Chile’s economy to perform weakly in coming quarters, but conditions likely to improve slightly

Chile’s domestic economic activity continued to be impacted by the global economic slowdown and the decline in copper prices, which is the country’s main export product. Chile’s economy expanded 0.1% on a sequential basis in Q4 2015 after growing 0.3% in Q3 2015. However, the details are not encouraging for 2016’s GDP growth expectations.

Chile’s personal consumption expenditures (PCE) rose just 1.1% y/y in Q4 and only 1.5% for the entire 2015. Meanwhile, for the entire 2015, government consumption grew 5.8%. Significant drop in imports of goods and services of 1.9% y/y in Q4 and 2.8% drop in the whole of 2015 helped prevent a further weakening of the economic growth as imports enter negatively while calculating GDP. Meanwhile, goods and services exports fell 0.9% y/y in Q4 and 1.9% in 2015 as a whole.

Gross fixed investment also continued to be weak, dropping 1.3% y/y in Q4 and 1.5% in full-year 2015. The entire drop in gross fixed investment in 2015 was due to machinery and equipment that declined 8.2% in 2015. Meanwhile, investment in construction continued to be positive in 2015, growing at the rate of 1.9%.

Primary sector, which includes forestry, mining and agriculture, was the strongest sector in terms of production, recording a growth of 5.6% in 2015. However, output in the all-important mining sector in the primary sector fell 0.2% during 2015. At the same time, the construction sector provided much needed growth from the supply side and also the demand side. Activity in that sector grew 2.3% even as construction related to the mining sector fell. Manufacturing production grew 2% in 2015. Meanwhile, activity in commerce was weak, indicating weak consumer demand that grew just 0.9% in the whole of 2015.

Chile’s economy, in all, performed well despite the challenging domestic and global economic environment. The economy is likely to perform weakly in the coming quarters, but conditions are expected to rebound slightly as the global economy stabilizes and certain regional economies improve their growth outlook. However, the Chilean economy is unlikely to return to growth rates close to 6% or 7% in the short to medium term.