Chile’s economic activity is likely to have grown slightly in April, given the trade figures. The economy is expected to have expanded 2.3% y/y in April, said Societe Generale. In March, Chile’s economic activity rose 2.2% on services growth, following a rapid expansion of 3% y/y in February. Even if the first quarter growth came in above consensus expectations, there is no improvement in the outlook.
Chile's economic growth is likely to remain sub-trend in the medium term, according to Societe Generale. There is still restricted upside to the present growth pace, as the important long-term growth drivers, such as exports and investment, continue to improve just marginally.
Meanwhile, net exports are not contributing positively to the economic growth as exports are declining sharply and due to ongoing uncertainty amongst key trading partners. The outlook for export is unlikely to improve significantly. This continues to be a drag on private domestic demand as well. Counter-cyclical fiscal spending is mainly driving economic growth.
But this is greatly straining public finances and is not sure how far it will underpin the economy. Therefore, policy options are narrowing slowly. Chile's growth potential has dropped to below 3% from over 4%, and significant fiscal easing is not expected to be enough to restore it unless positive external shocks underpin it. Given that China remains a major factor on the external front, there is quite a little space for positivity in the medium term, added Societe Generale.
