Growth set to slow to 4.6% this year ahead of steady recovery
The economy expanded by just 0.5% in Q2 2013, weighed down by contraction in the mining sector. We now expect GDP growth of 4.6% in 2013 as a whole. Strong private consumption, underpinned by rises in employment and real wages, helped to drive growth through H1 2013. However, we expect this to slow in the coming months, as real household income growth begins to moderate. Meanwhile, investment is dampened by weaker business confidence, deteriorating corporate lending conditions and sliding equity and copper prices. As a result, domestic spending is unlikely to be as robust in the coming quarters as it has been in recent years.
With inflation still well below the 3% target, the central bank has the scope to bolster the economy in the face of a subdued external outlook and the risk of a marked slowdown in domestic demand. We expect Chile’s main policy rate to be cut to 4.75% in Q4, which should help boost confidence and ease credit conditions.
Macroeconomic and financial stability should help to promote investment, boost capacity and raise living standards over the long term. We expect the economy to grow by almost 5% in the medium term. However, our long-term growth target is subject to Chile overcoming a number of energy infrastructure constraints.
Exchange and interest rates
Source: Banco Central de Chile; Haver Analytics.
Monthly indicator of economic activity
Source: Haver Analytics.
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