Business & Economy

Chilean economy starting to cool down, grew less than expected in January

Santiago, Mar 1 (EFE).- After setting a growth record in 2021, the Chilean economy is starting to give signals that it is cooling down, expanding in January less than expected and posting its second consecutive month-on-month decline, the Central Bank announced on Tuesday.

The Monthly Indicator of Economic Activity (Imacec), the index that covers 91 percent of the goods and services in Chile’s GDP, in January registered its first month-on-month decline – of 1 percent – although growth during the month was 9 percent compared with the same period last year.

This is the second consecutive monthly decline after the 0.4 percent drop in December and the lowest year-on-year growth figure for the past 10 months, a situation that experts say is evidence of a slowing of the country’s economic recovery.

The market had expected a year-on-year growth rate of 10.7 percent for January and, for the first time since March 2021, the Imacec did not expand by double digits.

The index for January “is still historically high, but gradually it has been showing moderation,” Chilean Financa Minister Rodrigo Cerda said.

“Going forward, what we’re doing is converging to sustainable growth rates. That convergence, which is coming rapidly, also allows us to think about having inflation rates that are lower,” Cerda added.

According to the Central Bank, the January figure can be explained “by the increase in service and trade activities, an effect that was partially compensated for by the fall in the production of goods, in particular mining.”

“The result for the month continues to have a bearing on the … opening of the economy, the measures of support for homes and the partial withdrawals from pension funds,” which were approved so that the public could deal with the pandemic and already amount to more than $50 billion, the Central Bank added.

The production of goods declines in the first month of the year to 2.6 percent on an interannual basis and 2.4 percent month on month due to the fall in mining (minus 6 percent), an industry that represents about 10 percent of the GDP and which was key for the recovery during the start of the health crisis.

Trade activity, meanwhile, increased by 8.4 percent with respect to the same month last year “thanks so sales of vehicles, spare parts and retail sales of clothing, footwear and domestic appliances,” although in seasonally adjusted terms it decreased by 3.2 percent compared to the prior month.

The service area grew by 17 percent year on year and 1.3 percent compared with the previous month, mainly due to “personal services, in particular healthcare, followed by business (services) and, to a lesser degree, transportation and restaurants and hotels,” the Central Bank said.

Despite the fact that the pandemic caused a plunge in Chile’s GDP of 5.8 percent in 2020 – the largest decline in four decades – the recovery has been more rapid than expected and the economy grew by about 12 percent in 2021.

The bank, however, expects economic growth of between 1.5 percent and 2.5 percent this year, but only as much as 1 percent for 2023.

Economic activity in the world’s biggest copper producer has been favored by high prices for the metal, but also by the government aid to families and the partial withdrawal of social security funds, as approved by the government to alleviate the crisis.

The recovery, however, is causing unusually high inflation, which finished 2021 at 7.2 percent, its highest level in 14 years, and which led the bank to raise the benchmark interest rate to 5.5 percent, its highest level since 2011.

“Local political stability and responsibility in the constitutional debate are more relevant than ever, now that the Russia-Ukraine crisis will reduce external (economic) momentum and has raised the price of energy and food,” Economy Minister Lucas Palacios said on his Twitter account.

EFE mmm/pnm/eat/bp

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