9%
The favourable April development does not seem to have carried over into
May. The fifth month of the year saw a marked slowdown in the industrial
sector and also witnessed an uptick in unemployment. Only supermarket
sales performed against the trend, expanding 13.3% compared to the same
month last year. Industrial output dropped 3.8% over May 2001, which
represents a huge decline compared to April’s 6.6% expansion and also
remains below the Consensus, which anticipated a 2.0% contraction. The
deterioration in the performance of the industrial sector occurred across
all sub-sectors but was most pronounced in durable consumer goods, which
contracted at double digit rates. Industrial sales also slumped, down 4.0%
over the same month last year (April: +2.9% yoy). In the moving quarter
from March to May, unemployment increased 0.3 percentage points from the
February-April quarter to reach 9.1%. While this represents an improvement
when compared to the same quarter last year, when unemployment reached
9.5%, the May figure exceeded expectations. Unemployment remains
persistently high despite numerous public employment programs, as
businesses are still hesitant to add to their workforce in the light of
slumping demand.
Outlook
lowered amid dismal performance in first half of the year
The weak readings for industrial production and unemployment in May
suggest that the strong April performance is currently unsustainable.
According to the Consensus, the overall economy expanded by just 1.3% in
real terms compared with May 2001. The June reading should also come in
rather weak as economic activity has temporarily ground to a halt amid
adverse climatic conditions. Consequently, second quarter growth will
remain at a modest 1.9%, following on 1.5% growth in the first quarter.
Owing to the disappointing performance of the economy, panellists have
once again lowered their forecasts for growth this year by 0.3 percentage
points over last month. Nevertheless, optimism that a second half rebound
in the US economy will spread to the rest of the global economy is growing.
The global pickup should provide a solid backdrop for a stronger recovery
in 2003, when the economy is seen expanding at a more healthy pace.
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