Economy rebounds, but consumer spending weakens

After the surprise contraction in Q4 2013, Chile’s economy grew 0.8% on the quarter in Q1, exceeding expectations. Underpinning this growth was a bounce-back in investment. However, consumer spending showed signs of weakness, rising by just 0.5% — the slowest pace since the recession of 2009.

Momentum should build steadily during the rest of this year. External conditions are set to improve, as developed economies recover and the fiscal stimulus package feeds through in China. And with inflation expected to fall back in H2, household spending should pick up toward the end of the year. Overall, we expect the economy to grow 2.9% in 2014.

The pass-through of the depreciation of the Chilean peso and recent wage rises have put upward pressure on prices. Inflation reached 4.7% in May, well above the central bank’s 3% +/– 1% target. Inflationary pressure is expected to ease in the coming months as the impact of currency depreciation lessens. But we don’t expect the rate to return to target until H2 2015.

Since 2009, the high copper price (even after the falls of the last couple of years, the current price is nearly double that of 2005) and steady growth have provided the Government with a healthy fiscal position. We expect this to persist for the next few years. But if Chile is to grow at more than 4.5%, it will need to ensure that it can meet a rising demand for energy.

RGMF_July14_Chile 02_Monthly indicator

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Economy rebounds, but consumer spending weakens

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