(Bloomberg) -- Chile’s economic activity posted its biggest monthly plunge since July 2022 in September, prompting the government to scrap its growth forecast for this year and stoking bets on more interest rate cuts.
The Imacec index, a proxy for gross domestic product, fell 0.8% on the month, compared with the median forecast for no change from analysts in a Bloomberg survey. From the year earlier, activity was flat, disappointing economist estimates for a 1.2% gain, the central bank reported Monday.
Chile’s activity data has been volatile over recent months, influenced by temporary factors including heavy rains and strikes in the mining sector. Still, September’s decline came as a shock to the market and prompted Finance Minister Mario Marcel to say the government will lower its current 2024 economic growth forecast.
September’s economic activity report was “appalling,” Jorge Selaive, chief economist at Scotiabank Chile, wrote on X.
Two-year swap rates dropped 6.5 basis points to 4.73%, on track for their biggest one-day decline since Oct. 8.
The central bank recently laid out plans for its interest rate to fall faster than previously expected to a neutral level, which neither restricts nor stimulates the economy. While borrowing costs have been slashed by 6 percentage points since mid-2023, credit demand is still weak and unemployment is above pre-pandemic levels.
The September economic data was “disappointing” and reflects challenges such as tight financial conditions, Marcel told reporters Monday. The government will lower its current 2024 economic growth estimate of 2.6% after third quarter GDP data comes out on Nov. 18.
“We have to be realistic,” he said.
Mining activity plunged by 2.8% on the month, while industry declined 1.6% and services slipped 0.2%, according to the central bank. Commerce was flat during the period.
What Bloomberg Economics Says
“Monthly data remain volatile. High unemployment is a drag, while elevated copper prices and falling interest rates will support growth. We expect policymakers to continue slowly cutting rates as outlined in their baseline projections.”
— Felipe Hernandez, Latin America economist
— Click here for full report
The central bank cut borrowing costs by a quarter-point in both September and October. Traders surveyed by the monetary authority expect the easing pace to be kept through March, bringing rates to 4.5% from 5.25% currently.
Retail sales beat analyst forecasts by rising 3.9% in September from the year prior, according to separate data from the national statistics institute released last Wednesday. On the other hand, both industrial production and manufacturing unexpectedly contracted during the period.
Chile’s government expects GDP to expand 2.7% in 2025, according to estimates published on Oct. 1.
--With assistance from Giovanna Serafim.
(Adds finance minister comments in the third paragraph, swap rates in the fifth)
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