This 2016 Article IV Consultation highlights that GDP growth in Chile has been weak, with activity slowing in October. However, conditions are in place for the economy to recover. After expanding by a moderate 1.7 percent in 2016, growth is forecast to increase to 2 percent in 2017. Faster growth in main regional partners and more stable copper prices are expected to lift exports and investment. The recovery is, however, projected to be gradual, held back by slow wage and job growth and still low business confidence. The financial sector appears healthy. Banks' profitability is declining, but capital buffers are adequate and nonperforming loan rates are low.
1. This statement reports on information that has become available since the staff report was issued. It does not alter the thrust of the staff appraisal.
2. Activity remained soft in October due to a contraction in mining. Chiles leading economic index IMACEC decreased 0.4 percent year-on-year in October of 2016, following a 1.5 percent rise in September. The mining component declined 7.1 percent while the non-mining index increased 0.3 percent. The latter reflected an increase in services, partly offset by the fall in manufacturing industry.
3. Markets expect monetary policy to ease. The November survey of economic expectations showed a shift in expectations. Compared to September, analysts now expect two policy rate cuts in 2017. Inflation expectations for year-end fell by three tenths to 3 percent in November, while remaining stable at 3 percent at both a one- and two-year horizon (BCCh Economic expectations survey).