Chile's growth outlook for 2015 not so optimistic

Chile's Q2 2015 GDP was expanded 1.9% from Q2 2014 GDP, but came in lower than the Q1 2015 GDp of 2.5%. This was slightly above what market participants expected. There was significant rise in public spending and the labor market was strong, but somehow they could not lift consumption growth.

The net exports supported the country's growth, but there was a significant decline in imports. Chile's growth is depending largely on fiscal spending, and declining imports. Chile's economy is likely to recover slightly from August's decline.

"Accordingly, the 2015 growth forecast is at 2.3% also does not hold anymore and the economy appears to be on course to grow a couple of percentage points lower than the estimate (but a couple higher than the 2014 number). The main cause of the weak growth projection is persistently lacklustre private investment, as exports have failed to pick up", says Societe Generale. 

Years back, Chile's economy was much stronger than that of now. The annual GDP rate averaged 5.27% from 1987-2015. It was strongest in 1992, and weakest in 1999. Growth potential has declined to less than 3.0% from more than 4.0%, and substantial fiscal and monetary easing is unlikely to be sufficient to restore the potential unless supported by positive external shocks like China.