Chile: GDP growth records slowest increase since Q1 2021 in the fourth quarter
GDP growth moderated to 12.0% year-on-year in the fourth quarter, from 17.2% in the third quarter. On a seasonally-adjusted quarter-on-quarter basis, economic growth also lost steam, cooling to 1.8% in Q4, compared to the previous quarter’s 4.5% expansion. However, some slowdown was always on the cards, after rip-roaring Q3 growth driven by tumbling Covid-19 cases and the rollback of restrictions. Moreover, Q4’s annual growth reading still compared favorably to regional peers, with activity aided by fiscal stimulus and an improving labor market.
The slowdown was driven by weakening growth in private consumption, fixed investment and exports. Household spending growth fell to 16.1% in Q4, marking the weakest expansion since Q1 2021 (Q3: +27.5% yoy). Government spending picked up to an 11.0% increase in Q4 (Q3: +8.7% yoy). Fixed investment growth fell to 19.9% in Q4 (Q3: +29.7% yoy).
Exports of goods and services growth moderated to 0.6% in Q4 (Q3: +1.1% yoy). Conversely, imports of goods and services growth picked up to 38.4% in Q4 (Q3: +37.3% yoy).
Looking forward, a sharp slowdown in momentum is on the cards for 2022. Uncertainty over the outcome of the constitutional process will keep business investment subdued, while higher inflation and tighter financial conditions will cap consumer spending. Moreover, last year’s fiscal impulse will wane notably. This is despite the government’s announcement in April of a USD 3.7 billion “Inclusive Recovery Plan”, which includes the extension of some fiscal benefits and measures to palliate the rise in international energy prices. The finance minister commented that he does not expect the fiscal balance to be affected by the plan, as funding will come from the reallocation of funds from other parts of the budget, leftover resources from the previous year, and multilateral loans.
On the longer-term outlook, analysts at the EIU commented:
“Although we assume that macroeconomic policy will remain prudent for now, the new constitution is likely to include reforms that will weigh on the business environment. In this context, gross fixed investment will decrease to an average of 2.3% in 2023-26 (below pre-pandemic levels). Overall, real GDP growth will moderate to an average of 2.1% in 2023-26, which is low by Chile’s standards.”