Chilean real GDP growth will remain modest in 2016. An improving net exports position, combined with the government's fiscal stimulus and tailwinds from lower oil prices will support stronger economic activity, although headline growth will remain below the historical trend.
Chile's ongoing external account rebalancing will continue in the coming years, as a weaker average peso bolsters the economic competitiveness of manufactured goods exports, offsetting weakness in mining exports. Moreover, structurally lower oil prices will reduce Chile's import bill, contributing to a widening of the goods trade surplus.
The Chilean peso will remain under broad downside pressure from falling copper prices and a bull run in the US dollar over the coming quarters. However, structurally lower oil prices will bolster the country's terms of trade, helping the unit to stabilise following a significant sell-off.
The Chilean government's expansionary fiscal policies will drive a widening of the nominal budget shortfall in 2016. Beyond 2016, the deficit will begin to gradually narrow as spending policies normalise and an increase in the corporate tax rate bolsters revenues.
Risks To Outlook
The primary risks to our CLP forecasts lie to the downside. Should the Chinese economy deteriorate more significantly than currently anticipated, copper prices could fall further, precipitating further depreciation of the CLP. Additionally, a more aggressive rate hiking cycle in the US could drive US dollar strength, adding greater downward pressure. Finally, continued weakness from Chile's manufacturing exports could see demand for the CLP fall short of expectation and delay the unit's rebound.
Risks to our growth forecasts stem primarily from global commodity markets. A continued drop in copper prices through 2016 could drive a substantial deterioration in investor sentiment, weighing on needed investments in non-commodities sectors. Moreover, if copper prices do not find a base in 2016, the country's exports might take longer to return to growth than currently expected, dampening the positive contribution of net exports to headline growth.
|f=BMI forecast; Source: BCC, BMI|
|Real GDP growth, % y-o-y||1.9||2.4||2.4||4.0|
|Nominal GDP, USDbn||257.9||239.3||260.2||281.2|
|Consumer price inflation, % y-o-y, eop||4.6||3.9||3.5||2.9|
|Exchange rate CLP/USD, eop||606.45||708.60||630.00||620.00|
|Budget balance, % of GDP||-1.6||-1.9||-2.0||-1.2|
|Current account balance, % of GDP||-1.2||-0.4||-0.3||-0.2|
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