Chile: Chile’s economy expands at a five-year high rate in Q1
Chile’s economy kicked off the year on particularly strong footing, with GDP growing 4.2% year-on-year in the first quarter (Q4: +3.3% year-on-year), comfortably overshooting market expectations. The economy seems to have settled in a rapid and sustained recovery mode in recent months since picking up pace in the third quarter of last year, and the first quarter’s reading marked the strongest annual growth rate since Q1 2013. Nevertheless, as the economy’s poor performance in the first two quarters of 2017 weighed significantly on the overall result, GDP expanded a meager 1.5% in 2017.
According to data released by the Central Bank, the domestic sector continued to support economic activity growth at the beginning of the year: Domestic demand rose 3.8% in Q1, slightly down from the previous quarter’s 4.0%. Fixed investment jumped for the second month in a row (Q1: +3.6% yoy; Q4: +2.7% yoy), having rebounded at the end of last year after five consecutive quarters of contractions, led by a return to growth in construction investment and a healthy expansion in equipment and machinery investment. Furthermore, private consumption growth accelerated to the fastest pace in four years (Q1: +3.9% yoy; Q4: +3.0% yoy), with much-improved consumer confidence fueling household consumption. In contrast, government consumption growth moderated for the fourth consecutive month in Q1, from 3.4% in Q4 to 2.7%.
The external sector saw growth in exports surge to the highest rate in over four years (Q1: +7.2% yoy; Q4 +2.5% yoy). As a result, the sector added 0.4 percentage points to GDP growth in Q1 (Q4: minus 0.8 percentage points), as imports grew slightly more modestly (Q1: +6.1% yoy; Q4: +5.2% yoy). Looking at the industry-level performance, the robust expansion in the first quarter came on the back of the burgeoning mining sector; mining GDP surged 19.3% annually in Q1 (Q4: +6.8% yoy), comfortably outpacing 3.1% growth (Q4: +2.9% yoy) in non-mining GDP.
Looking ahead, growth will remain robust in the coming quarters but is likely to decelerate in the second half of the year as favorable base effects start to fade off. Nevertheless, the expansion in 2018 overall is projected to be significantly higher than in 2017, amid improved business and consumer sentiment that will spur private consumption and fixed investment growth. A favorable domestic monetary policy climate, an accelerating regional economic recovery, and a strengthening mining sector should further buttress growth this year.