Chile: Economy contracts at sharpest pace in over a decade in Q4 2019
The economy contracted 2.1% in the fourth quarter of last year, contrasting the third quarter’s 3.4% expansion and marking the worst print since Q2 2009. Mass demonstration and violent riots which began in mid-October ravaged the economy in Q4, precipitating an economic downturn which was widely expected by market analysts. On a quarter-on-quarter basis, the economy contracted 4.1%, after rising 0.8% in Q3. Taking the year as a whole, GDP grew 1.1% in 2019, markedly down from the 4.0% expansion recorded in 2018 and the softest expansion in a decade.
Domestic activity plummeted in the fourth quarter. Household spending contracted 3.8% (Q3: +2.9% year-on-year) on falling consumption for durable goods, non-durable goods and services. Moreover, government consumption sank 7.4%, after rising 2.7% in the previous quarter. On the upside, fixed investment dodged contraction and grew 2.7% (Q3: +5.1% yoy) thanks to resilient construction activity.
On the external front, conditions also deteriorated in the fourth quarter. Exports dropped 3.5% (Q3: +1.3% yoy) amid falling sales of services and mining products. Meanwhile, imports sank 7.5% (Q3: -0.9% yoy) against the backdrop of a plummeting peso and falling demand. Nevertheless, the external sector contribution to overall activity rose from a quarter earlier.
Looking at the industry-level performance, the downturn was similarly broad-based. Mining GDP contracted 2.0% year-on-year in Q4, contrasting a 1.0% expansion in Q3. Furthermore, non-mining GDP fell 2.2% after having grown 3.7% in the previous quarter.
Prospects for this year have deteriorated since the wake of the protests last October and the coronavirus pandemic. While fiscal concessions should buttress private consumption, capital spending is likely to decline on uncertainties surrounding the drafting of the new constitution. Meanwhile, exports are currently expected to rebound, stifled global demand due to the coronavirus pandemic will take its toll.