Chile’s economic growth likely to have decelerated in Q2

Chile’s economic growth is anticipated to have been quite weaker than anticipated in the second quarter based on growth indicators released, stated Societe Generale in a research report. The monthly economic activity numbers show that the economic growth might come is quite lower at 1.3 percent year-on-year, as compared with the first quarter growth of 2 percent year-on-year.

On quarter-on-quarter basis, the economy is expected to have shrunk 0.7 percent in the second quarter, added Societe Generale. Following a recovery in the first quarter, prices of copper resumed their downward trend again from April to July, which mostly impacted the mining and industrial sector. Meanwhile, on the external front, nominal merchandise exports dropped 7.7 percent year-on-year in USD terms while imports fell 2.4 percent year-on-year in the second quarter.

Consumption is likely to have been weak amidst negative consumer sentiment as seen in the import data for consumer goods. Meanwhile, the labor market has also been declining as the jobless rate rose to 6.9 percent in June, while wage growth weakened too, softening private domestic demand.

The Chilean economy, in the meantime, continued to be dependent on counter-cyclical fiscal spending. However, it is uncertain as to how long this can continue to underpin the Chilean economy as the fiscal space is contracting on the back of lower commodity prices.

The global growth scenario has continued to be weak, contributing to the downside risk to the growth forecast. Under this situation, there is little possibility of the economy growing above its trend pace. The Chilean economy is expected to expand below trend in the medium term, according to Societe Generale.