Eco Emerging

Chile : A busy political agenda


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.

A return to growth


Investment and private consumption were adjusted downwards in the final quarter of 2022 and in the first half of 2023, after the emergency measures introduced in 2020-2021 were brought to an end and real GDP fell for three consecutive quarters.

Activity stabilised starting from the second quarter of 2023, with real GDP growing by 0.6% and 0.4% y/y during Q3 and Q4, respectively. In the end, economic growth stood at 0.2% for 2023.

The short-term outlook is brighter. Expected real GDP growth for 2024 is nearly 2%, thanks, in particular, to the upturn in private consumption and mining exports. The rapid disinflation process (inflation slowed to 7.6% y/y in 2023, after 11.6% in 2022, and continued to ease during the first few months of 2024, taking it to 3.2% y/y in March 2024) is expected to lead to higher real incomes. At the same time, the (aggressive) monetary easing cycle is continuing (since July 2023, the Central Bank of Chile has already cut its key rate by 480 bp to 6.5% as at the start of April, and further cuts are expected in the short term). This should improve access to credit for both consumers and investors. At the same time, investment and exports will benefit from increasing demand for Chilean mining products (mainly copper and lithium), as well as green hydrogen. However, the risks are still on the downside. In particular, political tensions could result in continued stalemates over reforms and could hurt consumer and investor sentiment.

A period of reforms