Growth set to edge up in 2014
After a relatively slow start, Chile’s economy accelerated in H2 2013, with output expanding 1.3% on the quarter in Q3. Underpinning this was a bounce-back in the mining sector, which expanded by 3.9%, and continued strength in the service sector.
Moving into 2014, we expect the economy to continue to build momentum. Domestic demand is expected to accelerate, underpinned by low inflation, a strengthening labor market and looser monetary policy. External conditions are also improving gradually, boosted by stronger demand in China. As a result, GDP growth is forecast to edge up from 4.2% in 2013 to 4.3% in 2014.
Inflation remains subdued, averaging less than 2% in October and November 2013. This has given the central bank room to loosen monetary policy in order to support the economy. We expect the policy rate to fall to 4.25% by early 2014 and remain there for the rest of the year.
The medium-term outlook for Chile’s economy is bright. Growth is expected to average more than 4.5% and will be underpinned by the country’s institutional environment, macroeconomic stability and financial resilience. But progress relies on the Government tackling the energy sector, which is badly in need of investment to expand capacity.
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