Signs of a growth slowdown are accumulating.  An unexpected spike in unemployment and a sudden drop in consumer prices have prompted the Central Bank to further ease monetary policy.  Meanwhile the government has announced a debt relief program for small and medium sized enterprises.  However, neither the rate cut nor the government measures are likely to ease the lingering pessimism prevailing among Chilean investors and consumers.   

Economic Briefing March 2001                                                                            Archive

Slowing growth in fourth quarter.  Official GDP numbers for the fourth quarter and the year 2000 were published on 23 March.  The data confirmed preliminary data releases of 4.5% and 5.4% GDP growth in the fourth quarter and the year 2000 respectively.  On first view, the data are in sharp contrast to the negative sentiment prevailing among Chilean businesses and consumers, which would suggest a far lower growth rate in 2000.  A closer look, however, helps explain some of the gloomy atmosphere.  Growth was principally export driven (2000: +7.5%), whereas private consumption expanded by only 4.1% in 2000.  Moreover, growth in consumption dropped off towards the end of the year, as the comparison base to the year before, when the economy was pulling clear from recession, increased.  Investment did not fare much better.  While investment showed increasing growth rates throughout the year, the 4.3% growth registered in 2000 remained significantly below earlier expectations and investment levels in absolute terms were far below the 1997/98 levels.  

Economic growth slows in December.  In December, the monthly indicator for economic activity (IMACEC) increased by an annual rate of 2.4% over the same month 1999.  This was almost half the 4.6% annual growth recorded for November and the slowest pace observed since September 1999, when the economy started to pull clear from a yearlong recession.  Even so the data were slightly above market expectations of only 2.0%, given that economic activity in December suffered from two working days less than in 1999.  According to seasonally adjusted data, the economy expanded by 0.6% over the previous month, which compares favourably to the 0.1% contraction registered in November.  The December reading suggests that GDP expanded by 5.4% in 2000, a notch above the last Consensus Forecast of 5.3%.  Official data for the fourth quarter 2000 and the year will be released on 23 March.   

Industry contracts in January.  More recent data releases indicate that the pace of economic growth is decelerating, as the comparison base last year increases.  In January, industrial activity fell 2.3% compared to January 2000, slipping for the third consecutive month, while industrial sales tumbled 5.2%.  Capital goods production was particularly affected by the slowdown, contracting 21.2%, which indicates that investment activity remains subdued.  Durable consumer goods, on the other hand, managed fairly well, expanding by 9.9% year-over-year.  Non-durable consumer goods production contracted 0.4% and intermediate consumer goods declined 3.3% compared to January 2000.  The modest 4.6% increase in retail sales -- well below the annual average rate of 7.7% for last year  -- was consistent with the declines in production and evidences sluggish consumer demand.   

Unemployment rises again.  The slump in industry and commerce also affected the unemployment rate, one of the key obstacles to a more sustained economic growth recovery and the government’s main concern.  After a significant drop in the unemployment rate from 9.4% in November to 8.3% in December, available jobs fell faster than the number of Chileans abandoning the workforce in January, pushing the unemployment rate up a notch to 8.4%.  The rise in unemployment is particularly disappointing given that it is unusual during the summer season, when tending and harvesting crops drives up labour demand.  However, the slump in industry, mining and commerce offset labour force increases in financial services and construction. 

Inflation drops sharply.  In February, consumer prices declined 0.31% over January, prompting a strong drop in the annual inflation rate from 4.7% in January to the current 3.8%.  The unexpected drop in consumer prices was caused by significant declines in food and housing prices and, to a lesser extent, by lower household equipment and clothing prices.  The price declines were partially countered by higher transport and health sector prices.  Core inflation, which excludes fruits, vegetables and fuels, also dropped significantly from 3.4% in January to 2.7% in February.

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