Chile’s 2023 Economy May Contract 0.3%: Central Bank

Chile’s Central Bank announced a likely 0.3% economic drop by the end of 2023. A September survey shows experts foresee a 2% growth in 2024.

Analysts predict a slight 0.3% rise this quarter. They expect the inflation rate to be 0.5% for this and the next month.

By the end of 2023, consumer prices may rise by 4%. This fits the bank’s 2024 target of 3% as inflation slows down.

The bank plans to lower its key interest rate to 7% in five months from today’s 9.5%.

Earlier this month, the rate was cut by 75 basis points to 9.5%. This decision aligns with global trends.

It was the first cut since freezing the rate at 11.25% last December. That freeze followed 11 rate hikes meant to tackle high prices during a global economic slump.

Inflation in Chile hit 12.8% in 2022, a level not seen for decades.

Background

The predicted 0.3% economic drop comes after a year of turbulent events for Chile.

The country faced social unrest, a pandemic, and fluctuating copper prices, its main export. In 2020, the economy shrunk by 5.8%, its worst performance in decades.

However, a 6.3% rebound occurred in 2021, fueled by copper exports and eased COVID-19 restrictions.

Interest rate hikes, initially seen as necessary, began to stifle growth. Hence, the bank’s reversal of interest rates aims to stimulate economic activity.

Chile’s high 2022 inflation was mainly due to global supply chain issues and rising energy costs.

Now, with inflation cooling globally, the bank sees a window to guide rates lower and stabilize the economy.