Economists assure Chile will enter recession, but how long can it last?

Economic agents in Chile have already assumed that in 2023 the economy will enter a recessionary process, and the question is how long it may last.

For the time being, analysts consulted by Bloomberg Línea agreed that the sectors that may be most affected by this situation are commerce and construction.

In terms of projections, the latest Central Bank Expectations Survey showed that the Gross Domestic Product would fall by 1.4% in 2023.

HOW LONG CAN CHILE’S RECESSION LAST?

“According to our estimates, Chile is already in recession and will continue to contract next year,” Hermann González, macroeconomic coordinator of Clapes UC, told this newspaper. He added:

“The base scenario is that it will be a short-lived recession, but the country will contract between 1.5 and 2% next year”.

For his part, Alejandro Guin-Po, an economist at LarrainVial Asset Management, estimated:

“Understanding a recession as a state in which the economy generally suffers a profound deceleration, it is practically a fact that Chile will experience one in 2023.

“Its duration would be limited to next year, although due to the weakness of the scenario, it could be towards the first part of 2024, depending on the international scenario and what the central bank does regarding monetary policy”.

Guin-Po also pointed out: “Our growth projections for 2023 point to a drop between 1.5 and 2%”.

Meanwhile, Coopeuch’s Research Department indicated that the extension of the recessionary period would depend on several factors:

“To the extent that the next inflation records validate the moderation of the October data, it is more likely that the Central Bank can begin the normalization of the monetary policy in advance, which would contribute to attenuating the fall in activity,” they explained, in the first place.

Even so, Coopeuch clarified that it is essential that “local uncertainty factors provide adequate certainty”.

Finally, they explained that “the external scenario will also be a fundamental element”, in particular, “what happens with inflation in the rest of the world, the outcome of the conflict between Russia and Ukraine, and what happens with the activity in China”.

JOB DESTRUCTION

“The symptoms of this recession will probably be job destruction and weaker activity indicators, but which are nevertheless necessary for inflation to begin to converge,” warned Guin-Pol, in addition to pointing out that “the most affected sectors of the economy will be the most cyclical, mainly associated with construction and trade.”

Hermann González agreed with the latter, stating: “The most affected sectors will be construction and commerce, which are highly labor-intensive”.

The Coopeuch team added: “We believe that the most affected sectors will be construction and real estate, where several companies have already begun filing bankruptcy”.

A report recently published by Grupo Security warns that one of the consequences of the fall in economic activity is a deterioration of the labor market, which has already been evidenced in a stagnation in job creation in recent months, “which would extend until the end of the year and could even exhibit a fall in the coming quarters”.

“In a context of additional normalization of the labor force, would push up the unemployment rate, up to 10%,” the document clarifies.

“A moderation in wages would also be observed, from an average rise of close to 10% this year to 6% in 2023,″ it concludes.

THE GOVERNMENT’S VIEW

Recently, after the publication of the latest Consumer Price Index (CPI) for October, the Minister of Finance, Mario Marcel, argued that the inflation figure, added to the latest growth and unemployment data, reflects that the adjustment of economic activity is occurring and is being less burdensome than some analysts were projecting.

In addition, the minister indicated: “It would be prudent for many to reevaluate their forecasts and the idea, which unfortunately has been taking hold in the country, that an adjustment of tremendous proportions is coming.

“This scenario has nothing to do with the great recessions we have experienced in the past. It is time to look a little more realistically at the effect of monetary and fiscal policy on inflation.

“It is not necessary for the country to enter into a deep recession for inflation to finally moderate for the benefit of all citizens”.

With information from Bloomberg