Chilean economic growth likely to remain below trend in medium term

Data releases on Chile’s growth indicators imply that the economic growth is likely to have come in at 1.5 percent year-on-year in the September quarter, noted Societe Generale in a research report. On a month-on-month basis, the Chilean economy is expected to have grown 0.4 percent on a seasonally adjusted basis.

On the demand front, consumption is expected to have stayed subdued amidst negative consumer sentiment as seen in the import data for consumer goods. Meanwhile, the labor market has also been worsening as the jobless rate rose to 6.8 percent in September from 5.8 percent in January. Wage growth has also eased, resulting in softening of private domestic demand.

Copper prices are expected to have stayed weak, which are expected to have negatively impacted mining and industrial sectors. On the external front, nominal merchandise exports fell 2.5 percent year-on-year in USD terms, while imports dropped 7.3 percent in the second quarter. This suggests that domestic demand had continued to stay soft.

The Chilean economy is expected to have stayed reliant on counter-cyclical fiscal spending; however, given that the Chilean government has proposed a strict budget for 2017, fiscal support to growth is expected to fall in the coming years. Furthermore, the global growth scenario has continued to stay weak, implying less external support to the economy. The economy, under this scenario, is likely to expand below trend in the medium term, added Societe Generale.