Firm demand drives growth
Foreign capital is forecast to boost investment growth in the short term, while low inflation should buoy the real purchasing power of consumers. This, combined with ongoing employment growth, should mean that private consumption stays robust.
While inflation was just 1.5% in March,; however, it was up from February and we expect it to rise further toward the end of the year. This should prompt the central bank to raise interest rates from 5% in Q3 2013 to 5.75% by the middle of 2014.
We expect growth to become more balanced this year, with stronger demand from other rapid-growth markets supporting solid export growth (after a weak performance in 2012) and a moderate expansion in domestic demand. GDP is expected to rise by 4.9% this year and 4.6% in 2014, following estimated growth of 5.5% in 2012.
In the medium term, we expect growth to be underpinned by strong emerging market demand for Chile’s exports, particularly copper, as well as the stable macroeconomic environment – which should help boost investment, productive capacity and living standards. But energy infrastructure bottlenecks could constrain economic growth in the long run, while the reliance on copper leaves the economy exposed to commodity price volatility in the near term.
Exchange and interest rates
Source: Banco Central de Chile; Haver Analytics.
Monthly indicator of economic activity
Source: Haver Analytics.
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