Chilean economy likely to see gradual, modest rebound in over next 18 months - Scotiabank

Chile’s economy is expected to see a modest and gradual rebound in the coming 18 months, noted Scotiabank in a research report. Even if the negative effect of the end of the mining cycle might dissipate, a prolonged strike in the nation’s biggest copper mine earlier in 2017, along with continuous weakness in the construction sector would have a mitigating impact on recovery dynamics.

According to the country’s central bank, the Chilean real GDP is expected to grow between 1 percent and 2 percent in 2017 before rising to 2.25 – 3.25 percent range next year. Improved external market conditions and continuous domestic consumption growth might play a supporting role in the 2017-2018 period, stated Scotiabank. Gross fixed investment is expected to show positive growth rates this year after contracting for three straight years.

Chile’s inflation outlook has improved materially. The stabilization of the nominal exchange rate in context of relatively weak economic activity continues to be a primary driver of such disinflation dynamics. Consumer price inflation decelerated to 2.7 percent year-on-year in March from 4.8 percent year-on-year in January 2016. This is consistent with the inflation target rate of 2 percent, plus or minus 1 percent.

Headline inflation rate is expected to stay in the range of 2.8-3.2 percent in the next 18 months. Monetary policy conditions continue to be in expansionary territory. The central bank opted to cut its administered interest rates by 25 basis points to 2.75 percent in mid-April, a third cut since January 2017.

“We do not rule out the likelihood of a further rate cut before the end of the year”, added Scotiabank.