WRAPUP 1-Chile manufacturing slumps; consumer demand growth slows

Tue Jul 30, 2013 12:30pm EDT

* Manufacturing output falls 2.7 pct in June on year

* Copper output up 6.5 pct to 482,252 tonnes

* Retail sales grow 7.7 pct, slowing vs prior months

By Antonio De la Jara and Felipe Iturrieta

SANTIAGO, July 30 (Reuters) - Chilean manufacturing extended its sharp decline in June and retail demand growth slowed, stirring some analysts' expectations that the central bank is close to cutting its benchmark interest rate for the first time since January 2012.

Manufacturing output fell 2.7 percent in June compared with a year earlier as plant closures, restructuring and strikes hit the production of metals, chemicals and wine, Chile's national statistics agency said on Tuesday.

The fall was sharper than a Reuters poll forecast for a 0.5 percent drop.. In May, manufacturing output fell 4.2 percent from a year earlier.

On a seasonally adjusted basis, manufacturing output slumped 4.5 percent in June from May and 4.9 percent in May from April.

On Monday, Chile's budget office revised downward its estimate of economic growth this year to 4.6 percent from 4.8 percent previously..

The data shed more light on the Andean nation's slowing economy in an election year, with the presidency widely expected to switch from the center-right incumbent party to center-left ex-president Michelle Bachelet after November's election.

Noting cooling investment, Chile's central bank said in minutes released Tuesday of its July 11 policy meeting that it had considered cutting the central bank benchmark rate but in the end opted for keeping it at 5 percent.

Regarding demand in the economy, the bank noted that the "most evident effect was on investment, while a number of consumption indicators were still dynamic."

CONSUMER SOCIETY

Chile's bustling U.S.-style shopping malls are a reflection of the country's buoyant consumer sector, which has dissuaded Chile's central bank from cutting interest rates.

However, data released on Tuesday showed that consumer demand for goods ranging from clothing and electronics to cars was slowing from its red-hot pace.

Retail sales rose 7.7 percent in June compared with a year earlier, which was a slowing from 13.2 percent growth in May, according to the national statistics agency. It was the lowest annual June growth in three years, though an extra bank holiday compared to last year affected the overall figure.

Supermarket sales showed a similar pattern, up 5.7 percent year-on-year in June compared to growth of 9.2 percent in May.

"For the first time in four months the retail indicator was below double digit expansion, showing evidence of an incipient slowing in consumption," BCP/Credicorp Capital said in a note to clients.

It added: "The deceleration in consumption reinforces for us the argument for a cut in the interest rate by the central bank.(We)expect a 25 basis point cut at the next meeting."

Brokers at Nomura agreed that a 25 basis point cut was the most likely outcome in August, saying in a note that the data showed further weaknesses in the economy and dealt "a major blow to the hawkish case of no urgency."

According to a central bank poll released last week, the prevailing view of traders then was that the central bank would keep rates on hold in August but cut by a quarter-percentage point within three months and another 25 basis points within six months.

Signs of slowing growth in China are a major concern for the bank. The Asian country is a key buyer of Chile's copper, which makes up more than half of Chile's exports.

The production of copper rose 6.5 percent to 482,252 tonnes compared with a year ago, the statistics agency said on Tuesday.

The price of copper has struggled recently against signs of weakening demand from China, losing 8 percent in June.

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