Chile Economy Contracts Less Than Forecast as Stagnation Goes On

2023-08-18 20:57

Chile’s economy shank less than forecast in the second quarter after growing at the start of the year,

Chile’s economy shank less than forecast in the second quarter after growing at the start of the year, reflecting both weakened consumer demand and investments on the eve of interest rate cuts.

Gross domestic product fell 0.3% in the April-June period compared with the prior three months, less than the -0.6% median forecast of analysts in a Bloomberg survey. From a year ago, the economy dropped 1.1%, the central bank reported Friday.

Chile’s economy is on track for near-zero growth this year, worse than all major Latin American countries except for Argentina, according to estimates compiled by Bloomberg. Sectors from commerce to services have lost momentum in recent months, with both families and businesses pinched by above-target inflation and tight monetary conditions. Today’s report dates from the period immediately prior to the start of central bank rate cuts.

The South American country is facing headwinds from uneven global growth, including woes in China, which is Chile’s top trading partner. Those concerns have weighed on the prices of raw materials including copper, its top export.

Locally, President Gabriel Boric’s administration is working to lure more foreign direct investment. More than 50 firms from around the world have expressed interest in participating in Chile’s new public-private lithium model, Karla Flores, head of InvestChile, said in a recent interview.

READ MORE: More Than 50 Firms Want In on New Lithium-Mining Model in Chile

Meanwhile, the government is struggling to advance its reform agenda, which includes a proposal for greater state participation in pensions, as well as a plan to boost tax income. The administration is renewing talks with opposition lawmakers, and economists expect the legislation will get watered down again.

Central bankers led by Rosanna Costa cut borrowing costs by 100 basis points on July 28 and indicated more big reductions are coming.

Chile’s economy will grow just 0.2% this year, according to Finance Ministry estimates published in July.

--With assistance from Rafael Gayol.