Chile’s economic growth likely to have slowed in June

Chile’s economic activity is likely to have dropped in June. The economic activity had recovered in May to 1.8 percent year-on-year from April’s weak print of 0.7 percent. The Chilean central bank had stated that the rebound in May predominantly showed growth in commerce and services that more than countered softness in the mining sector.

Given the trade figures, economic growth of Chile is likely to have slowed to 1.2 percent year-on-year in June from 1.8 percent in May, stated Societe Generale in a research report. If the June’s projection is realized, the monthly activity figures stacked year to date show a risk on the downside to the growth projection for 2016.

“We expect the economy to grow by 1.9 percent in 2016”, added Societe Generale.

Chile’s economic growth is expected to remain sub-trend for the foreseeable future, as the main long-term growth drivers such as exports and investment continue to improve just mildly. Meanwhile, positive contributions from exports to growth are no longer seen given the severe decline in exports. Moreover, with the uncertainty amongst the main trading partners, significant improvement in the export outlook is unlikely. This is a major drag on private domestic demand too.

Counter-cyclical fiscal spending is mainly helping growth. But this is starting to hurt public finances against the backdrop of low commodity prices. Also, it is doubtful how long it can underpin the economy. The Chilean economy, structurally, is quite weak at present as compared to before 2013. Growth potential has fallen to below 3 percent from over 4 percent. Also, significant fiscal easing is not expected to be enough to return to this potential, according to Societe Generale.