The Chile economy contracted for a third consecutive month in March, with the Banco Central’s Imacec falling 0.1 percent year-on-year and pushing the first quarter to a -0.3 percent contraction, the worst quarter since 2023.
The release on Monday, May 4, 2026 came on the same day the central bank’s March policy meeting communique reaffirmed its decision to hold the policy rate at 4.5 percent by unanimous vote, citing rising oil prices around 100 dollars per barrel and Middle East war uncertainty as adverse factors.
Treasury Sub-Secretary Juan Pablo Rodríguez declared an “economic emergency,” tying the call to the José Antonio Kast government’s national reconstruction bill before Congress.
Key Points
— Imacec for March 2026 came in at -0.1 percent year-on-year, third consecutive negative print after January’s -0.5 and February’s -0.3.
— Q1 contraction at -0.3 percent is the worst quarterly performance since 2023.
— Mining fell 6.5 percent in March and manufacturing 2.6 percent; commerce and services partly offset the decline.
— BCCh held the policy rate at 4.5 percent, citing oil at 100 dollars per barrel and Middle East war risk.
— Treasury declared an “economic emergency”; unemployment is 8.9 percent and BCCh now sees 2026 GDP at 1.5-2.5 percent.
What the Imacec Showed
The Rio Times, the Latin American financial news outlet, reports that the Imacec, the central bank’s monthly economic activity index, fell 0.1 percent year-on-year in March 2026 versus a market consensus expecting +0.7 percent. The seasonally adjusted series rose 0.3 percent on the prior month, and the non-mining Imacec rose 0.9 percent year-on-year, growing 0.5 percent month-on-month and 1.3 percent over twelve months. Goods production fell 5.2 percent year-on-year, dragged by mining at -6.5 percent on lower copper extraction.
For the first quarter as a whole, mining contracted 2.4 percent, manufacturing 2.7 percent and other goods 4.2 percent, partially offset by commerce up 1.4 percent and services up 1.6 percent. Libertad y Desarrollo’s Valentina Apablaza warned that mining weakness will likely persist, with a possible non-mining recovery alone insufficient to lift full-year growth above 2 percent. The seasonally adjusted reading suggests growth restarts in April, but the monthly comparison base is high.
The BCCh Hold
The Banco Central’s March Reunión de Política Monetaria Council voted unanimously to hold the policy rate at 4.5 percent, an unusually firm signal given the Q1 contraction. The bank cited that the Middle East war “has importantly increased uncertainty over the future evolution of the global economic scenario,” with Brent around 100 dollars and tighter global financial conditions. February inflation came in at 2.4 percent year-on-year, slightly faster than the December IPoM forecast.
Why It Matters for the Kast Plan
President José Antonio Kast took office in March promising fiscal discipline, fuel-mechanism flexibilization and a pro-investment posture. His first-week relaxation of the MEPCO fuel-price stabilizer triggered a sharp rise in pump prices, with gasoline up 54 percent on prior anchored levels, and approval ratings dropped four points the same week. The Kast cabinet has now framed the Imacec print as the trigger for the reconstruction bill, which the central bank itself reviewed earlier this month and described as front-loaded in cost while back-loaded in benefit.
Markets responded with a rise of more than 10 pesos in the dollar against the local currency on Monday, an IPSA decline and an increase in long-end nominal yields. The 2026 BCCh growth range was lowered from a 3 percent central scenario in December to between 1.5 and 2.5 percent in the March IPoM. UBS economists view the Kast pro-market pivot constructively, but Citi and Goldman flagged that fuel-price pass-through plus the demand-side weakness make the second-quarter trajectory uncertain.
| Indicator | Value |
|---|---|
| Imacec March 2026 (YoY) | -0.1% |
| Q1 2026 cumulative | -0.3% (worst since 2023) |
| Mining March 2026 | -6.5% YoY |
| Non-mining Imacec March | +0.9% YoY |
| BCCh policy rate | 4.5% (unanimous hold) |
| February IPC YoY | 2.4% |
| 2026 BCCh GDP range | 1.5-2.5% |
| Unemployment | 8.9% |
How the Trajectory Reframes the Year
Chile’s full-year 2025 closed at +2.5 percent, but the 2026 picture has now degraded sharply, with both the BCCh range and consultant projections clustering around 2 percent or below. UNAB economist Gonzalo Escobar attributed the slowdown to a labor-cost mismatch where higher hiring costs collided with weak growth, with Pablo Barberis citing the same constraint on investment. The official Q1 GDP release follows on May 18.
For copper specifically, the 6.5 percent March drop reflected lower extraction at major Cocodán-Norte and Atacama-region operations after a difficult start to the year. Chile remains the world’s largest copper producer, and a sustained mining underperformance would weigh on the trade surplus. The Hormuz oil shock adds an inflation channel that has Treasury and the BCCh aligned, even as their views on near-term growth diverge.
Connected Coverage
For broader context, see our coverage of BBVA’s bet against the Colombian peso ahead of the May 2026 election and our analysis of Argentina’s Cavallo, Milei and Caputo public feud over FX policy.
What Happens Next
- May 18, 2026: Banco Central releases preliminary Q1 GDP, the official benchmark for the contraction.
- Reconstruction bill: Congressional debate continues; central bank flagged front-loaded fiscal cost concerns.
- BCCh next meeting: Watch for renewed cuts if Q2 Imacec follows Q1 trend amid disinflation.
Frequently Asked Questions
Why is the Chile economy contracting?
The Chile economy contracted in Q1 2026 mainly because mining production fell 6.5 percent year-on-year in March on lower copper extraction, and manufacturing dropped 2.6 percent, with the rest of goods down 4.8 percent. Commerce and services grew, but not enough to offset. The Imacec sequence read -0.5 in January, -0.3 in February and -0.1 in March, averaging -0.3 percent for Q1, the worst since 2023.
What did the Banco Central do?
The Banco Central held the policy rate at 4.5 percent by unanimous vote at the March monetary policy meeting, citing the Middle East war and Brent at 100 dollars per barrel as adverse factors. February inflation came in at 2.4 percent year-on-year, slightly faster than the December IPoM forecast. The 2026 GDP range now sits at 1.5 to 2.5 percent, down from a 3 percent central scenario in December.
How is the Kast government responding?
Treasury Sub-Secretary Juan Pablo Rodríguez declared an “economic emergency” on May 4 and tied the framing to a national reconstruction bill before Congress. The central bank reviewed the bill and warned its costs are front-loaded while benefits arrive gradually. Kast had pivoted to a pro-market posture in his first weeks, including MEPCO fuel-mechanism flexibilization that drove pump prices up 54 percent and dropped his approval rating four points.
What does this mean for the IPSA and the peso?
The IPSA stock index fell on Monday and the peso weakened by more than 10 pesos against the dollar, with long-end nominal yields rising. UBS sees the Kast pro-market pivot as constructive, but Citi and Goldman flagged that fuel-price pass-through plus demand-side weakness make Q2 trajectory uncertain. The BCCh has scope to cut if Q2 Imacec confirms the Q1 trend amid disinflation, but Brent at 100 dollars currently complicates the call.
Updated: 2026-05-06T11:10:00Z by Rio Times Editorial Desk