Chile: Chilean economic growth picks up in Q1 on the back of the external sector
May 18, 2016
The economy of the world’s largest copper producer picked up pace in the first quarter of this year, even though global commodity prices remained fairly subdued. GDP ticked up from Q4’s 1.3% year-on-year expansion to a 2.0% increase in Q1. The result overshot market expectations of a softer acceleration to 1.8% growth. Q1’s modest upturn mainly reflected an improvement in Chile’s external sector. Domestic demand also supported growth, despite having deteriorated somewhat.
In Q1, a turnaround in exports contrasted a deterioration in imports, bringing the external sector’s contribution to overall economic growth to a one-year high. Exports rebounded and recorded the fastest expansion in two years, growing an annual 2.4% in Q1 (Q4: -0.9% year-on-year). Exports of services, particularly tourism, were mainly behind the improvement. Exports of goods also improved, especially due to rising copper and mining exports. While copper prices hit a multi-year low at the beginning of Q1, prices for copper and several other commodities rose at the end of the quarter, providing some support for Chile’s export revenues. In contrast, imports fell deeper intro contraction, dropping 3.0% (Q4: -1.9% yoy). As a result, the external sector’s net contribution to overall economic growth rose from 0.4 percentage points in Q4 to 2.0 percentage points in Q1.
Domestic demand slowed in Q1, but still remained supportive for the economy. The deceleration in domestic demand growth from 1.0% in Q4 to 0.5% in Q1 was driven by a decrease in inventories, while consumption and fixed investment gained momentum. Particularly, private consumption strengthened to a 1.6% increase (Q4: +1.1% yoy) and public spending rose 5.4% (Q4: +4.9% yoy). Moreover, fixed investment rebounded to a 1.2% expansion (Q4: -1.3% yoy).
On a quarter-on-quarter basis, growth accelerated notably from 0.1% in Q4 to 1.3% in Q1, which marked the strongest expansion in 10 quarters. Despite gaining some steam, Chile’s annual expansion in Q1 was still rather moderate compared to the years of the commodities boom. While the economy tallied notable expansions from 2010 to 2013, growth has been broadly hovering around 2.0% since 2014, as the slide in copper prices has been dragging on mining, exports, fixed investment and state revenues.