Economic Briefing November  2001

The Chilean economy is taking a turn to the worse as the country’s exposure to the global economy renders it particularly vulnerable to the global slowdown, which also clouds the outlook for the much hoped for a recovery next year.  Meanwhile, the Peso continues to weaken owing to the continuing concerns about Argentina.  The Central Bank has repeatedly intervened in the foreign exchange market and is sacrificing a considerable amount of reserves to stabilise the currency.

August growth in economic activity continues at July levels.  In August the monthly indicator for economic activity (IMACEC) was up by 2.8% over the same month in 2000 and was unchanged over the rate recorded in July. The August result was just marginally below market expectations, which had been adjusted downwards despite stronger monthly industrial output growth over July.  According to seasonally adjusted data, the Gross Domestic Product (GDP) added 0.1% over the prior month, following the 1.1% contraction in July. 

September data disappoint as industrial production remains flat and unemployment brakes through the 10%-threshold once again.  While the August data still suggested stagnation on a moderate but positive level, the releases of September data indicate that the economy is weakening further.  Industrial production was virtually flat over September last year (+0.1%), following the 1.7% expansion in August.  The weakest subsector was consumer durables, which contracted by 16.3% year-over-year in September.  Capital goods production represented the strongest category.  However, the 12.4% expansion over the same month last year is less than a third of the 48.8% growth rate observed in August.  Unemployment also registered a strong increase from 9.7% in the moving quarter ending August to 10.1% in the quarter ending September - the first time that unemployment reached double digits since October 2000.  Growth in supermarket sales also dropped from the level registered in August (+7.8%) to 6.9% year-over-year in September. 

Panellists slash growth outlook for 2001 further and 2002.  While it is still too early to attribute the dismal September results to a trend change resulting from the 11 September terrorist attacks, hopes that the sluggish growth observed prior to the September events would give way to a more pronounced recovery have been quashed.  In fact, Central Bank president Carlos Massad recently conceded that economic growth this year is likely to be below 3.5%, down from the 3.7% projected earlier.  The Consensus Forecast dropped another 0.1 percentage point to 3.3%.  In addition, panellists reduced their outlook for 2002 by 0.4 percentage points, adding to the 0.5 percentage point cutback applied last month.  As a result, the current GDP forecast is even slightly more pessimistic than Finance Minister, Nicolás Eyzaguirre, who recently admitted that growth is unlikely to exceed 4% in 2002. 

August/September surge in consumer prices halted in October – annual headline inflation drops.  In October, consumer prices rose by only 0.14%, following two months of strong price increases.  The moderation in consumer price increases was driven by a contraction in transportation prices, owing to lower fuel prices. The deflationary effect on the general price level was offset by price increases in the housing, health and food categories.  As a result of the moderate October price hike, annual headline inflation dropped from 3.9% in September to 3.4%.  The core inflation index, however, registered a more pronounced increase of 0.42%, actually provoking an increase in the annual core inflation rate from 3.6% in September to 3.8% in October.  Panellists expect headline inflation to rise by the end of the year.  Subdued domestic demand should assist the Central Bank in keeping inflation in check in the coming year. 

Continue >>