The economy is kicking into a higher gear at the start of 2018. Economic activity in the closing months of 2017 exceeded expectations thanks to a stronger non-mining sector, while business confidence surged into positive territory in January for the first time in nearly four years. In
addition, the construction sector finally returned to growth in November following 14 consecutive negative monthly readings. This bodes well for investment, as declining construction investment has been a consistent drag on GDP growth in recent quarters. Furthermore, prices for copper,
a key export, rose further in January, which should boost the external sector. With the economic stars seemingly aligning in his favor, on 23 January president-elect Sebastian Piñera announced his cabinet, including several pro-business picks. Felipe Larraín Bascuñán will return
as treasury minister—a post he occupied during Piñera’s first term—while economist and Econsult director José Ramón Valente will be economy minister.
Growth is expected to rise notably this year thanks to a turnaround in investment, ongoing expansive monetary policy and higher wages which should boost private consumption. Strong global economic activity should also boost Chile’s external sector. However, the economy will remain
vulnerable to fluctuations in global copper prices. FocusEconomics. Consensus Forecast panelists see growth of 3.0% in 2018, up 0.1 percentage points from last month’s forecast, and 3.1% in 2019. Inflation dipped from 2.3% in December to 2.2% in January. On 1 February, the Central Bank maintained its policy rate at 2.50% on stronger
Outlook improves economic activity. Panelists see inflation rising back towards the Bank’s
3.0% target going forward, ending 2018 at 2.8% and 2019 at 3.0%.
POLITICS | President-elect Sebastián Piñera announces cabinet President-elect Sebastián Piñera—head of the Chile Vamos coalition— presented the members of his cabinet on 23 January. Key economics-oriented posts will be filled by business-friendly figures with technocratic profiles, and
Piñera has largely opted for experience over regeneration, with 6 of the 23 ministers having served during his first term from 2010–2014. Members of his innermost circle will occupy key posts, in an attempt to avoid the reshuffles and cabinet discords which have marked current Michelle Bachelet’s presidency.
The treasury ministry will be headed by experienced economist Felipe Larrain, who will return to the post he held during all of Piñera’s first term. He will likely be seen as a safe pair of hands and be popular with business, having overseen sustained economic growth and job creation during his first spell in office—although the economy’s performance during this time was boosted
by cyclically-high copper prices. Since his nomination became public, Larrain has reiterated his desire to overhaul Bachelet’s tax reform to encourage investment; he has also emphasized the incoming government’s intention to trim the corporate tax rate to the OECD average if the fiscal situation permits it.
Working alongside him will be José Manuel Valente as economy minister. Valente is an economist, director of consultancy firm Econsult and a close collaborator of Piñera who worked with him during the presidential campaign.
He will be charged with removing obstacles to business investment and reducing red tape. Trimming the current lengthy approval process for large investment projects will be a key aim, as this is a particular bugbear of business.
Another key figure in the cabinet will be Gonzalo Blumel, named the General Secretariat of the Presidency. In charge of the executive’s relationship with congress, Blumel’s role will be pivotal given the lack of parliamentary majorities, to ensure the passage of the government’s legislative agenda. He is the youngest cabinet minister and untested on the political frontline, having
previously worked as an advisor for the president-elect. Gaining the support of opposition parties, especially the center-left Fuerza de la Mayoría and centrist Christian Democrats, will be vital to pass laws. In this sense, Blumel’s lack of political baggage and his reputation as one of
the more progressive cabinet members could play in his favor; he was one of the founders of the political party Evópoli and has previously stated his support for same-sex marriage. In a recent interview, Blumel gave signs he will reach out to the opposition and assured that the government would have an “open doors” policy with other parties. The future minister also emphasized
the government’s social program, including measures such as free preschool education, which should be welcomed by more left-leaning groups in parliament.
Sebastian Piñera will inherit an economy on the up. The Central Bank sees GDP expanding between 2.5% and 3.5% in 2018. Panelists participating in the LatinFocus Consensus Forecast see the economy growing 3.0% in 2018, up 0.1 percentage points from last month’s forecast, and 3.1% in 2019.
REAL SECTOR | Economic activity growth stays solid in December Economic activity rose 2.6% in December on an annual basis according to the Monthly Indicator for Economic Activity (IMACEC) published by Chile’s Central
Bank, down from 3.2% in November but overshooting analysts’ expectations for the second straight month. Growth was underpinned by a solid showing from the mining sector, which
expanded 3.8% year-on-year. The non-mining sector also grew at a robust pace thanks to expansions in the services and trade sectors. Economic activity rose 0.3% in December from a month earlier in seasonally adjusted terms, down from November’s 0.7% uptick.
OUTLOOK | Business confidence roars back into positive territory in
January The business confidence index (IMCE, Indicador Mensual de Confianza
Empresarial) published by ICARE and the Universidad Adolfo Ibáñez surged from 44.0 points in December to 53.8 points in January, moving into optimistic territory for the first time since March 2014. The rebound in confidence comes hot on the heels of the second round of the presidential elections, which saw business-friendly ex-President Sebastian Piñera return to power. January’s increase came on the back of marked improvements in sentiment across the board, with the mining and industry sectors returning to positive territory. The commercial sector moved further into positive territory, while firms in the construction sector grew less gloomy, although sentiment in the
sector remained broadly pessimistic. Panelists surveyed for this month’s LatinFocus report expect fixed investment to increase 3.8% in 2018, which is up 0.5 percentage points from last month’s
estimate, and 4.1% in 2019.
OUTLOOK | Consumer confidence remains in positive territory in January
The Adimark GfK consumer confidence index (IPEC, Índice de Percepción de la Economía) dipped slightly from December’s multi-year high of 53.1 to 51.5 in January, ending a run of ten consecutive monthly increases. However, the index remained above the 50-point threshold separating optimism from pessimism among consumers for only the second time since May 2014.
January’s dip was caused by a less positive outlook regarding the current situation of the country, economic expectations over the next 12 months, economic stability over the next five years and consumers’ current personal situation. On the other hand, consumers grew markedly more willing to make major household purchases. This was likely influenced by lower inflation
expectations among consumers, following a string of limp inflation readings in recent months, and bodes well for private consumption going forward.
Panelists surveyed for this month’s LatinFocus report expect private consumption to increase 3.1% in 2018, which is unchanged from last month’s estimate, and 3.3% in 2019.
MONETARY SECTOR | Inflation remains within tolerance range in
January Consumer prices rose 0.5% in January compared to the prior month, up from
a 0.1% month-on-month rise in December and substantially overshooting analysts’ expectations. According to the National Statistical Institute (INE), January’s uptick was underpinned by higher prices for food and non-alcoholic drinks, and housing and basic services.
Inflation came in at 2.2% in January, down marginally from 2.3% in December, but remaining in the Central Bank’s 2.0%–4.0% tolerance range for the second straight month. After stripping out volatile categories, core consumer prices rose 0.3% month-on-month in January, up from 0.1% in December, while core inflation dipped from 1.9% in December to 1.8%. The performance of headline
inflation is encouraging, and likely to vindicate the Central Bank’s judgement at its most recent policy meeting that further monetary loosening is unlikely to be required in the short term. However, the Bank will be mindful of subdued core inflation, which is still tracking below the 2.0% lower bound.
Panelists surveyed for this month’s LatinFocus report expect inflation to end 2018 at 2.8%, which is unchanged from last month’s estimate, and 2019 at 3.0%.
MONETARY SECTOR | Central Bank holds rates steady in February At its monetary policy meeting ending on 1 February, the Central Bank of Chile (BCC) unanimously opted to leave the policy rate unchanged at 2.50% for the eighth consecutive meeting. The decision was in line with market expectations. Consequently, the Bank maintained its loose monetary stance, with the policy
rate in Chile currently the lowest of any country in Latin America. It should be noted that this year the Central Bank has revamped its meeting schedule, and will hold eight meetings in 2018, down from 12 in 2017. This move brings the BCC more in line with central banks in other low-inflation countries.
The Bank’s decision came as both headline and underlying inflation continue to hover close to the Bank’s lower tolerance band of 2.0%. In addition, the BCC’s January survey showed that inflation expectations over the next two years were unchanged from the prior month, remaining well anchored at 3.0%. On the demand side, the economy has performed well in recent months,
with IMACEC (economic activity) readings for November and December handsomely beating market expectations, aided by a more robust non-mining sector. The Bank also highlighted the better-than-anticipated performance of investment in Q4, and wage growth buttressing private consumption— although comprehensive national accounts figures for the quarter have yet to
be released. With inflation showing few surprises, and the economy gaining traction, the Bank opted to stay put. In its communiqué, the BCC judged that notwithstanding the recent appreciation
of the peso—which could dampen price pressures in the short term—the risk of inflation failing to return to target had fallen thanks to healthy economic activity. The BCC was keen to stress that monetary tightening would only start once slack in the economy had lessened, and it left the door open to a further rate cut if the situation warranted it. FocusEconomics panelists largely concur,
and expect modest monetary tightening to resume towards the end of this year as growth improves and inflation gradually picks up.
Panelists participating in the LatinFocus Consensus Forecast expect the policy rate to end 2018 at 2.79% and 2019 at 3.49%. EXTERNAL SECTOR | Copper prices rise in January
Copper prices continued their stellar run in January and marked the eighth consecutive monthly increase. Copper prices averaged USD 3.21 per pound (equivalent to 7,072 per ton) in January, up 3.1% from December’s average of USD 3.11 per pound. In annual terms, copper prices increased 23.1%. The average copper price for January was the highest since July 2014.Prices continued to be bolstered by healthy global demand, and reacted
positively to the news in mid-January that Chinese growth beat expectations in Q4; the Asian giant is the top consumer of the red metal. In addition, Chinese copper scrap imports fell sharply in December, and scrap import quotas for 2018 were down sharply over the prior year. Investors judged that this should boost demand for more refined forms of the metal going forward.
Panelists participating in the LatinFocus Consensus Forecast expect copper prices to continue their upward trend going forwards, and to average USD 3.08 per pound in 2018 and USD 3.08 again in 2019.FUENTE: Enviado por Focus Economics https://www.focus-economics.com/ desde Barcelona -España