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Central
Bank lowers outlook for this year but is more optimistic about 2003
For the year as a whole, the monetary officials lowered their GDP growth
forecast from 3.3% to 3.0%, almost in line with the Consensus Forecast,
which was lowered a notch to 3.1%. The Central Bank’s downward adjustment
to this year’s growth forecast reflects the weak first quarter and was
therefore generally expected. The Bank’s decision to raise its
expectations for the coming year was more surprising. The monetary
authority lifted its GDP projection from 5.3%, published in its January
report, to 5.8% growth, which is well above the Consensus of 4.6%. More
surprisingly, the Bank sees the improvement stemming not from a stronger
external demand -- exports are now expected to grow by 6.9% compared to
7.3% growth anticipated in January -- but from higher growth in domestic
demand, which is seen to expand at a very healthy 6.2% pace (January
projection: 5.6%).
Annual
headline inflation reaches historic low
In May, consumer prices remained virtually unchanged, adding just 0.09%
over the previous month. The low reading was well below the Consensus of
0.28% and also below the price increase observed in April. Food and
clothing prices provided some upside pressure in May but were compensated
for by lower prices in transportation. As a result of the subdued pressure
on consumer prices in May, the annual headline inflation rate dropped from
2.5% in April to 2.1%, the lowest rate registered since 1938. The annual
core inflation rate -- the key indicator watched by the Central Bank –
dropped from 3.1% in April to 3.0% in May and is thus precisely at the
centre of the Bank’s medium-term inflation target range of 2 to 4%. For
this year, the Bank expects a more benign inflationary environment and
sees year-end core inflation at 2.5% compared to 3.5% expected for mid-year
in the January monetary policy report. Monetary officials anticipate
volatile and slightly higher oil prices and therefore expect headline
inflation to pick up to 2.7% by the end of the year. Panellists even see a
higher probability of an elevated oil price and anticipate a higher year-end
headline inflation.
Current
account turns positive for the first time in two years
In the first quarter, the current account balance registered a surplus of
US$ 246 million. This is the first surplus recorded in the current account
since the first quarter 2000 and is also well above the slight deficit
observed in the first quarter last year. The improvement over the first
quarter 2001 was mainly driven by a higher surplus in the trade balance as
imports shrivelled due to weaker domestic demand. Lower income from direct
investments in the country also contributed to the improvement of the
current account. The capital account balance recorded a deficit of US$ 627
million compared to a surplus in the same period last year. The
deterioration was driven mainly by lower portfolio inflows and, to a
lesser extent, by other investment flows, whereas direct investment
remained positive. On an annual basis (last four quarters), the current
account remains negative at US$ 982 million. Despite the more favourable
first quarter performance, panellists expect the annual current account
deficit to deteriorate by the end of the year.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Chile. For more details please click here.
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