Chile Economic Forecast

The economy contracted 0.3% on a seasonally adjusted quarter-on-quarter basis in Q2, contrasting Q1’s expansion but half the fall anticipated by monthly economic activity data. Government spending and exports declined, which more than offset a rebound in fixed investment and private consumption flatlining—the best performance in five quarters. GDP should grow in quarter-on-quarter and annual terms in Q3, on declining inflation and interest rate cuts by the Central Bank. Early signs are positive: In July, month-on-month economic activity grew further, while business sentiment rose to an 11-month high in August. Recent intense rains should be boosting hydroelectric output and alleviating the water shortage that has held back the mining sector. However, agricultural output has been hit; the government estimates that the rains in late August alone caused crop damages worth USD 1 billion.

Inflation came in at 6.5% in July (June: 7.6%), the lowest rate since October 2021 but still more than double the Central Bank’s 3.0% target. Inflation should fall further later this year but will remain above the Bank’s target amid monetary easing, recent peso weakening and an uptick in oil prices. Inflation is only expected to fall close to target towards end-2024.