WRAPUP 2-Chilean manufacturing beats forecasts on heady wine output

Thu Aug 29, 2013 2:01pm EDT

Related Topics

* July manufacturing production up 4.7 pct y-o-y vs 1.7 pct f'cast

* Figure boosted by wine & paper production and low comparison

* Minutes show bank considered rate cut in August

* Positive data reduces likelihood of September cut

SANTIAGO, Aug 29 (Reuters) - Chile's manufacturing production beat forecasts in July, boosted by a strong rise in wine output, with bubbly domestic spending also lending resilience to the South American economy.

The upbeat reading comes after Chile's central bank considered a cut in interest rates this month to counter an uncertain economic outlook on signs of a slowdown in China and withdrawal of monetary stimulus in the United States.

Manufacturing production rose 4.7 percent year-on-year, according to economic figures released Thursday by the National Statistics Institute. That significantly outpaced an expected rise of 1.7 percent forecast in a Reuters poll of analysts.

The strong July numbers followed a surprisingly weak 2.7 percent drop in June's manufacturing output compared with a year earlier.

Economists expected some bounce back in July due to statistical quirks - the base of comparison was low for July 2012, which had two fewer working days than July this year.

An 8.6 percent increase in food and drink production helped lead the overall figure much higher. This was principally due to growth in wine output, the statistics agency said.

Known for its Carmenere grape variety, as well as Cabernet Sauvignon and Merlot, Chile is the world's No.7 wine producer. It saw an 85 percent jump in export volumes in 2012 compared with 2011 as Chilean wine began to take off in emerging markets such as Asia.

Although over half of Chile's exports are in copper, it also exports fruit, wine, wood and paper.

Crucial copper production rose 16 percent compared to a year ago, with ore grades improving and higher output from new mines.

Surging demand from Asia has also been key for forestry, wood pulp and paper products which make up Chile's no.2 export sector. Growth in that sector boosted July's manufacturing figures as eucalyptus cellulose production rose.

HOW LONG CAN THEY HOLD IT?

Although showing signs of slowing, domestic consumption - a driver of the economy alongside mining - has remained buoyant, raising chances of an interest rate cut this year.

The central bank considered a rate cut at its Aug. 13 meeting, minutes released earlier on Thursday showed. As with other emerging economies, Chile's outlook has become gloomier on signs of a slowdown in China and expectations of a withdrawal of monetary stimulus by the U.S. federal bank.

Economic growth was 4.1 percent in the second quarter, Chile's slowest annual rate of expansion in nearly two years.

A central bank poll on Wednesday showed traders thought the bank would hold its rate steady in September, and go through with a 25 basis point cut within three months.

However, Thursday's data will likely lead to a more dovish stance in the market. Adding further weight, a Reuters poll published Thursday showed economic activity probably expanded at 6.1 percent year-on-year in July, the strongest pace since January.

Retail sales grew 10.3 percent in July versus a year ago, after growing 7.7 percent the prior month.

"Although it is unreasonable to assume that this (dynamic) tendency will be maintained over the next few months, the deceleration signals seem to be losing force compared to the recent economic activity indicators," said economists at BCP/Credicorp.

For a link to the Thursday's National Statistics Institute report on the manufacturing and retail sectors, please see:

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