The INE released its sectoral data for September today, which showed a different trend from what had been observed in recent months. After quite some time—driven by increased household liquidity, the easing of lockdown restrictions, and the low comparison bases represented by 2020—economic activity began to show the first signs of a slowdown. Yes, you read that right: a slowdown.

The stronger growth observed in 2021 has been driven primarily by temporary measures, which is appropriate given the urgent needs arising from the pandemic and the need to support households. This has led to unprecedented year-over-year growth rates, meaning that GDP this year will likely expand by over 11%. However, the coming period is unlikely to follow the same pattern, and our growth will once again be driven by the country’s longer-term fundamentals, which have recently shown some signs of deterioration. If we add to this the natural uncertainty surrounding the year-end elections, the drafting of the new constitution, the global course of the pandemic, and the normalization of ultra-expansionary policies around the world, we face a rather challenging scenario. As a result, growth expectations for 2022 and 2023 will, at best, reach 2.0%–2.5%.

But what were those early signs? First, while manufacturing output grew by 4.3% compared to the same period last year, that result was achieved simply because it was measured against a low base; if we compare it to August of this year (using a methodology that “adjusts” for seasonal factors), it actually fell by 1.4%. Additionally, and perhaps referring to one of the sectors that has shown the greatest dynamism, retail sales also expanded significantly (19.9%) year-over-year, but compared to last month—using the same method mentioned above—they fell by 0.1%, a decline not seen in five months, precisely before the mass lifting of lockdown restrictions began. If we break down the previous result, we see that the durable goods component is the one that has slowed the most (-1.3% compared to August), although the non-durable goods component has also slowed (-0.4%). Supermarket sales stand out as an exception, having grown both year-over-year and month-over-month.

This does not mean that economic activity as a whole is going to collapse. No. In fact, it is most likely that the Imacec showed growth of close to 14% in September and that double-digit increases in this indicator will continue for the remainder of the year. However, behind these fluctuations there will be less and less “fundamental” momentum, and only the lingering effects of government programs and pension fund withdrawals will remain—which, by definition, are neither infinite nor permanent. Thus, starting in the second quarter of 2022, we’ll begin to see rates closer to 3%, bringing us back to reality all at once, but also (we hope) shifting the discussion toward how to achieve more sustained, responsible, and sustainable growth. And, in the absence of short-term drivers, we can’t rule out the possibility of a technical recession during the third quarter of next year. But don’t panic—this won’t be anything like the one we experienced as a result of the pandemic. In fact, it will be more of a statistical phenomenon, but it will serve as a wake-up call, prompting us to finally incorporate the question of how to grow more and better into the debate.

Nathan Pincheira

Chief Economist at Fynsa