Chile: Economy suffers a sharp slowdown in Q4
March 28, 2017
Chile’s economy stuttered in the final quarter of last year, weighed down by pessimistic business and consumer sentiment, a poor performance from the mining sector and a sharp fall in fixed investment. GDP grew a mere 0.5% in Q4 compared to the same quarter of the previous year, far below Q3’s revised 1.8% (previously reported: +1.6% year-on-year). As a result, growth for last year as a whole was the slowest since the global financial crisis in 2009, coming in at 1.6%. Chile’s economy has been cooling rapidly in recent years, largely as a result of a fall in copper prices and uncertainty over the government’s reform agenda.
In Q4, growth was dragged down by a sharp fall in fixed investment (Q4: -5.0% yoy; Q3: -2.4% yoy), with firms investing less in both construction and machinery. The fall in investment came despite loose monetary conditions and easy access to credit, and reflected firms’ lack of confidence in the economy, with the business confidence indicator remaining mired in negative territory throughout the final quarter of 2016. Government spending growth also declined in the period (Q4: +1.7% yoy; Q3: +7.1% yoy). On a more positive note, private consumption recorded a healthy expansion and continued to prop up the overall growth rate, aided by dropping unemployment and falling inflation boosting consumers’ purchasing power (Q4: +2.4% yoy; Q3: +2.3% yoy).
On the external side of the economy, exports dipped 2.0% in Q4, contrasting Q3’s 0.1% rise. The fall was driven by lower copper exports as a result of unfavorable weather and maintenance work at mines. Over the same period, import growth was flat (Q3: minus 2.0% yoy). As a result, the external sector’s net contribution to growth swung from plus 0.7 percentage points in Q3 to minus 0.6 percentage points in Q4.
Looking ahead, the first quarter of 2017 is unlikely to see a strong uptick in growth, as industrial action at the Escondida mine will weigh heavily on economic activity. However, over 2017 as a whole the economy should feel the benefits from higher copper prices and stronger regional growth. However, depressed confidence levels will continue to dampen the economic expansion.
All data from Q1 2014 onwards is calculated using the 2013 base year. Quarterly data for 2013 is calculated using the 2008 base year.
Author: Oliver Reynolds, Economist