Investment in Chile

Chile - Investment

Pace of economic contraction softens in Q3, on easing Covid-19 measures

GDP contracted 9.1% year-on-year in the third quarter, softening from the record 14.5% dive recorded in the second quarter, amid the easing of some Covid-19 restrictions.

Nevertheless, the contraction reflected the ongoing impact of the Covid-19 pandemic on both domestic and external activity. Private consumption shrank 8.8% year-on-year in Q3, a milder contraction than Q2’s 22.2% plunge, amid recovering yet still-downbeat consumer sentiment and a slight decline in the unemployment rate. Moreover, the contraction in public spending softened from 13.3% in Q2 to 3.7% in Q3, while fixed investment contracted a sizable 18.5% in Q3 (Q2. -20.9% yoy), due to uncertainty associated with both the pandemic and the outcome of the constitutional referendum on 25 October.

On the external front, exports of goods and services dived 7.2% in Q3, contrasting Q2’s 1.9% expansion, amid still-muted global demand and disrupted supply chains. Meanwhile, imports of goods and services declined at a milder yet still significant pace of 15.0% in Q3 (Q2: -20.9% yoy) due to a less pronounced contraction in domestic demand.

On a quarterly basis, economic activity rebounded 5.2% in Q3, contrasting the previous quarter's 13.5% plunge.

The economy is seen contracting at a marked pace this year, before rebounding in 2021. A sizable recovery in domestic demand, helped by supportive fiscal and monetary policy measures and the gradual reopening of the global economy, will underpin growth. That said, political uncertainty and possible further waves of the virus cloud the outlook.

FocusEconomics panelists see GDP growing 4.9% in 2021, which is up 0.1 percentage points from last month’s forecast. In 2022, GDP is seen expanding 3.4%.