Chile manufacturing offers little hope for long-forecast rebound

Santiago - Chile’s economy started the third quarter as it ended the previous three-month period, with manufacturing and mining both contracting and retail sales offering the only silver lining to an otherwise bleak outlook.

Manufacturing shrank 4.4% in July from a year earlier, the national statistics institute reported Tuesday. The median estimate of 17 analysts surveyed by Bloomberg forecast a drop of 2.6%.

Industrial production fell 1.8% over the same period, while retail sales gained a larger-than-expected 4.6%.

Five months after Finance Minister Rodrigo Valdes said Chile’s slowdown had passed its worst, the economy shows no sign of picking up.

Industrial production has now fallen for four consecutive months, the longest period of decline since at least 2009, depressed by a drop in copper production and weak manufacturing output.

Still, increased consumer demand should stop the economy slowing further, said Nathan Pincheira, an economist at Banchile Inversiones.

"Production over the third quarter could be even worse, but that would not necessarily translate into worse growth than we have forecast," Pincheira said. "We’re seeing some growth in retail sales, we can’t talk about a clear recovery, but it has stabilized."

Chile experienced its first economic contraction in six years during the second quarter, with gross domestic product falling 0.4% from the previous three months and unemployment reaching the highest since 2011.

Copper production declined in the world’s largest producer of the metal as a slump in prices deterred investment in an industry already suffering from falling grades.

Three years of weak investment are taking their toll on Chile’s economy, which is only capable of growing 3% a year without driving up inflation, a committee of experts convened by the Finance Ministry said last week.

That is down from the previous estimate of 3.6% and from the 4.3% calculated just two years ago.

Today’s report indicated investment may weaken further, with the amount of square meters authorized for building falling to its lowest since at least 2011.

"There have been significant falls in manufacturing production due to onetime events over the last months," Pincheira said.

"But even if you take these out of the picture, the indicator is not positive; it registers negative numbers in most of its components."