Country Economic Forecasts - Chile[1].pdf - 11 Apr 2018 Country Economic Forecast Chile Economist Chiles GDP performance was stronger than expected in

Country Economic Forecasts - Chile[1].pdf - 11 Apr 2018...

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Contact: James Watson | [email protected] 11 Apr 2018 Country Economic Forecast Chile Economist James Watson Latin America Economist +44(0)20 3910 8119 Chile’s GDP performance was stronger than expected in Q4 2017, while recent data continue to show robust growth. Due to this faster momentum and the boost from an upwardly revised Q3 2017, we have raised our 2018 GDP growth forecast to 3.8%, from 3.4% last month. This new forecast is now the fastest of any of the major Latin American economies in 2018. We expect consumption to remain the primary driver of this performance, with 3.0% growth in 2018, but for investment to provide a key boost, moving from -1.1% last year to 4.3% in 2018. February’s IMACEC activity indicator showed another impressive month of growth, accelerating to 4.8% y/y. Although activity in January was revised to no growth on the month, the acceleration to 0.9% m/m in February more than compensated for this; indeed, there are now upside risks for our Q1 2018 forecast of 4.4% GDP growth. Expansion was well spread between mining and non-mining in February, and industrial output data provide promising signs for an investment recovery this year. As copper prices dipped somewhat in March, the Chilean peso (CLP) weakened slightly, although it remained stronger than CLP610/$. We expect copper prices to move lower over the coming year, as demand and supply fundamentals become less favourable. However, the decline is expected to be a measured one, and so we forecast that the CLP will only slip back to 635 to the US$ by the end of 2018, and then hover around 640 in 2019. With activity now quite robust, the labour market expected to tighten and the CLP likely to weaken gently from current levels, we expect inflation to pick up gradually during 2018. Inflation is forecast to approach the 3% target by Q4 2018, with the first rise in interest rates (from 2.5%) expected in late 2018. The central bank (BCCh) estimates the ‘ neutral rate at 4-4.5%, which we think it might reach by around 2020. 2016 2017 2018 2019 2020 2021 Domestic Demand 1.3 3.3 3.9 3.4 2.8 2.6 Private Consumption 2.1 2.5 3.0 2.8 2.6 2.5 Fixed Investment -0.7 -1.1 4.3 3.9 2.8 2.7 Stockbuilding (% of GDP) -0.7 0.7 1.4 1.7 1.8 1.9 Government Consumption 6.3 4.1 2.4 2.9 2.9 2.8 Exports of Goods and Services -0.2 -1.0 4.2 2.1 3.2 3.2 Imports of Goods and Services 0.2 4.7 4.7 3.7 3.4 3.2 GDP 1.2 1.6 3.8 3.0 2.7 2.6 Industrial Production -0.8 -1.1 4.6 5.0 3.5 3.3 Consumer Prices, average 3.8 2.2 2.4 3.0 3.0 3.0 Government Budget (% of GDP) -2.7 -2.8 -2.7 -2.3 -2.0 -1.7 Trade Balance ($bn) 5.4 7.9 7.0 6.5 8.2 9.1 Current Account ($bn) -3.5 -4.1 -5.5 -6.7 -5.3 -4.7 Current Balance (% of GDP) -1.4 -1.5 -1.8 -2.1 -1.6 -1.4 Short-Term Interest Rates (%) 3.75 2.90 2.76 3.50 4.22 4.25 Exchange Rate (Per US$), average 677 649 615 640 642 643 Forecast for Chile (Annual percentage changes unless specified) Meanwhile, inflation is set to rise slowly, so the BCCh will not ease policy further, but instead tighten very gradually starting in Q4 Recovery is now at full pace, with Chile set to lead LatAm growth this year EMISPDF in-isb_emis from 202.174.120.162 on 2018-06-07 19:52:28 BST. DownloadPDF.
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