|
Outlook
remains robust despite stubbornly high unemployment
Even though persistently high unemployment - in the moving quarter up to
July the unemployment rate rose another notch to 9.7% - raises questions
about the sustainability of the current upswing once the impetus from
increased global demand and rising commodity prices begins to ebb, the
Consensus remains optimistic about growth prospects. Consensus
Forecast panellists expect that the economy will even step up the strong
4.8% pace observed in the first half and anticipate the economy to expand
by 5.1% in the second half, resulting in 5.0% expansion for the full year,
which is up a notch from last month’s forecast. In 2005, the
economy is anticipated to keep up the pace, with growth expected at 4.8%,
which is well below the official government 5.5% growth projection
underlying next year’s budget proposal.
Inflation
continues to rise moderately
In August, consumer prices increased 0.38%, which was well above market
expectations of 0.21% and above the 0.23% increase observed in July.
Housing costs experienced a notable upward shift, driven by higher
electricity tariffs and thus accounted for the lion share of the August
price increase. All other price categories surveyed by the National
Statistical Institute (INE) showed either very small variations or
declining prices. As a result of the August price increase, annual
headline inflation rose from 1.4% in July to 1.6% in August. The
core inflation index, which excludes volatile categories such as oil,
fresh fruits and vegetables, increased 0.18%, which took the annual rate
from 1.0% in July to 1.3% in August. Prices thus are developing
according to the Central Bank’s expectations, which had anticipated
inflation returning to normal from a temporary deflationary bout in the
March/April period this year. The recent pick up in inflation and
the resilient prospects of the economy have prompted monetary authorities
to put an end to their accommodative monetary policy stance. On its
policy meeting on 8 September, the Bank decided to raise the benchmark
policy rate, which it had lowered to a record low of 1.75%, when Chile
entered deflation, by 25 basis points to 2.0%. Consensus Forecast
panellists share the inflation assessment of the Central Bank and again
raised their year-end inflation forecast from 2.3% last month to 2.4%.
By the end of 2005, inflation will reach 2.8%, according to the Consensus.
Current
account surplus rises amid strong copper exports
In the second quarter, the current account balance incurred a surplus of
US$ 1.1 billion. The surplus reverted the US$ 168 million deficit
registered in the second quarter last year and also exceeded the US$ 784
million surplus observed in the first quarter. The increase in the
current account surplus over the same period last year was mainly due to a
higher trade surplus, which more than tripled from US$ 763 million in the
second quarter 2003 to US$ 2.6 billion in the second quarter 2004.
The higher trade surplus, in turn, reflects a massive increase in exports
(+50.7% year-on-year) in the wake of the strong rise in both volumes and
prices of copper, Chile’s main commodity. Imports also grew at a
fast, albeit much more moderate 17.8% pace. On a geographical basis,
the booming Asian economies exhibited the highest growth rates, as exports
to that region increased 64.1% in the first half over the same period last
year, followed by a 49.5% increase for Europe, 36.9% for Latin America and
only 7.8% for the United States.
Capital
account incurs deficit due to higher commercial loans related to exports
The capital and financial account balance registered a net outflow of US$
1.2 billion, which exceeded the current account surplus by a sizeable
margin. In the same period last year, the capital account had
recorded a deficit of US$ 570 million. The deterioration in the
capital account was mostly concentrated in direct and portfolio investment.
Foreign direct investment (FDI) flows dropped from US$ 729 million in the
second quarter last year to US$ 161 million this year and portfolio
investment outflows rose from US$ 1.4 billion to US$ 1.8 billion.
The deterioration in FDI, reflects higher investments of Chileans abroad
but also lower investment inflows, as reinvestment by foreign mining
operators, which stepped up their investments amid stronger commodity
prices, dropped. |
