Chile: Business people say political and economic uncertainty are main risk for the country in 2022

RIO DE JANEIRO, BRAZIL – With the nomination of the new cabinet, Gabriel Boric enters the final stretch to reach La Moneda on March 11. The implementation of the government program, added to the final stage of the drafting of the new Constitution, puts the political issue again as one of the main factors that will determine this 2022, which will also take place in a challenging economic context.

The Survey of Business Expectations conducted by EY and Diario Financiero showed that political and economic uncertainty and regulatory risk are the main risks for companies this year. Further behind are issues such as talent costs and restrictions, economic slowdown, and lower investment.

Read also: Check out our coverage on Chile

In addition, the 374 participants in the survey highlighted that the most significant positive impacts of the government program would come from security and measures for innovation and entrepreneurship (21% and 32%, respectively).

While labor and tax changes are the ones they anticipate will have a more significant negative impact on companies.

FALLING PROFITS

Regarding business performance, half of those who participated in the survey – general managers, finance managers, directors, and presidents of boards of directors – responded that they expect a drop in profits this year.

It was a change in the trend of the last two versions when more respondents expected an increase in the last line.

In sales, although 46% of respondents believe that they will grow, there is a downward perspective from two versions of the study: in July 2021, 53% expected an increase, and in December 2020, 66% believed that revenues would improve.

With this scenario in sight, the trend on the investment budget is confirmed to be downward. This same survey showed a year ago that 35.6% of those consulted expected an increase in this amount, and six months ago, the figure dropped to 30.6%.

And now, in the survey conducted between December 21 and 31, 2021, 22% anticipate a higher investment budget, while 28% expect a decrease.

It is added that 52% of the companies that will make investments will allocate them to carry out repairs or improvements necessary to maintain normal operating conditions.

MORE PESSIMISTIC THAN THE MARKET

The difficult economic scenario for this year is also a matter of concern among business people, and most of them are even more pessimistic than the scenario expected by the Central Bank.

Although the Central Bank predicted that this year’s GDP would expand between 1.5% and 2.5%, 43% of those surveyed expect growth between 0% and 1.4%, and 14% foresee a contraction.

When asked how to avoid the slowdown, the respondents put their chips mainly on four measures: public-private agreements to support employment; a boost for foreign invasion; promotion of SMEs; and infrastructure projects.

Other challenges that companies will have to deal with this year are a weaker peso, the global rise in the price of raw materials, access to higher-cost financing, and inflation.

Regarding the rise of the dollar, which has an exchange rate above CLP 800, the survey shows that 66% consider that the impact on companies will be negative or very negative, a figure that a year ago was 25%.

A similar scenario is presented by the rise of commodities, since if in December 2020 27% considered that prices were negative or very negative, in twelve months the percentage reached 60%.

Unlike last year, when credit conditions were rather neutral, their current increase in price and restrictions mean that 70% foresee a negative effect on their business.

When asked about inflation, 33% of those surveyed expect it to have a very negative impact on their company in 2022.

EFFECTS OF THE NEW CONSTITUTION

Concerning the constitutional process, the study shows that for most companies surveyed, the process continues to be very relevant (73% vs. 81% in July 2021).

Although for 15%, the issues considered in the Constituent Convention are not so important, almost half of all executives (49%) say that their organization has decided to postpone their strategic decisions until they have more clarity on the matter.

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