Chile’s economy recovers and fears of a recession dissipate

By Matthew Malinowski

Due to strong consumer spending, Chile’s economic growth rebounded at the start of the year, which fueled the recovery from the recession.

Gross domestic product grew 0.8% in the first quarter from the previous three months, while it contracted 0.6% from the same period a year earlier.

Economists surveyed by Bloomberg expected an average expansion of 1% versus the previous quarter and a contraction of 0.9% annually.

Chile’s central bank and Finance Ministry have raised their growth forecasts for 2023 in the past month as activity responds more slowly than expected to tight monetary policy.

Government officials have claimed that the economy is now poised to gain momentum.

However, many analysts are not as optimistic and point out that high borrowing costs will keep GDP growth near zero this year.

The economy is still recovering from the effects of the unprecedented stimulus at the start of the pandemic when government bailouts reached 90% of households and people withdrew more than US$50 billion from their pension savings.

Those measures pushed GDP growth to a record and inflation to the highest level since the 1990s.

Last week, monetary policymakers kept borrowing costs unchanged at 11.25% for the fourth consecutive meeting.

In an accompanying statement, they noted that consumption indicators continue to trend downward while investment has been weak.

Looking ahead, Chile is betting on a national lithium policy to boost the production of the metal used in batteries.

Meanwhile, the copper sector faces aging mines and falling production.

Across Latin America, there are signs that activity remains relatively firm despite high inflation and high interest rates.

According to central bank data, Mexico’s GDP expanded 1.1% in the first quarter on strong exports, while Brazil’s economic activity grew 3.32% in February.

With information from Bloomberg

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