Chile Economy 2026: Kast, Copper, and the Path Forward

RioTimes Deep Analysis | Series: Chile Economy Guide

Chile enters the second quarter of 2026 at an inflection point. A new far-right president with sweeping reform ambitions governs from the Palacio de La Moneda — but controls neither chamber of Congress. Copper, the lifeblood of the Chilean treasury, trades well above historical averages yet faces structural production constraints at the country’s flagship state miner. Inflation has finally returned to target after a three-year struggle, the peso has recovered significantly against the dollar, and the Santiago stock exchange is trading near all-time highs. The question for investors, exporters, and policymakers is whether this confluence of favorable conditions can be converted into durable growth — or whether gridlock, commodity volatility, and global trade tensions will constrain Chile’s potential once again.

GDP Outlook: Solid 2025 Baseline, Moderate 2026 Trajectory

Chile’s economy expanded 2.5% in full-year 2025, beating the 2.3% consensus estimate. The final quarter delivered a particularly sharp upside surprise — GDP rose 0.6% quarter-on-quarter (double the 0.3% median analyst forecast) and 1.6% year-on-year, propelled by rising mining output and a surge in investor confidence following José Antonio Kast’s December 2025 election victory. Full-year 2024 GDP was simultaneously revised upward to 2.8% from 2.6%, providing a stronger launching pad.

The growth composition was broadly healthy. Fixed capital formation expanded 8.9% in 2025, with mining and energy leading investment. Private consumption grew 2.7%, driven by gains in durable goods, health, and hospitality. Exports rose 4.6% — led by fruits, gold, and food products — while imports surged 10.5%, reflecting stronger machinery and services demand, a sign of underlying investment momentum rather than consumption excess, per Reuters.

Looking forward, the 2026 outlook is more measured. The Central Bank of Chile’s March 2026 Monetary Policy Report narrowed its forecast range to 1.5%–2.5%, citing rising oil prices from Middle East conflict and the fiscal implications of Kast’s spending adjustment. The IMF’s April 2026 World Economic Outlook projects 2.0%, the World Bank 2.2%, and Chile’s own Finance Ministry an optimistic 2.4%. Most institutions place the structural potential growth rate at 2.0%–2.5%, meaning Chile is operating roughly at capacity — neither booming nor contracting. A notable early warning came from the February 2026 IMACEC indicator, which showed month-on-month economic contraction, though the annual comparison remained positive.

Kast’s Megareform: Ambition Meets Congressional Arithmetic

José Antonio Kast won Chile’s presidential runoff on December 15, 2025, with 58% of the vote. He took office on March 11, 2026 — and within five weeks unveiled the most sweeping economic reform package presented to the Chilean Congress in years. On April 15–16, 2026, Kast delivered the Proyecto de Ley de Reconstrucción y Desarrollo Económico y Social via national broadcast — a 40-plus measure package covering five pillars: post-fire reconstruction, construction revival, tax competitiveness, legal certainty for long-term investment, and public spending containment.

The headline tax measures are striking in their ambition. Corporate income tax would fall from 27% to 23%, aligning Chile closer to the OECD average and benefiting roughly 150,000 companies that employ half of Chile’s formal workforce, per Baker McKenzie’s February 2026 analysis. A US$1.4 billion annual payroll tax credit targets 235,000 SMEs covering 4 million workers. The fully integrated tax system — in place until 2014 before Boric-era reforms replaced it with a semi-integrated model — would be reinstated, eliminating double taxation on corporate profits distributed to shareholders. A 25-year tax invariability guarantee would return for long-term projects, and a 12-month capital repatriation window at a 7% flat rate would incentivize the return of offshore Chilean capital.

The political reality is more complicated. Kast’s coalition controls neither chamber of Congress — the Senate is tied, and his alliance holds a minority in the Chamber of Deputies. Every significant provision requires moderate opposition votes. University of Chile economist Jorge Berríos assessed that the 100% corporate-to-personal tax integration credit “will not pass under any circumstances,” and political analyst Tomás Duval warned that even a September 2026 timeline is “difficult.” Bloomberg noted the near-term tax cuts may widen the fiscal deficit before generating growth-led revenue recovery, while Fitch Ratings flagged that spending pressures are testing Kast’s consolidation plan. Kast’s approval rating had already slipped to 47% after a controversial fuel-price decree — making the megareform partly a political reset as well as an economic blueprint. The Milei-Kast ideological alliance between Argentina and Chile adds a regional dimension, but Chile’s congressional constraints differ sharply from Buenos Aires’s executive-led approach.

Copper: World’s Largest Producer Faces Structural Headwinds

Chile produces approximately 24% of global copper mine output — around 5.3 million tonnes in 2025 out of roughly 22 million tonnes globally — and copper accounts for roughly 50% of Chile’s export revenues and approximately 10% of GDP. The commodity is so central to Chilean public finances that every $0.01 per pound change in copper prices moves fiscal revenues by $27–35 million. With consensus 2026 copper price forecasts ranging from Goldman Sachs at $11,400 per tonne to J.P. Morgan at $12,500 per tonne peak, the fiscal environment remains broadly favorable — but the production story is more complex.

Codelco’s Structural Challenge

State-owned Codelco, the world’s largest copper producer by historical output, produced 1.332–1.333 million tonnes in 2025 — a marginal 0.4% increase year-on-year, but one that came at a cost: a fatal accident at El Teniente eliminated roughly 45,000 tonnes of production, and aging infrastructure across the Chuquicamata, Salvador, and El Teniente divisions continues to weigh on output. Codelco targets 1.344 million tonnes in 2026, an increase of just 10,000 tonnes. More significantly, a January 2026 internal study delayed the company’s peak production timeline from 2027 to 2034 — a seven-year postponement that reflects the scale of the replacement investment required against a backdrop of more than $20 billion in debt. Chile’s copper output hit a nine-year low in February 2026, with overall Chilean production falling 3% year-on-year to 409,900 tonnes in January 2026, per Industrial Info Resources.

Escondida and the El Abra Expansion

BHP’s Escondida — which celebrated 35 years of operation in March 2026 having produced more than 34 million tonnes of copper historically — is now in a direct production race with Codelco for the world’s top single-mine title. BHP forecasts 1.15–1.25 million tonnes for its FY2026. The bigger story for future capacity is the Freeport El Abra expansion: in March 2026, Freeport-McMoRan filed for environmental permit approval on a $7.5 billion expansion that would add more than 300,000 tonnes of annual capacity to the 51% Freeport / 49% Codelco joint venture, with production targeted for 2033. If approved, El Abra would move from 17th-largest to potentially the third-largest mine in Chile. S&P Global Market Intelligence projects copper prices just above $12,100 per tonne for 2026, with a cumulative 3-million-tonne supply deficit by 2036 supporting the long-term investment thesis.

Lithium Policy: Pro-Market Rhetoric, State-Led Reality

Chile holds approximately 44% of the world’s proven lithium reserves, concentrated in the Salar de Atacama and operated under government-issued contracts by SQM and Albemarle. The sector was dramatically reshaped by Boric’s April 2023 National Lithium Strategy, which required state ownership of at least 51% in new contracts and directed Codelco to take the lead role in Atacama. The headline development that emerged from this policy framework is the SQM-Codelco deal: the NovaAndino Litio SpA joint venture, launched December 29, 2025, governs lithium production in the Salar de Atacama through 2060. The Chilean state captures 70% of operating margins from 2025–2030, rising to 85% from 2031, through a combination of Corfo royalties, treasury taxes, and Codelco profit distributions. The venture targets 250,000 tonnes of lithium production in 2026, up from 230,000 tonnes in 2025, per Argus Media.

Kast campaigned on making lithium concessionable — removing its classification as a “nuclear material” under Ley 16319, which would allow regular mining concessions rather than the complex CEOL model. In practice, the gap between rhetoric and policy reality is significant. As Gibson Dunn assessed in March 2026: “The fair inference from the first week of the Kast administration is that it will try to accelerate execution and present Chile as more decisively pro-investment. But until new legislation or decrees say otherwise, investors should assume that Chile’s lithium sector will continue to operate under the inherited state-led model.” Making lithium concessionable requires amending two clauses of the national mining code — a Congressional majority Kast does not hold. The SQM-Codelco joint venture is honored (Kast pledged to respect legally signed agreements), indigenous consultation requirements remain embedded, and the Boric-era protected salars network constrains exploration areas. The full picture of Chile’s lithium policy transition reflects the limits of executive-branch reform when foundational legal architecture requires legislative change. Lithium revenues are projected to grow from $2.7 billion in 2024 to $7.3 billion by 2030, per Columbia University’s Center on Global Energy Policy.

Inflation and Interest Rates: Disinflation Mission Nearly Complete

Chile’s inflation trajectory from 2022 to 2026 is one of the more dramatic disinflation stories in Latin America. From a peak of approximately 14% in 2022 — driven by post-pandemic demand, supply-chain disruptions, and a cumulative 59% electricity tariff increase — headline CPI has fallen progressively to 3.5% by end-2025 and reached 2.4% year-on-year in February 2026, the first reading below 3% since early 2021. The January 2026 print of 2.8% had already marked the first sub-target reading in nearly five years, per the Banco Central de Chile’s December 2025 IPoM.

The Central Bank of Chile responded to this improvement with one of the most aggressive easing cycles among emerging markets globally — cutting its benchmark rate by a cumulative 675 basis points from the October 2022 peak of 11.25% to 4.50%, where it currently sits after unanimous holds in January and March 2026. The March 24, 2026 decision statement signaled a data-dependent posture with an eye on oil price risks. The market consensus, per Itaú BBA, is one further 25 basis point cut to 4.25% in June 2026 — ending the current easing cycle. Upside inflation risk persists from Brent crude trading above $92 with $100 scenarios on the table amid Middle East conflict, which could push headline CPI back toward 4% in Q2 2026. A return to near target is expected by mid-2027. The potential for a final rate cut depends on whether oil shock risks or the disinflation path dominates in the June 2026 meeting.

IPSA and the Peso: Election Euphoria, Volatility, and Recovery

The Santiago stock exchange delivered an extraordinary 2025, with the S&P/CLX IPSA posting 56% total returns for the full year — the best calendar-year performance in over three decades, with 72 all-time highs during the year. The momentum carried into 2026: the IPSA hit an all-time high of 11,721 on January 28, 2026 — the day of Kast’s inauguration speech — before pulling back to a 2026 low of 10,864 in mid-February as capital rotated toward U.S. and European developed markets amid global dollar strength. A Latam Airlines secondary offering worth $742 million in early February added sentiment headwinds. By mid-April 2026, the IPSA had recovered to approximately 11,314, delivering roughly 7.9% year-to-date and nearly 47% on a 12-month basis. Morgan Stanley’s year-end 2026 target of 13,700 implies meaningful further upside from current levels, supported by a 12x price-to-earnings valuation and consensus 2026 earnings growth of 14% — among the most attractive risk-reward profiles in Latin America relative to growth.

The peso has followed a parallel trajectory. The 2025 annual average exchange rate was approximately 953 CLP per dollar, reflecting depreciation pressure from fiscal uncertainty under the Boric administration. In early 2026, the peso surged — hitting its strongest level of the year around 854 CLP/USD in mid-February, a nearly 9% appreciation from the 2025 average — powered by record copper prices and political optimism around the Kast transition. The March oil shock and global uncertainty drove a reversal to 928 CLP/USD by March 31 before a partial recovery to approximately 882 CLP/USD by mid-April 2026. The year-to-date 2026 average of roughly 886–887 CLP/USD represents an approximate 7% peso strengthening versus 2025. CaixaBank Research forecasts a year-end 2026 rate near 961 CLP/USD (annual average), suggesting potential peso softening from current levels as fiscal adjustments and global trade uncertainty weigh.

Trade Relationships: China Dominance, U.S. Tariff Risk

Chile’s trade architecture is anchored by China, which absorbs approximately 39–40% of all Chilean exports — concentrated in copper concentrate and cathodes ($21.3 billion in 2024), fresh cherries ($3.6 billion), and lithium carbonate ($2.1 billion). Total Chile-China bilateral trade reached $58.5 billion in 2024, growing 6.72% year-on-year. Chile runs a substantial surplus, with $37.8 billion in exports versus $20.7 billion in imports, per Deepbeez trade flow data. The United States is the second-largest partner at approximately 17% of exports, with total bilateral goods trade reaching $38.1 billion in 2025. Brazil follows as the third-largest partner.

The U.S. tariff picture is nuanced. Chile and Peru together supply 71% of U.S. refined copper imports, but current Section 232 tariffs target semi-finished products — and only 0.1% of Chilean copper exports to the U.S. fall under current tariff exposure, per the Council on Foreign Relations. The higher-risk scenario involves U.S. Commerce Secretary Lutnick’s recommendation for phased refined copper tariffs of 15% in 2027 and 30% in 2028 — considered unlikely given limited U.S. refining capacity but representing a tail risk. Agricultural sectors (fruits, salmon) face harder direct exposure from the Trump administration’s 15% global tariff under Section 122 of the Trade Act of 1974. Chile is a founding member of the Pacific Alliance alongside Colombia, Mexico, and Peru, and holds associated state status in Mercosur since 1996 — deliberately avoiding full membership to preserve its global FTA network. Kast’s expected closer alignment with the Trump administration provides diplomatic cover, but Chile’s 40% export dependency on China fundamentally constrains any geopolitical pivot.

Labor Market: Structural Unemployment Above Pre-Pandemic Levels

Chile’s labor market has failed to return to pre-2019 conditions despite six years of economic evolution. The unemployment rate stood at 8.3% in the December 2025–February 2026 rolling quarter — the final reading of the Boric administration — down 0.1 percentage point year-on-year but still above the 7.8% rate when Boric took office in March 2022, and well above the 7.1% average of 2016–2020. The annual 2025 unemployment average of 8.6% represented a 21% structural increase from pre-social-unrest norms, per La Era economists. Women’s unemployment at 9.0% exceeds men’s at 7.8%, with the Metropolitan Region of Santiago at 8.8%. Informality remains elevated at 26.5% of total employment, and labor pressure — those seeking work or additional hours — has risen 1.7 percentage points to 15.2%.

The structural headwinds include the pension reform enacted under Boric (Law No. 21.735, published March 2025), which raises total mandatory contributions from 10% to 16% of salary over 9–11 years — with employers contributing starting at 1% from August 2025 and rising to 8.5% by 2033. The second step-up in employer contributions arrives in August 2026, adding labor cost pressure at precisely the moment Kast is trying to stimulate hiring through his megareform payroll tax credits. Kast’s stated target of 6.5% unemployment by 2030 requires a 1.8 percentage point reduction from current levels — achievable only with sustained above-potential growth and structural labor market improvements that go beyond the current reform package, per INE Chile data.

Key Risks: What Could Derail Chile’s Growth Story

China Slowdown and Copper Demand

The single greatest systematic risk to the Chilean economy remains a meaningful deceleration in Chinese construction and manufacturing. With 39% of all exports flowing to China, a copper demand shock would compress fiscal revenues, weaken the peso, and undermine the investment case simultaneously. Global copper inventories exceeded 1.3 million tonnes in March 2026 — high enough to dampen near-term prices even if the long-term structural deficit thesis remains intact. The World Bank’s January 2026 Global Economic Prospects explicitly notes that Latin American growth is “constrained by trade tensions and related uncertainty.”

Fiscal Path and Debt Ceiling

Public debt has risen from 28% of GDP before 2019 to 42.7% in 2025, narrowing the buffer to Chile’s 45% fiscal rule ceiling. Kast has pledged to cut spending by $6 billion within 18 months and target a deficit of –1.5% of GDP in 2026 (down from –2.1% in 2025), but the near-term tax cuts in his megareform could widen the deficit before the growth dividend materializes. BNP Paribas projects the deficit narrowing to –1.5% in 2026 and –1.2% in 2027, but flags that this depends on the spending cuts materializing as planned.

Legislative Gridlock and Reform Dilution

Kast’s minority position in both chambers means every headline reform measure faces negotiation and dilution risk. Chile has already endured two failed constitutional rewrite referendums since 2019 — a reminder of the country’s underlying political polarization. DPA Investments flagged in January 2026 that the question is not whether Kast has an agenda, but whether he has the legislative leverage to execute it. The Capital Economics post-election assessment concluded that market-friendly reform is likely but incremental rather than transformative, given the coalition arithmetic.

This article is part of The Rio Times’ guide series, offering in-depth analysis for investors, expats, and analysts tracking Latin America. This article does not constitute investment advice.

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