Chile’s economic activity seems to have recovered in August

Chile’s economic activity growth is expected to have recovered in August. The economic activity growth slowed in July, rising just 0.5 percent year-on-year, the lowest print in nearly two years. Slowdown in July mostly reflected that modest rise in services and retailing was partially countered by contractions in manufacturing and mining. Given the industrial production and trade numbers for August, the economic activity growth is expected to have rebounded to 2 percent year-on-year in August, said Societe Generale in a research note.

“Looking ahead, we see growth remaining sub-trend for the foreseeable future, as the key long-term drivers – investment and exports – continue to show little improvement”, added Societe Generale.

On the external front, the economic growth is not longer being positively contributed by net exports, which have dropped sharply. Moreover, given the uncertainty amongst important trading partners, there is no significant improvement in the outlook of export. This is a huge drag on private domestic demand as well.

Counter-cyclical fiscal spending primarily drives growth. But, this is increasingly straining public finances against the backdrop of depressed commodity prices. Moreover, it is uncertain how long this can underpin the economy, stated Societe Generale. The economy’s growth potential has dropped to about 2 percent from over 4 percent, while significant fiscal easing is not expected to be enough to restore this potential unless it is underpinned by upbeat external shocks, according to Societe Generale.