Chile's low growth amid no confidence and high leverage

Chile economy continues to be stuck in a low growth mode. Consumer and producer sentiment remains pessimistic. Corporate and household leveragelevels are high according to the latest Financial Stability Report (FSR). 

Corporate leverage increased to 114% of GDP in 4Q from a little below 90% of GDP in early 2011. Household leverage rose above 60% of household disposable income for the first time in history, although financial services remained constant for more than two years as a percentage of disposable income due to the reduction in interest rates, notes Bank of America. 

The FSR also shows that corporate profits are low by historical standards. The labor market continued weakening. The unemployment rate remains low due to the slow expansion of labor supply, but we do not expect this to last for long. In this context, investment and private consumption are not going to be very dynamic in coming months. Capital and durable goods imports dropped throughout 2014 and have failed to pick up this year. 

The construction market remains relatively dynamic, but it is expected to slow down in coming months, said Bank of America in a report on Tuesday. In the office market, vacancy rates edged above 8% from as little as 2% in mid-2012. The residential market remains robust, with housing prices still increasing, but  part of this dynamism will be lost once a tax credit for real estate sales expires at the end of 2015, adds Bank of America.