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Economic performance
disappoints in December
In December, the monthly indicator for
economic activity (IMACEC) was up by 1.4% over December 2000. The
December reading was disappointing compared to last month’s expectations
of 2.5% growth and follows on similarly weak November economic growth.
The figures for the last two months of 2001 constituted the weakest
readings in the year, a sign that the economy remains far from pulling
clear from sluggish growth. According to seasonal adjusted data the
economy even contracted in the last three months of the year. Compared to
the preceding month, the economy lost 0.3% in December, following a 0.1%
drop in November.
Industry performs well but
unemployment ticks upward again
January sent a mixed bag of signals about the
current state of the Chilean economy. Industrial production expanded by
4.5% and industrial sales increased by a strong 8.6% over the same period
in the prior year. The above trend growth rate augurs well for a strong
industrial expansion in the first quarter, which could provide the
backdrop for a healthy growth this year. Panellists remain sceptical
though and expect industrial production to increase a moderate 3.2% this
year. The key impediment for stronger growth on the domestic side is the
stubbornly high unemployment. Contrary to seasonal patterns and to
expectations, unemployment ticked upward a 0.1 percentage point to 8.0% in
the moving quarter up to January. Without the currently active public
employment programmes, unemployment would be one percentage point above
the actual figure. With seasonal hiring abating, unemployment will start
rising again soon. In fact, Consensus Forecast panellists see
unemployment up at 8.3% in February and ending the year at 8.9%.
Long-term forecasts adjust
to more moderate growth rates
Preliminary data for 2001 indicate that the
Chilean economy expanded by 2.9% last year. Compared with other economies
in the region this may seem a respectable result. By Chilean standards,
however, the growth rate is considered disappointing by most analysts, as
it constitutes the first reading below 3% in the past decade - apart from
the recession in 1999 - and also remains far below the average annual
growth rate of 6.5% in the 1990s. In fact, the notion that the Chilean
economy will continue to expand at the record growth rates seen in the
past is giving way to more moderate expectations, which nevertheless
remain above the regional average. The GDP growth forecasts for 2003 and
2004 have been constantly lowered in the past months. For this year,
panellists maintained their forecast unchanged, which is at the lower end
of the current government estimate of 3% to 4%.
Consumer prices remain
unchanged in February; annual headline inflation rises
In February, consumer prices remained
unchanged. The National Statistical Institute (INE) reported that prices
were stagnant, as the price of food dropped 0.1%, clothing prices declined
0.3% and housing prices were unchanged. Price declines in these
categories compensated for price increases in health as well as in
education and recreation. The zero price movement follows on three
consecutive months of declining consumer prices, which had lowered the
annual headline inflation rate from 3.9% in September 2001 to 2.2% in
January. The unexpected price stability – Consensus Forecast panellists
had expected yet another month of price declines – drove the annual
inflation rate up to 2.5%. Panellists believe that inflation will pick up
further towards the end of the year, when the increase in domestic demand
will once again exert pressure on consumer prices.
Central Bank lowers
interest rate as weak economy keeps inflationary pressures at bay
The Central Bank used the fourth month of
price declines as a pretext for loosening monetary reins. In its regular
monthly meeting on 19 February, the Central Bank board decided to lower
the monetary policy interest rate by 50 basis points from a nominal 6.0%
to 5.5%. This is already the second interest rate cut this year
(following the 50 basis point cut on 10 January). As in its decision last
month, the Central Bank cited the weak global economy as well as the
weaker than expected domestic demand as reasons for its decision to lower
the interest rate once again.
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