Chile: Business keeps investments frozen and foresees higher inflation for this year

RIO DE JANEIRO, BRAZIL – With a slight improvement in the outlook, which is reflected in the fact that uncertainty among businessmen “has been somewhat reduced with respect to the end of 2021”, the Business Perceptions Report published today, Thursday, by the Central Bank states that investments will remain frozen.

The reason? they are waiting for more concrete political and legislative definitions. The interviews carried out between January 6 and 25 -about 70- point to a relatively more stable scenario than the previous report.

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Thus, although some are concerned about the increase in the number of infections, and some expect the momentum of the economy to slow down in the second half of the year, they do not anticipate that the development of the pandemic will again affect business to the same extent as it did during the height of the pandemic.

In this context, the report highlights the companies’ perception of their future performance points to relative stability with respect to their average levels and even an improvement with regard to their current situation.

For the medium term, investment projects were maintained or cut back. According to the Central Bank’s analysis, the reason is that even though uncertainty has been easing, business people are waiting for more concrete definitions in the political-legislative sphere to undertake larger projects.

With this, by 2022, it is expected that there will be “few new initiatives and current projects are mostly aimed at automation, environmental compliance and machinery replacement”. In fact, “some interviewees report that they have suspended their medium-term projects, favoring investments outside the country,” the report states.

INFLATION AND RISING COSTS

Inflation “well above normal” is what most of the companies foresee for this year (57.8%), which in their analysis, they believe will decrease in 2023 as the signs of a cooling economy slow down the speed of price increases.

In the immediate term, pressure on costs will continue, although the rate of increase will be slower over the next three months. This has already damaged sales profit margins, so final prices to consumers will increase.

“Despite stabilizing costs, the cumulative deterioration in margins has companies anticipating further increases in their selling prices to compensate,” the report states.

IMPACT ON EMPLOYMENT

According to the report, the increase in inflation has not caused significant changes in the behavior of businesses. However, it highlights that those interviewed consider an advance in the increase in sales prices, a delay in hiring, and salary readjustments in 2022.

According to the survey conducted online between January 17 and 31 (707 valid responses were received), companies report that they continue to have problems filling available vacancies (88.14%).

The companies with the most significant problems are those linked to agriculture, construction, and tourism. Regarding the type of jobs, “a good part of the interviewees indicate a greater difficulty in hiring lower qualified personnel, which has become more present due to the higher labor demand during the summer period”, the analysis points out.

In addition, several companies also note some difficulties in recruiting more qualified employees, especially in positions that are essential for the operation of the companies. According to several interviewees, the lack of manpower has led to a lower offer of services -as in tourism- or a lower activity -as in construction and industry.

Many companies indicate that their staffing levels have not undergone significant changes compared to a year ago or three months ago.

Of the actions taken by the companies to adapt to this situation, 54.7% have offered higher salaries, and 42.5% have improved their search.

In the financial scenario, the report highlights that most companies indicate that they have not requested credits in the last months: “Some interviewees indicate that this lack of need for financing responds to the high liquidity they have, due to the good sales achieved in 2021”.

With information from Diario Financiero