October's activity indicators show something we have been anticipating in this space: the economy continues to be dynamic, but less and less dynamic as the sources that have explained the growth in 2021 begin to dry up. It has been repeated ad nauseam, but it has been state aid, pension fund withdrawals, expansive financial conditions and improving health conditions that are behind the now steady year-on-year variations above double digits.

In particular, the Imacec for October showed an increase of 15.0% with respect to the same period of the previous year, which was above our expectations (14.1% YoY). Compared to September, the seasonally adjusted series showed a variation of 0.8% m/m, resulting in an annualized growth rate of 15% y/y, down from 20.1% y/y last month. Although these numbers are still high, they are becoming less so as, to a greater or lesser extent, not all elements are still aligned to the same side.

This can be seen when we disaggregate the result. On the one hand, and with its own separate dynamics, the mining Imacec broke the trend of previous months and grew 0.6% YoY. On the other hand, the non-mining Imacec grew by 17% YoY, mainly due to the good performance of Services (19.6% YoY) and Trade (17.7% YoY). However, in seasonally adjusted terms, the latter sector showed a 1.0% drop with respect to September, breaking five consecutive months of increases in the margin. Services was one of the last sectors to jump on the growth bandwagon, for a very simple reason: there could be many withdrawals, many FPIs, low rates, etc., but without the possibility of accessing them due to health restrictions, nothing could be done. Therefore, dynamism went hand in hand with deconfinement processes, particularly in large cities. As a large part of the national territory has advanced mobility conditions, each additional improvement has a lesser impact than the previous one. In any case, we believe that some sub-sectors are still lagging behind the rest, so we expect this slowdown to be mild.

Additionally, taking into account that the 2022 Budget does not consider the maintenance of the universal IFE and that withdrawals from pension funds have decreased their probability of continuing to advance (added to the fact that those who can access them are increasingly higher-income individuals), the growth of private consumption should become more limited in the coming months. This may be partially offset by the improved employment situation we have seen recently, but the order of magnitude should be considerably lower. If we add to this the increases in the TPM by the Central Bank, to contain the galloping inflation, and the harmful effects on the financial market caused by withdrawals, uncertainty and others, monetary conditions are no longer what they were some quarters ago, which has been clearly manifested, for example, in the conditions offered in mortgage loans.

Thus, although double-digit year-on-year gains would continue (we expect a little less than 13% for November), this will not be the tone for 2022. From the second quarter onwards we will see a significant slowdown in growth rates, with a high probability of facing a technical recession by the end of the third quarter. Thus, our estimate for GDP growth next year does not exceed 2.5%, a return to reality that will come very suddenly, but will allow us to focus the discussion again on how to grow more and better.

Nathan Pincheira 

Chief Economist of Fynsa