While Chile’s exposure to the United States is limited, the domestic economic activity will nevertheless feel a significant blow owing to the high degree of openness of the economy, as the shockwaves of the attacks spread through the global economy.  As a result, demand for Chilean products will drop and the price for copper, the country’s main export commodity, will remain under pressure.

Economic Briefing October 2001                                                                        Archive

July growth data disappointing
After a brief respite in June, the Chilean economy again dropped below the trend growth in July and while August data for industrial production and unemployment pointed slightly upwards again, the attacks on the United States on 11 September will certainly jeopardise any efforts of the economy to pull clear from sluggish growth in the short-term.  In July, the monthly indicator for economic activity (IMACEC) increased at an annual rate of 2.8% over the same month in 2000.  This was well below market expectations, despite the fact that weak July industrial production data released earlier had already presaged a reading below the robust 5.1% growth rate registered in June.  According to seasonally adjusted data, the Gross Domestic Product (GDP) contracted 1.1% over the prior month, following the 2.3% expansion in June.   

Economic activity in August provides some hope for growth resumption …
Data for August provided ambiguous signs about the path of the Chilean economy.  Industrial manufacturing expanded 1.7% over the same month last year.  While this was well below the surprisingly strong growth rate registered in June (+6.3% year-over-year), the figure remained above the dismal 0.3% July reading, which actually represented a staggering 4.9% contraction over the previous month in seasonally adjusted terms.  August trade data were less inspiring.  Exports dropped 7.4% and imports were 12.3% lower than in the same month last year, indicating continued erosion in domestic demand.  Unemployment data, on the other hand, indicated some upside potential.  For the first time since December last year, the moving three month average unemployment rate dropped over the previous month.  While this positive employment development could also have been brought about by seasonal patterns, the 0.9 percentage point drop over August 2000, provides evidence that the government’s ambitions to lower unemployment are finally bearing fruit.  Finally, August supermarket sales also came in stronger than the disappointing July reading, indicating a welcome up-tick in consumer spending.

 … but impact of attacks on the United States dispels hopes for a quick recovery
Nevertheless, despite the neutral to slightly positive signs for a recovery, the short-term prospects took a beating from the events of 11 September and the immediate reaction by markets have been severe.  Between 10 and 28 September, stock markets lost 9.1% and the Peso 4.4% of its value versus the US$.  While economists around the world are still trying to gauge the size of the impact on the real side of the economy, the major transmission mechanisms can already be clearly discerned:

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