May 30, 2014 / 3:07 PM / in 3 years

Poor factory output, retail sales data flag worsening Chile economy

SANTIAGO (Reuters) - Chile's government published worrying data on Friday showing the economy is under continued pressure, as factory output fell much faster than expected and retail sales grew at their slowest pace in over five years.

Slowing investment alongside cooler growth in Chile's top trade partner China have weighed on the economy of the world's top copper producer.

Manufacturing production fell 4.2 percent in April from a year earlier due to one less working day and a drop in the production of foods and certain metal products used in mining, the government's INE statistics agency said.

The median response of 14 economists and analysts polled by Reuters had expected a smaller 2.4 percent decrease.

Even Chile's enthusiastic shoppers seem to be increasingly staying at home. Retail sales, a good measure of consumption and one of the main motors behind Chile's economy, grew a weak 1.6 percent in April versus a year ago.

That was the weakest month of year-on-year growth since at least January 2009, the year Chile fell into a recession, INE data showed.

"The deceleration in retail sales is occurring in a situation of lower expectations for consumption and a lower total wage bill ... with a more restrictive consumer credit market and reduced demand for credit," the government agency said.

The jobless rate for the February to April period was a bright spot, unexpectedly falling to 6.1 percent, INE said, below market forecasts for an increase to 6.6 percent. But analysts put that down to a technical blip and said the overall trend would likely continue to rise. Unemployment was 6.5 percent in the first quarter.

"The performance of the retail sector and the subdued expansion of the workforce, which allowed for the unexpected drop in unemployment, suggest that the deterioration of expectations is impacting consumption," said Benjamin Sierra, financial markets economist at Scotiabank in Santiago.

The government has said it expects economic growth to accelerate in the latter half of the year and finish 2014 with an overall expansion of around 3.4 percent, compared to 4.1 percent last year.

Reporting by Santiago newsroom; Writing by Anthony Esposito; Editing by Sofina Mirza-Reid

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