Chilean Economy in Focus: Interview with Senior Economist of the Chamber of Commerce of Santiago
Chile's economy has slowed in recent quarters, as the once booming mining sector has performed poorly and fixed investment has fallen sharply, taking business and consumer confidence with it. These issues continue to plague the economy as we move into Q3, with that in mind FocusEconomics Economist Oliver Reynolds interviewed Senior Economist for the Chamber of Commerce of Santiago, Maria del Pilar Cruz, about the potential future of the all-important mining sector as well as future economic growth prospects, President Bachelet's reforms, and inequality in Chile.
María del Pilar Cruz Novoa is a Commercial Engineer at the University of Chile and currently serves as senior economist at the Chamber of Commerce of Santiago (CCS). She has a long history in the field of economic analysis, economic research and economic evaluation and in the evaluation of industries. Co-responsible for the economic analysis proposed in the matter of agendas of public policies for development and the generation of economic opinion guidelines of the CCS. She was awarded in 2016 and in 2017 with FocusEconomics' Top Analyst Forecast Award for the most accurate economic projections for Chile.
FE: How do you consider the prospects for Chile’s vital mining sector over the next few years, will it recover any of its former dynamism?
MPC: The boom of the copper super cycle in Chile was strongly related to the extraordinary increase in copper prices by a ratio of 1 to 4 in a span of just a few years. The economy made great efforts in terms of allocating much of its productive resources to the sector to take advantage of the exorbitant prices. This resulted in a significant depletion of ore grades, a decline in productivity in the sector, and only moderate increases in production.
The development of the mining sector in the coming years will be less concerned with price and more with an orderly expansion of output with improvements made to production and cost alignment. This will undoubtedly require investment in new technology and greater mineral prospecting with a goal of improving productivity. In this sense, the mining sector will continue to be of great economic importance, however, there will be less focus placed on price cycle fluctuations and more toward regaining productivity and competitiveness.
FE: What would the country have to do to boost its GDP potential growth rate, and what are the main things the new government, which will be elected at the end of 2017, could do in this regard?
MPC: The long-term growth of the Chilean economy is currently sitting between 3.2% and 3.4%, which is significantly lower than the country's growth rate of 5.5% between 1985 and 2012. At present, the economy is growing at a much slower rate and 2017 will likely end with an expansion of around 1.5%.
In the immediate future, there are specific areas that require attention, such as improving confidence and reinitiating investment projects that are currently at a standstill.
However, the most complex task of invigorating our development potential is one for the next Government. I’ve identify five central points of action in that regard:
1. Raise productivity considering the main competitive advantages of the country
2. Strengthen the fragile cycle of physical capital formation
3. Improve the quality of education and training of the labor force
4. Increase participation in global value chains
5. Foster innovation in Chile with new public policies
Addressing each one of the aspects above is highly complex because it not only requires an accord between political, economic and social forces, but also the formation of a global development strategy for the next few decades, which would require significant technological, demographic and migratory changes. This is still a topic of debate at the country level, but we believe that this strategic plan of action should go a long way to developing a service-based economy, strongly integrated with international trade.
FE: How do you evaluate the effectiveness of Bachelet’s reforms, particularly the reform of the education system to widen access and move towards free higher education, and the tax reform?
MPC: It is too soon to evaluate the success or otherwise of Bachelet’s main reforms (tax, labor market and education) a mere two years after most of them were implemented. Nevertheless, the regulatory change which has characterized the government’s time in office has generated more uncertainty for businesses.
In any case, all signs suggest that in the coming years the jury will still be out regarding the effects of the reforms currently in the pipeline (chiefly the constitutional reform and pension reform) as well as those already implemented. It may be necessary to simplify the tax reform in order to improve tax collection without raising rates, and the country must shrink the fiscal deficit which has risen as a result of the slowdown in GDP growth and the end of the commodity super cycle; if not, it will run the risk of seeing its top-notch credit ratings downgraded. The need to balance the books made it expedient to pause the move towards free universal education, in order to evaluate the changes made to date.
The effectiveness of the labor market reform, which centered on the role of unions, cannot yet be determined, as the new law only came into force in April 2017.
FE: Chile is still the country with the highest level of income inequality in the OECD. What more could be done to reduce the level of inequality?
MPC: Although by OECD standards Chile is still a highly unequal country, evidence shows that recent years have seen sustained and significant progress in this area. The Gini coefficient has fallen by more than seven points in the last 15 years, and by almost four points in the last 10. Moreover, the generation born in the 1990s has seen a 20-point improvement relative to the generation born three decades earlier. These advances have gone hand in hand with sustained falls in poverty and extreme poverty, with Chile boasting the lowest levels of each measure in Latin America. The country is also the region’s highest-ranked country in the United Nations’ Human Development Index (HDI). Economic, political and social discussions have become increasingly centered on the topic of inequality, although the advances made in recent times are often overlooked.
Despite these achievements, Chile still has a long road ahead, and the country faces issues of not only an economic, but also a social, urban and educational nature. Access to education at all levels must be widened further. Although this has been an important factor behind recent falls in inequality, going forward the education system must adapt to deep, fast-paced technological advances and become more quality-oriented. Curriculums must change to reflect the key role of innovation, entrepreneurship and cultural exchanges with other regions of the world. Failure to modernize the education system in this regard is a surefire way to undo the progress of recent decades. Far-reaching technological changes, automatization and advances in robotics could have unsuspected consequences for the distribution of the wealth of future generations.
There are still significant aspects of the labor market which need to be modernized. Women and young people suffer most from poverty, increasing overall inequality. It is vital to increase the female labor market participation rate, which is currently around 45%, 20 percentage points lower than it is for men, and to close the wage gap between men and women (currently around 30%). The labor market insertion of women would be boosted by increasing the number of day-care centers, nurseries and homes for elderly people, in order to loosen the binds which keep women at home. Focusing on improving job opportunities for women could generate a virtuous circle to tackle inequality and poverty, with greater household income leading to increased savings and improved health outcomes.
Chile Economic Outlook from FocusEconomics
The economy should expand only moderately this year due to continuing subdued consumer and business confidence. However, we do expect higher copper prices and a healthier regional scenario to support growth with looser monetary policy also lending support to ailing investment. FocusEconomics Consensus Forecast panelists see Chile’s economy expanding 1.6% this year and 2.6% for 2018.
If you'd like more Consensus Forecasts and written analysis from FocusEconomics, download a free sample of one of our FocusEconomics Consensus Forecast reports by clicking on the button below.
5-year economic forecasts on 30+ economic indicators for 127 countries & 33 commodities.
Date: July 5, 2017
TagsEuropean Union Oil UK OPEC Trade Eastern Europe South Africa United Kingdom G7 Economic Growth (GDP) Africa Agricultural Commodities Industrial Metals Commodities Unemployment rate MENA Major Economies Emerging Markets India Turkey Mexico Precious Metals Commodities Canada Fed Italy Consensus Forecast Brexit Asia Ukraine Latin America Euro Area NAFTA precious metals Euro Area Company News Sub-Saharan Africa Investment Latin America USA Iran Exchange Rate Housing Market Argentina France Australia Forex Portugal Vietnam Colombia IMF Japan Brazil Banking Sector Germany Venezuela Panelists Nordic Economies Base Metals Commodities Inflation oil prices Gold Energy Commodities Commodities Tunisia Russia Infographic Spain Greece China NAFTA
BLOG POST: The beginning of the end for Bitcoin? Economist Christopher Thomas explains what’s behind the recent fal… https://t.co/TvwSOmpfDa
2 hours ago
[FocusEconomics Blog Update] Risks and Opportunities for 2018 - https://t.co/Ub0RviYhFj
7 hours ago
16 hours ago
21 hours ago
22 hours ago
- Increasing poverty in Latin America takes a breather thanks to improving economic dynamics
- What will be the most miserable economies in 2018?
- The World's Top 10 Largest Economies
- Is Spain doing enough to address its high youth unemployment rate?
- Has Latin America gone far enough in reducing barriers to international trade?
- Commodities Outlook: Oil, Natural Gas, Coal, Lead & Tin
- 21 experts tell us what the future looks like for cryptocurrencies and blockchain
- Turkish lira plummets to all-time low on Erdogan’s monetary feud and tense U.S.-Turkey relations
- Copper: The first metal mastered by man
- The Mercosur-EU Free Trade Agreement: Obstacles & Opportunities
- Nigerian Economy Still Treading Water Thanks to Oil Sector
- Elections in Chile: What the results could mean for the economy
- QE’s Untold Story: A Chart That Fed Correspondents Need To Investigate
- Holland’s fragile one-seat majority government targets economic growth at the expense of fiscal sustainability
- South Africa: Economy at a tipping point?
- Latin American Commodities: What’s behind the increase in demand and prices?
- Is the UK really "shackled to a corpse"?
- Spain-Catalonia: 7 economic experts weigh in on how the situation will affect the outlook
- How well is Spain's labor market doing since the crisis?
- Which countries will have the highest and lowest inflation in 2017?
- How vulnerable is Latin America to economic crises today?
- Iron ore facts and common questions answered
- The bulging economic costs of obesity
- How much investment is needed to salvage Latin America’s crumbling infrastructure?
- A Look at the Potential Impact of Brexit on the Dutch Economy
- Emerging Markets Are Kicking Into Higher Gear In 2017
- Why is foreign direct investment in Latin America falling again?
- Are Central Banks Nationalising the Economy?
- Bounty or burden? The impact of refugees on European economies is far from clear
- What’s the future of U.S.-Latin America trade relations?
- Taxes or cutbacks? Latin America's challenge of sustaining spending without causing debt to skyrocket
- Are uranium prices making a comeback?
- Taxing the Economy: Achieving a Delicate Balance
- How will Latin America’s upcoming lengthy election cycle affect the reform agenda and credit ratings?
- How will emerging market economies perform in 2017?
- Chilean Economy in Focus: Interview with Senior Economist of the Chamber of Commerce of Santiago
- CEOs Rank Top Economies for Growth Opportunities
- The Mobile Ecosystem & Latin America's Economy
- Prospects and Challenges for the Global Economy: Interview with Tim Cooper from BMI Research
- How will the Fed reduce its balance sheet & and how will the ECB end QE? - 19 economic experts weigh in
- Thoughts on "unwinding" QE from Frances Coppola
- Gold: The Most Precious of Metals (Part 3)
- The Fed and ECB at a crossroads: Unwinding QE
- Spain: The economy that continues to silence the critics
- Latin America: The Most Unequal Region in the World
- The History of OPEC: Has it been a Success?
- FocusEconomics Announces 2017 Analyst Forecast Awards Winners
- Latin America’s rising unemployment bucks nearly decade long trend
- Escape from the Central Bank Trap by Daniel Lacalle
- China's economic rebalancing act: What to look out for in 2017
- Driving Growth in Latin America: Challenges & Priorities
- Is the Global Economy Rebalancing?
- Commodity exporters face challenging times
- Recent Global Events Facilitate Mercosur-Pacific Alliance
- 23 economic experts weigh in: Why is productivity growth so low?
- Mexico's outlook as Trump nears 100-day mark
- Interview with Oxford Economics Senior Economist on implications of the possible outcomes of the French Presidential Election
- The anxiety of the small saver in a world of negative interest rates
- Brexit negotiations. Between Uncertainty and Urgency
- An Economic History of the EU from El Blog Salmón
- Baby Boomin': Implications of high population growth in Latin America
- Survey of International Economists Predicts a Le Pen Defeat in French Elections, Says Macron has Best Economic Plan
- Spain in a global context: developed economy with some challenges
- How much is crime costing Latin America?
- Predictions & Estimates from Economist Daniel Lacalle
- What economy will the new Dutch government inherit?
- “The data is not a true reflection of reality in India” Interview with Société Générale India Economist
- 2017 & 2018 Economic Outlook for the Top Oil Producing Countries
- What are the prospects for Emerging Economies in 2017?
- What to expect in Asia for 2017
- Top Economics & Finance Blogs of 2017
- 4 Key European Elections That Will Impact the Economy in 2017
- Latam to Resume Moderate Growth in 2017 but Important Risks Plague Outlook
- How are security concerns and political chaos affecting Turkey’s economy?
- Global growth to edge up in 2017
- Set to breach targets again? Debt and deficit outlooks for Southern European Eurozone countries in 2016 & 2017
- What does Donald Trump mean for the U.S. economy?
- How will emerging markets perform in 2017?
- The economic impact of a break in U.S.-Philippines ties
- Trump election: Base metals surge due to infrastructure plan
- 5 updates on the Venezuelan economic crisis
- Canada: When your neighbor’s house is on fire…
- Short-term pain before long-term gain? A look at French labor reform and economic growth
- Asia: Unremarkable growth & unfulfilled promises?
- How India's latest monsoon is affecting the economy
- Innovation in Latin America: Potential Goes Untapped Due to Weak Economic Conditions
- Russian economy update in wake of OPEC deal announcement
- The Wisdom of the Crowds and the Consensus Forecast
- Can the peso predict the U.S. election results?
- There's no end in sight to the Venezuela crisis
- A Look at the European Union Political Calendar
- Survey of international economists shows uncertainty surrounding elections damaging U.S. growth prospects
- FocusEconomics partners with leading online statistics provider Statista
- China: Recent postive economic data may be papering over the cracks
- Sub-Saharan Africa's 2016 & 2017 growth rates
- The Italian Dilemma: Weak banks pose risk to already faltering domestic demand
- How much money do migrants from Latin America send home?
- The U.S.' (Not So) Mysterious Case of the Missing Men
- What to expect from the G20 economies by 2020
- The Pain in Spain: Robust GDP growth cannot mask the persistent structural deficit