Investment activity is slowing down as the business community awaits the implementation of fiscal and labour reforms, while consumption continues to suffer from stubbornly high unemployment.  Meanwhile, the ailing global economy is lowering demand for Chilean exports, stalling last year’s growth engine and adding to a more subdued outlook.

Economic Briefing April 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.

Primary sectors lead growth.  The modest recovery in consumption and investment is also reflected in sectoral GDP data.  While primary sectors fared well amid favourable climatic conditions, growth in the manufacturing industry dropped off significantly after a strong first half and barely finished in positive territory in the fourth quarter (+0.6%).  The construction industry, on the other hand, profited from public sector contracts and showed continuous improvement throughout the year.  The zero growth registered in 2000, represents a strong improvement when compared to the double-digit contraction experienced in 1999.  Transport and communications also suffered a slowdown in growth but remained at a very healthy 7.4% expansion in the fourth quarter (2000: +9.5%).  As expected, growth in the electricity and gas sector dropped off from the double-digit rates in the first three quarters to a 7.7% expansion in the fourth quarter, as the statistical effects resulting from the drought-induced electricity shortages in 1999 subsided.  Financial services experienced a minor slowdown, expanding 4.5% in the fourth quarter (2000: +4.8%). 

Slowdown in growth continues.  More recent data indicate that the trend to slower growth is persisting this year.  In January, the monthly indicator for economic activity (IMACEC) increased at an annual rate of 3.6% over the same month in 2000.  While this represents an improvement over the 2.4% year-over-year growth registered in December, it should be noted that the December data suffered from two working days less compared to the same period the year before, whereas January profited from one extra working day.  According to seasonally adjusted data, economic activity contracted 1.3% over December 2000.  This was the highest monthly contraction since July 1999, when the economy was at the peak of the recession.  In February, industrial production declined 0.2% over the same month in 2000, bringing the moving annual average variation down to 2.6%, the lowest rate since October 2000.  Unemployment remained unchanged at 8.4% in February.  Moreover, the number of employed fell further in February compared to the same period last year and the downward trend in supermarket sales persists, hinting towards a further consumption slowdown.

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