Chile’s economic growth stabilised during the second half of 2023, inflation eased and the current account deficit fell. The expected upturn in activity in 2024 should ensure that growth comes close to its potential, driven by household consumption, private investment and mining exports. Political pressures have eased after the decision to suspend the process of adopting a new Constitution (which is expected to be left alone for a number of years). Nevertheless, Gabriel Boric’s government and the opposition parties are still clashing on a number of areas, most notably, fiscal reform, pension system reform and the energy sector framework law.
Gabriel Boric intends to exceed the goals set up to that point, on a country level, by achieving carbon neutrality before 2050, and on an international level, by developing lithium and green hydrogen production and export capacities.
Chile seems to have made more progress with the energy transition than most Latin American countries. The combination of a favourable geography, significant resources, the aspirations of public opinion and political will has favoured implementation of a number of measures for almost 25 years. Since he came to power in 2022, Gabriel Boric has undertaken to exceed the goals set up to that point, on a country level, by achieving carbon neutrality before 2050, and on an international level, by developing lithium and green hydrogen production and export capacities.
Chile is unlikely to escape a recession in 2023. The slowdown in global demand will weigh on exports, while domestic demand continues to be eroded by high inflation and interest rates due to restrictive monetary policy. The investment outlook remains closely linked to the political climate in the country, and in particular to the implementation of the two principal reforms announced by the government: the new constitutional process (which is expected to continue throughout 2023), and the implementation of pensions reform.
Gabriel Boric, the candidate of the very broad left-wing coalition, won the second round of the presidential election last December. He took office in mid-March, and is already facing numerous challenges. His general policy speech at the beginning of June, and then the tax reforms he brought forward at the end of June, have confirmed his intention to implement economic and social policies which differ from those of previous governments. His ambitious objective for his term of office is to begin a rapid "green transition", but also to find the "right balance" between the need for reforms in favour of greater social justice and the need to remain "fiscally responsible"
In Chile, a large majority of voters (nearly 62%, with an exceptional voter turnout) rejected the draft new constitution in the referendum held on 4 September. The draft, which contains almost 400 articles, did not propose a profound reform of the Chilean economic model; the Central Bank had to remain independent, while property and labour rights were not called into question. But it guaranteed better access for the population to a set of social rights (housing, education and access to healthcare), whereas the State currently only pays for those needs not covered by the private sector. This meant a substantial and long-term increase in public spending
Gabriel Boric won the second-round presidential election in December. He will take up his post in mid-March and will face many challenges during his term. The new government will have to deal with a fragmented legislative assembly and high levels of popular expectation. Economic growth is likely to slow as exceptional support measures are gradually withdrawn. Although vaccination levels are high, activity could be weakened by new waves of infection and the accompanying restrictions. Lastly, consolidating public finances whilst fulfilling promises to reform education, healthcare and pensions would seem to be the biggest difficulty.
Gabriel Boric, the candidate heading up the very broad left-wing coalition, won the second round of voting in Chile’s presidential election on 19 December, beating J. Kast, the far-right candidate. While the country’s economic fundamentals have held up relatively well over the past two years, the incoming administration (taking office in March) will have to deal with a number of very thorny issues. Chile’s health situation, high inflation and restrictive monetary policy will be a drag on growth in the short to medium term. What’s more, expectations among the country’s population are very high concerning pension system reforms, access to healthcare and education
The economy should rebound strongly in 2021 thanks to a successful vaccination campaign, improved prospects for global growth and higher copper prices. According to the monthly economic index, in early Q2, real GDP returned to the pre-pandemic level of December 2019. Looking beyond 2021, economic growth prospects could be marred by persistent political tensions plaguing the country. Debates over the presidential election on the one hand and the process of drawing up a new constitution on the other will probably disrupt the implementation of economic policy as well as private sector investment decisions by both resident and non-resident investors.
The improvement in global growth prospects and the success of the vaccination campaign have helped sustain the recovery in Chile’s growth seen since Q3 2020, despite the reintroduction of relatively strict health protection measures in the early part of 2021. Household consumption grew strongly and is likely to continue to drive growth, boosted by stimulus measures and the opportunity given to a large number of employees to draw on their pension savings. In all, GDP is likely to grow by 6% in 2021, after a 5.8% drop in 2020. This said, the risks are on the downside. External risks relate mainly to trends in the pandemic and progress in vaccination on a global level
With violent protests rocking Chile since October, the government announced a series of measures to combat inequality and proposed a new version of its pension system reform. Above all, the government signed an agreement with the main opposition parties to draw up a new constitution. Yet persistently fierce political and social tensions are bound to curtail growth. Forecasts for the next two years have been revised largely downwards. The public debt and deficit are also expected to swell over the next five years.
Chile is a Republic (Republica de Chile) of South America. It is part of the Southern Cone and is one of the Latin American countries. Chile enjoyed strong and credible institutions. The country’s export commodity dependence (48% of total exports) remains a challenge, but it has declined over the last ten years thanks to the diversification in economic activity. These good fundamentals helped Chile absorb the shock in 2020 and will continue to support the economic outlook in the short and medium terms.
