Chile GDP Flat in Second Quarter, Joint-Weakest in the OECD

Chile · ECONOMY

Zero growth in the second quarter leaves Chile at the bottom of the OECD table and sharpens the case for President Kast’s plan to shrink the state.

Chile’s economy stagnated in the second quarter of 2026, with Chile GDP showing zero growth between April and June and a 0.3 percent year-on-year contraction, according to data the organization released on Monday 24 August, in the same week that President José Antonio Kast launched a commission to slim down and redesign the Chilean state.

Chile GDP stalls while the OECD grows

The OECD reported that Chile’s economy showed no variation in the second quarter of 2026, after contracting 0.3 percent in the first three months of the year. The bloc as a whole grew 0.5 percent between April and June, accelerating slightly from 0.4 percent in the first quarter, according to the organization’s statement carried by El Mostrador.

Ireland recorded the strongest quarterly expansion in the club, at 3.9 percent, followed by Israel at 3.6 percent. At the other extreme, the OECD said, output was unchanged in Austria, Belgium and Chile, leaving Chile tied for the weakest quarterly performance among members.

The figures are more striking because they arrived in a difficult international environment: the OECD noted that the global economy absorbed the effects of the war in Iran, whose impact was felt from the start of hostilities in late February, yet most member economies still managed positive growth. El Mostrador said the numbers put the spotlight back on the low dynamism of the Chilean economy, noting that Chile was the only Latin American member whose economy shrank over the past year even as the bloc managed to accelerate its expansion in the quarter.

Lagging its Latin American peers

Among the Latin American members of the OECD, Chile posted the worst performance of the quarter. Mexico grew 1.5 percent, recovering from a 0.6 percent contraction in the first quarter, while Colombia expanded 1.3 percent and Costa Rica 1.2 percent, according to the organization’s data.

The annual comparison is starker still. Between the second quarter of 2025 and the same period of 2026, Chile GDP contracted 0.3 percent while the OECD as a whole grew 2.3 percent. Colombia led the region with a 3.4 percent annual expansion, ahead of Costa Rica at 2.2 percent and Mexico at 1.5 percent.

The major economies also slowed, but none stalled. The G7 grew 0.3 percent in the quarter, with the United States at 0.4 percent, Germany at 0.2 percent and Japan at 0.3 percent, while Spain accelerated to 0.7 percent, well above the euro zone average of 0.4 percent. Spain’s annual growth of 2.7 percent also outpaced the 1 percent recorded across the euro zone, underlining that the momentum seen elsewhere has passed Chile by.

A narrow escape from recession

A technical recession is commonly defined as two consecutive quarters of contraction. Chile avoided that definition by a fraction: the 0.3 percent decline in the first quarter was followed by a flat second quarter, although the annual reading confirms that the economy is smaller than a year ago.

The stagnation sharpens scrutiny of the economic agenda of President Kast, whose administration argues that an oversized and duplicated state apparatus weighs on public finances and private investment. That diagnosis, summarized in official language as the need to eradicate duplicated functions and optimize the reallocation of public resources, is the premise behind the commission the president launched this week.

Opposition figures and business groups have instead pointed to uncertainty and weak investment as drags on activity, a debate that the next rounds of national accounts data will do little to settle quickly. What is not in dispute is the trajectory: the economy has gone six months without expansion, and output is now smaller than it was a year earlier.

Kast’s commission to redesign the state

The president gave the official start to the Comisión Nueva Arquitectura del Estado, a 12-member team of specialists that will have 120 days to evaluate a reduction in the number of ministries and to draft a comprehensive institutional modernization plan, according to El Desconcierto and El Observatodo. Chile has gone from 18 to 25 ministries in recent decades.

Its mandate is to propose a more rational ministerial structure, one that reduces portfolios, eliminates overlaps and reassigns resources, Kast said at the launch, adding that he wants a state filled by merit and not by political quotas. Any reduction of ministries will require bills negotiated with Congress.

The commission crosses party lines. It includes former ministers from the Bachelet, Piñera and Boric governments, among them Andrés Zaldívar, Gonzalo Blumel, Nicolás Monckeberg, Osvaldo Andrade and Adriana Delpiano, alongside Bettina Horst, Natalia González, Beatriz Hevia, Ernesto Silva, Natalia Piergentili, Zarko Luksic and labor lawyer Juan Antonio Urzúa. Beyond counting portfolios, the team is empowered to convene public sector workers’ groups and outside specialists, and to draw on studies and reports produced over the past three decades.

Political backdrop and what comes next

The commission and the weak growth data land at a delicate moment for the government, whose flagship security reform recently lost urgency in Congress, a setback covered previously by The Rio Times.

The commission’s 120-day mandate means its recommendations should arrive around the end of the year, after public hearings with state workers’ groups and specialists. The government says the goal is not an arbitrary number of ministries but a rigorous diagnosis to underpin the bills it will then send to the National Congress, where the measures will face amendment and negotiation.

For the economy, attention now turns to the third quarter. Another flat or negative reading would put the recession question back on the table and raise the stakes for the government’s state-redesign and growth agenda heading into 2027. The government is betting that a credible plan to rationalize public spending can improve confidence and unlock investment while external demand remains hostage to the conflict in the Middle East. Whether that argument convinces markets, and a Congress where the administration lacks majorities, will become clearer as the commission begins its hearings in the coming weeks.

Frequently Asked Questions

Sources

• www.elmostrador.cl
• eldesconcierto.cl
• www.elobservatodo.cl
• www.miradiols.cl

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