For Fitch, political uncertainty in Chile would slow down investments in 2023

Chile is currently going through a moment of economic contraction and political polarization, which places a question mark on the situation of the companies that operate in the country.

In this context, the US risk rating agency Fitch pointed out in a report for its clients that “Chilean companies are dealing with a macroeconomic environment that is rapidly deteriorating and is expected to bottom out in 2023.”

However, the North American firm expects that the companies’ ability to anticipate and their financial discipline strategy “will reasonably cover the vast majority of the portfolio classified by Fitch.”

According to Rina Jarufe, senior director, the performance of the Chilean corporate sector in 2023 will be marked by the domestic macroeconomic deterioration and by a very complex international scenario. “To this is added a political environment in Chile that remains uncertain, which slows down long-term investment decisions by the business sector, a situation that would continue through 2023.”

COMPLICATED INTERNATIONAL ENVIRONMENT

In the international environment, Fitch stresses, the evolution of the conflict between Russia and Ukraine may be decisive for many sectors, while the volatilities in demand from China would be relevant for the performance of the export sector and for the supply chain of inputs for a large part of the industries.

Commodity prices are projected to decline from their peak in mid-2022, but still at medium levels. This, together with a strong US dollar, would limit the decline in profitability in the export sector.

The mining sector remains dynamic, which would be relevant in the operational performance of suppliers of products and services to the mining sector.

The retail and beverage sectors are expected to experience a drop in domestic demand.

Likewise, the telecommunications and food and beverage sectors, although they are more resistant to recessions, will also feel the drop in consumption.

COMPANIES RATED BY FITCH IN CHILE

The Chilean portfolio of 68 non-financial corporates rated by Fitch presents a net balance of negative outlooks at -5, which would anticipate that the negative rating actions in 2023 would outweigh the positive ones.

Of the total portfolio, 35 are classified on the national scale and eight are classified on the international scale, while 25 are classified on both scales. As of December 15, 2022, 82% of the portfolio has a Stable Outlook, 12% (eight companies) have a Negative Outlook, 4% (three companies) have a Positive Outlook, and another 2% have no Outlook because they are in the bottom of the scale.

With information from Bloomberg