Chile’s economy grows above expectations in Q3, but likely to show strains in coming quarters

The Chilean economy expanded better than expected in the third quarter in year-on-year terms. The country’s GDP grew 1.6 percent non-seasonally adjusted, similar to the year-earlier rate seen in the second quarter. In sequential terms, the economy grew 0.6 percent after falling 0.4 percent in the second quarter. Thereby the Chilean economy averted a technical recession.

Chile’s private consumption expenditure rose 2 percent year-on-year, a slight improvement from second quarter’s 1.8 percent growth. Government consumption also came in strong at 6.9 percent growth; however, it was weaker than the 7.5 percent rise in the second quarter. In the meantime, real investment sector remained weak, with gross fixed capital formation falling 1.2 percent year-on-year.

Investment in machinery and equipment and also in construction came in negative in the September quarter. This result signified that domestic demand remained weak in the third quarter, expanding only half the rate of GDP at 0.8 percent, noted Wells Fargo in a research note. Therefore, even if growth seemed to stabilize, the economy continued to show strains that would more than likely continue during the next few quarters, said Wells Fargo.

Chile’s major production sectors stayed under pressure in the September quarter. Mining sector, which contributes almost 12 percent to the economy, fell 0.8 percent in the quarter, the fifth straight year-on-year quarterly fall. In the meantime, the manufacturing sector, which accounts for around 10 percent of the economy, declined 1.4 percent, the third straight quarterly decline.

Thus, even if the Chilean economic growth has steadied in the past few quarters, there are no signs that the economic activity is poised to accelerate in the near future, added Wells Fargo.