Chile: Positive prospects for 2001.  Although unemployment finally is on a downward path, recuperation in consumption remains sketchy and erratic.  Meanwhile, the recovery in investment activities indicate that the Chilean economy may have to adapt to a lower potential growth rate than last decade’s record 7%.  Nevertheless, in 2001 Chile will be the fastest growing economy in Latin America.

Industrial production weakens in November.  Industrial production lost steam right after registering more healthy growth rates in October, which had promised brighter prospects for the remainder of 2000.  According to the National Statistical Institute (INE), November industrial production contracted 0.8% compared to the same month in 1999.  INE claims that the dismal November reading was the result of a higher comparison base in November 1999, when year-2000 related spending boosted industrial production.  However, November 1999 also marked the end of a recession and higher growth rates persisted thereafter.  As a consequence, a repeat of last year, when industrial production growth rates between January and November expanded by 5.0% compared to the same period in 1999, will become ever more difficult.  In December, industrial production data should come in weaker since business worked three days less compared to December 1999.  Nevertheless, panellists have maintained their forecasts for 2000 and 2001.

November unemployment drops.  In the moving quarter up to November 2000, unemployment dropped to 9.4% from 10.0% the month before.  Compared to the same period in 1999, unemployment also dropped by 0.6 percentage points.  While the observed decline in unemployment was hailed by the government as auspicious, a closer look does not corroborate the government’s optimism.  First, the drop was in part due to seasonal factors as commerce prepared for the holiday season.  Second, the number of the employed actually fell by 1.2% over the same period in 1999 as municipal employment programs expired.  Thus, the drop in the number of unemployed over the same period in 1999 was actually only 0.4 percentage points.  Furthermore, November supermarket sales advanced 8.2% in real terms over November 1999 but registered a decline of 3.2% over the previous month, indicating that domestic demand is weaker than expected by most analysts.

The disappointing data releases in November economic activity do not bode well for continued strong growth in the fourth quarter, despite healthy growth in October.  In October, the monthly indicator for economic activity (IMACEC) increased by 5.8% compared to the same month last year.  This was well above the 3.9% annual growth registered in September, when GDP expansion showed a dimple owing to three working days less than in September 1999.  According to seasonally adjusted data, GDP expanded by only 0.3% in October compared to 1.0% growth the month before.  Panellists believe economic growth to have receded somewhat from the growth registered in the third quarter last year compared to the fourth quarter of 2000.  However, for the first quarter 2001, the panel maintains a more optimistic forecast.

December inflation in check.  In December, consumer prices were up 0.11%, the lowest monthly increase registered in 2000.  The subdued increase in consumer prices was prompted by declining food and clothing prices, which were offset by higher prices in housing and health.  As a consequence of the relative price stability exhibited in December, the annual inflation rate dropped for the first time this year, marking 4.5% in December down from 4.7% in November, precisely in line with the Consensus and the latest Central Bank inflation target of 4.6% for the fourth quarter.  The favourable December reading was also supported by a drop in fuel prices (-0.5% over November 2000).  Underlying inflation, which excludes fuels and fresh fruits, increased by 0.4% in December, taking the annual rate to 3.4% from 3.3% registered in November, just below the Central Bank’s target of 3.5% for the last quarter in 2000.  For 2001, panellists expect inflation to moderate further assisted by declining oil prices.  The Consensus figure is above the Central Bank’s objective to reduce inflation to 3.4% by the third quarter 2001.  The Central Bank’s 2002 target of 2.8% (IPC; Underlying inflation: 3.1%) is also perceived as too ambitious by panellists.

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