Investment in Chile

Chile - Investment

GDP contracts at record pace in Q2, ravaged by Covid-19

GDP contracted 14.1% year-on-year in the second quarter, contrasting the 0.2% expansion recorded in the first quarter and marking the worst reading on record as the Covid-19 pandemic battered the economy.

The downturn reflected the impact of coronavirus containment measures on domestic activity. Private consumption nosedived 22.4% year-on-year in Q2, a steeper contraction than Q1’s 2.1%, amid downbeat consumer sentiment and a rising unemployment rate. Moreover, public spending plunged 11.5% in the same period, following Q1’s 1.3% fall, while fixed investment contracted 15.1% in Q2, marking the worst result since Q3 2009 and contrasting Q1’s 0.5% rise.

On the external front, exports of goods and services dived 2.8% in Q2, contrasting Q1’s 1.0% expansion amid crippled global demand and disrupted supply chains. In addition, imports of goods and services declined at a steeper pace of 21.4% in Q2 (Q1: -9.4% yoy).

On a quarterly basis, economic activity contracted 13.2% in Q2, contrasting the previous quarter's 3.0% expansion.

Looking ahead, the global lockdown and elevated uncertainty will continue to wreak havoc on the economy this year, hitting global demand for commodities and hammering domestic activity amid rising jobless numbers. Moreover, a constitutional vote scheduled to be held in October adds further uncertainty to the outlook. Nevertheless, a robust fiscal response should soften the economic blow somewhat.

Commenting on the outlook for the Chilean economy, Paulo Mateus, senior economist at Goldman Sachs, noted:

“Despite the record contraction, real GDP declined by less than we had anticipated a few months ago, largely supported by the resilience in the mining/exporting sector. Coupled with the expected boost to private consumption from the pension fund withdrawal bill, which will lead to additional household income of around 6% of GDP during 3Q2020, we expect real GDP to contract around 5.5-6.0% in 2020.”

FocusEconomics panelists see the economy contracting 6.1% in 2020, which is down 0.1 percentage points from last month’s forecast. For 2021, they project the economy to grow 4.9%.