Chile’s economy had expanded 2.8% in February after growing 0.5%, the smallest in 17 months, in January. The marked acceleration in the economic growth mainly showed expansion in mining, services and trade. Given Chile’s trade figures, the economic growth is likely to have decelerated to 1.7% y/y in March, according to Societe Generale. The near-term growth outlook has not yet rebounded, while the nation’s central bank has lowered its growth outlook for 2016 by 0.75%.
“Looking ahead, we still see limited upside to the current pace of growth, as the key long-term growth drivers – investment and exports – continue to show very little improvement”, noted Societe Generale.
Net exports are not positively contributing to the economic growth any more given the sharp drop in exports. Moreover, with the current uncertainty amongst key trading partners, exports outlook is unlikely to improve, said Societe Generale. This is also impacting private domestic demand. Counter-cyclical fiscal spending is mainly driving demand.
Structurally, the Chilean economy is quite weaker than it was prior to 2013. Growth potential has fallen to below 3% from over 4%. Meanwhile, considerable easing is not expected to be enough to restore the potential growth unless positive external shocks underpin it, added Societe Generale.
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