Chile: Economy returns to growth in Q1, boosted by strong domestic demand
May 19, 2021
GDP expanded 0.3% year-on-year in the first quarter of this year, improving from the flat reading recorded in the fourth quarter of 2020, as domestic demand benefited from robust monetary and fiscal stimulus measures.
Private consumption grew 4.9% year-on-year in Q1, following Q4’s 4.1% expansion, amid a lower unemployment rate and as the government allowed early pension fund withdrawals. Moreover, fixed investment rebounded and expanded 0.7% in Q1 (Q4 2020: -8.9% yoy), mainly thanks to higher investment in machinery and equipment, amid recovering business confidence and supportive government policies. Meanwhile, public spending expanded 3.1% in Q1, moderating slightly from the 3.5% increase recorded in Q4 2020.
On the external front, exports of goods and services fell 5.1% in Q1, following Q4 2020’s softer 1.0% contraction, amid lower foreign sales of copper and services. Meanwhile, imports of goods and services jumped 17.0% in Q1 (Q4 2020: -5.9% yoy), mainly on the back of rising purchases of machinery and equipment for both investment and consumption.
On a quarterly basis, economic activity expanded a healthy 3.2% in Q1, following the previous quarter's 6.4% surge.
GDP should bounce back robustly this year, supported by the gradual easing of restrictions domestically and abroad, and accommodative fiscal and monetary policies. That said, external risks associated with the evolution of the pandemic, as well as domestic risks stemming from the constitutional process and November’s general elections, cloud the outlook.