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As the region’s most open economy, Chile’s
fortunes depend on the developments of the global economy. Consequently,
Chile’s economic outlook has experienced greater scrutiny than any other
Latin American country, as it becomes increasingly evident that hopes of a
global economic rebound in the second half of this year is unlikely to
materialise. In addition, the country suffers from contagion from political
uncertainty in Brazil and may have to cope with higher oil prices in the
coming year. |
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July
economic activity in line with expectations
In July, the monthly indicator for economic activity (IMACEC, Indicator
Mensual de Actividad Económica) expanded by 2.1% compared to the same
month last year. The reading was well ahead of sluggish growth observed in
May and June and also slightly exceeded market expectations of 2.0%. The
market had anticipated more favourable year-on-year growth numbers,
following on previously released upbeat data for industrial production and
unemployment for that month (for details see last month’s edition).
However, the healthy July performance was partially inflated by seasonal
factors since the month counted two extra working days compared to July
2001. According to seasonally adjusted data, the economy actually
contracted 0.4% compared to the preceding month.
Unemployment rises again driven by seasonal factors
Encouraging signs from July employment, which had raised hopes for an
uptick in economic growth, were squashed by August data. The National
Statistical Institute (INE) reported that unemployment rose again to 9.6%
in the moving quarter to August, up 0.2 percentage points from July. This
brought unemployment back into the seasonal upward trend, which had been
defied by the favourable July reading. Unemployment will most likely peak
in September and should subsequently drop amid seasonal hiring to reach
9.3% by the end of the year.
Industrial production drops in August
Industrial production also returned to negative growth rates after a brief
upward surge registered in July. In August, industrial output declined by
1.0% compared to the same month last year. Industrial sales recorded an
even stronger 1.6% decline. The deterioration in industrial output was
mainly due to a 21.9% contraction in the consumer durables production.
Capital goods output dropped even more, down 27.0% over the same month
last year. With non-durable consumer goods also in negative territory,
only intermediate consumer goods managed to expand on an annual basis
(+2.4% yoy), buffering overall output from a more pronounced decline.
Outlook
for next year seen more pessimistically as global economy may suffer from
Iraq conflict
Given the discouraging picture, panellists expect the overall economy to
expand a meagre 1.4% in August and 2.3% in September. Accordingly,
economic growth in the third quarter is anticipated to reach just 1.9% but
to accelerate in the final quarter. For the year as a whole, GDP growth is
seen more pessimistally and the forecast was lowered a notch since last
month. Panellists have also lowered their forecasts for next year’s
economic expansion significantly. The downgrade is motivated by renewed
pessimism about the global recovery and market scepticism is exacerbated
by an increased likelihood that oil prices will remain high, particularly
as uncertainties regarding a potential conflict between the United States
and Iraq persist. As an oil-importing country, Chile would be among the
hardest hit economies in the region at a moment when subdued global growth
limits the upside potential for commodity prices, in particular copper.
Consumer prices surge in September but annual inflation remains contained
In September, consumer prices increased by 0.84%. The September reading
was above the 0.38% spike registered in August and exceeded market
expectations of 0.2%. The main driver behind the September price hike were
higher food prices and, to a lesser extent higher transport and housing
prices. In particular, prices for fresh fruits and vegetables shot upwards
by a staggering monthly rate of 11.5%. Fuels also experienced a strong
3.5% surge amid rising oil prices. The core inflation index, which
excludes these more volatile items advanced at a much more moderate 0.32%.
Despite the strong surge in consumer prices, annual headline inflation
rose only 0.1 percentage point from 2.2% in August to 2.3% in September.
The annual core inflation rate even dropped 0.2 percentage points to 2.0%
from 2.2% in August. Even so, Consensus Forecast panellists have hiked
their year-end inflation forecasts since last month by 0.3 percentage
points. In the coming year, panellists see inflation to remain at these
levels.
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