Fynsa
Throughout the week, I've been asked the same question over and over again: “Nathan, are we in a recession?”. This stems from the the release of the June Imacec, which showed growth of 3.7% year-over-year—for now——which was slightly above our expectations but below what the market had anticipated. You might think the question doesn’t make much sense—after all, the growth rate remains positive—but there are certain factors that could lend some credence to this concern.
I think the first thing we need to understand is that the Chilean economy is clearly in the midst of a slowdown, one that didn’t begin this month, but rather around the end of last year.
It is true that growth rates at that time were quite high, but they were largely driven by extremely low comparison bases, a situation that has gradually begun to change. Thus, without a particularly drastic deterioration, we have gone from seeing Imacec increases above 9.0% year-over-year to the recently reported figure below 4.0%. Looking a little further ahead, it is very likely that July’s figure will be the last positive one in this cycle, with year-over-year declines becoming evident starting in August—and with much greater certainty in September—which are expected to continue through the end of the year.
Second, even though the economy appears to have avoided falling into a technical recession during the second quarter (subject, in any case, to possible revisions to the data series once the National Accounts for the period are published), failing to meet a statistical criterion should not cloud our assessment of the underlying economic situation. The fact that there were not two consecutive quarters of contraction does not mean that everything is fine, just as the opposite would not have meant that everything is bad. The reality is more complex than that. Investment has shown a significant slowdown, with consumption—though still more resilient—heading toward a similar trend once the sources of financing from the 2021 boom have dried up, coupled with a labor market that has stopped creating jobs and is paying wages that are rising slower than the cost of living.
Finally, and without contradicting my previous point, if we assess the national economy by excluding its mining sector (an important component, but one that is considerably more volatile than the rest of the sectors), we would indeed have met the criteria to classify ourselves as being in a technical recession. We do not believe this recession would have been as severe as the ones we saw following (i) the social unrest and (ii) the most critical period of the pandemic, but it would have been significant enough to bring us back down to earth and help us realize what our true capacity for growth is in the medium and long term. I mention this because in 2023, things wouldn’t be much better; growth rates would be mediocre at best, and we’d most likely end up in the red. Therefore, we’re not in a recession now, but we’ll likely be heading toward one, and after that, our recovery will be very slow.
