Forecasts pared down.  The ever gloomier global outlook and the disturbing impact that uncertainty related to the pending labour and fiscal reforms is having on domestic investment activity have prompted panellists to apply yet another cut to their growth forecasts for this year.  Nevertheless, panellists see continuous improvement throughout the year with growth picking up towards the end of the year.  Furthermore, the improved growth trend should carry over into 2002.

Central Bank may cut rates despite inflation spike.  Following a deflationary bout in February, consumer prices increased above average in March.  The 0.48% March price increase was higher than expected, fuelled by higher tuition and other education costs at the beginning of the school year.  Prices for housing, clothing and other key indicators of demand, on the other hand, fell or remained unchanged, providing further evidence of weak consumer demand.  Despite the unexpected jump, annual inflation continued its downward trend in March, reaching 3.5% and trailed core inflation, which dropped to 2.5%.  The reduced growth scenario has prompted further cuts in the Consensus Forecast for inflation, which is now beginning to converge with the Central Bank’s inflation target for the last quarter this year.  Improved inflationary expectations and the sluggish outlook for domestic demand could prompt the Central Bank to apply yet another interest rate cut in its next board meeting on 10 April.  Panellists have again lowered their year-end forecast for the benchmark interest rate.

Peso weakens further.  In March, the Chilean peso continued sliding and reached new historic highs.  The instability generated by Argentina, lower capital inflows and an increased likelihood for further interest rate cuts, have prompted investors to shift towards US$ denominated assets.  Since the end of February, when the currency was at 567 pesos to the US$, the peso has depreciated some 4.8% to reach 596 pesos per US$ on 6 April.  Panellists have adjusted their year-end forecasts to reflect the recent weakness in the currency but are still expecting some appreciation this year with the peso ending this year at 591 to the US$.  In 2002, the Consensus expects a much more moderate depreciation with a year-end exchange rate of 605 pesos per US$.

Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing on Chile.  For more details please click here.

For five-year forecasts, please click here.