Chile Country Risk Report

Published 28 January 2015 | Quarterly

  • 52 pages
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  • Includes 3 free updated quarterly reports
 
$1,195.00
Chile Country Risk Report

Core Views

  • Chilean real GDP growth hit bottom in 2014, and will accelerate modestly in 2015. 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 2015. Beyond 2015, the deficit will begin to gradually narrow as spending policies normalise and an increase in the corporate tax rate bolsters revenues.

Major Forecast Changes

  • Chile's 2014 tax reform law will be implemented gradually over a multi-year timeframe. This has encouraged us to modestly adjust our 2015-2017 forecasts for government revenues. As a result, our 2015 nominal fiscal deficit forecast of 1.9% marks a downward revision from our previous forecast for a 1.8% of GDP shortfall. Moreover, we have revised up our 2016 fiscal deficit forecast from 1.8% of GDP to 1.2%, and our 2017 forecast from 1.6% of GDP to 0.3%.

Risks To Outlook

  • The plunge in market expectations of Chilean inflation amid declining oil prices poses downside risks to our interest rate forecast. Structurally lower oil prices could pave the way for the Banco Central de Chile to adopt a dovish bias during the second half of the...

Table of Contents

Executive Summary
5
Core Views
5
Major Forecast Changes
5
Key Risks To Outlook
5
Chapter 1: Political Outlook
7
SWOT Analysis
7
BMI Political Risk Index
7
Domestic Politics
8
Centre-Right Opposition To Stymie Labour Reform
8
Chile's centre-right opposition will succeed in blocking, or watering down, the labour reform bill proposed by President Michelle
Chile's centre-right opposition will succeed in blocking, or watering down, the labour reform bill proposed by President Michelle
Bachelet, overriding the legislation's backing from union groups
TABLE: Political Overview
8
Long-Term Political Outlook
9
Broad Stability To Persist
9
Market-friendly policies and strong institutions have been the hallmark of the Chilean government in recent years, and we believe that
Market-friendly policies and strong institutions have been the hallmark of the Chilean government in recent years, and we believe that
the country will continue to set the benchmark for political stability in the region going forward
Chapter 2: Economic Outlook
13
SWOT Analysis
13
BMI Economic Risk Index
13
Economic Activity
14
Lower Oil Prices To Provide Modest Tailwind For Growth
14
Chilean real GDP growth hit bottom in 2014, and will accelerate modestly in 2015
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
government's fiscal stimulus and tailwinds from lower oil prices will support stronger economic activity, although headline growth will
remain below the historical trend
TABLE: Economic Acti vit y
14
Monetary Policy
16
Drop In Inflation Expectations Unlikely To Prompt Additional Rate Cuts
16
Above-target inflation will see the Banco Central de Chile hold the benchmark policy rate at 3
00% through end-2015, despite a tepid
economic recovery
TABLE: Moneta ry Polic y
16
Fiscal Policy
17
Deficit To Peak In 2015
17
The Chilean government's expansionary fiscal policies will drive a widening of the nominal budget shortfall in 2015
Beyond 2015, the
deficit will begin to gradually narrow as spending policies normalise and an increase in the corporate tax rate bolsters revenues
TABLE: Fiscal Polic y
17
Balance Of Payments
19
Oil Price Decline To Support Rebalancing
19
Chile's ongoing external account rebalancing will continue in the coming years, as a weaker average peso bolsters the economic
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
TABLE: Curent Account
19
Exchange Rate Policy
21
CLP: Falling Oil Prices To Temper Downside Pressures
21
The Chilean peso will remain under broad downside pressure from falling copper prices and a bull run in the US dollar over the coming
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
TABLE: CURRENCY FORECAST
21
TABLE: Excha nge Rate
22
Chapter 3: 10-Year Forecast
23
The Chilean Economy To 2024
23
Slower Growth, But Strong Fundamentals
23
A stable political outlook and sound economic fundamentals position Chile for steady, albeit slower, economic progress, underpinning
A stable political outlook and sound economic fundamentals position Chile for steady, albeit slower, economic progress, underpinning
our view that the country will have achieved developed state status by 2024
While obstacles such as high reliance on copper exports
continue to pose a risk to economic progress, especially in light of what we view as a long-term downturn in Chinese demand for
continue to pose a risk to economic progress, especially in light of what we view as a long-term downturn in Chinese demand for
Chilean copper, we remain optimistic about Chile's economic potential over the next 10 years
Diversification away from commodity
exports and further development of regional and South-to-South trade will provide an important platform for growth over the next
exports and further development of regional and South-to-South trade will provide an important platform for growth over the next
decade
TABLE: Long-Term Mac roec onomic Forecasts
23
Chapter 4: Operational Risk
25
SWOT Analysis
25
Operational Risk Index
25
Operational Risk
26
TABLE: Operational Risk
26
Availability Of Labour
27
TABLE: Latin America - Availability of Labour Risk
28
TABLE: Labour Force Employment By Sector ('000), 2011-2013
29
TABLE: Top 10 Source Countries For Migrant Workers
30
Crime Risk
32
TABLE: Latin America - Crime Risk
32
TABLE: Crime Statistics
33
Chapter 5: Key Sectors
35
Autos
35
TABLE: Autos Total Market - Historical Data And Forecasts
36
TABLE: TOP 10 BEST-SELLING HCV/BUS BRANDS, 8M14
37
Food & Drink
38
TABLE: Food Consumption Indicators - Historical Data & Forecasts
39
TABLE: Hot Drink Value /Volume Sales , Production & Trade - Historical Data & Forecasts
41
TABLE: Mass Grocery Retail Sales By Format - Hist orical Data & Forecasts
43
Other Key Sectors
45
Table : Pharma Sector Key Indicators
45
Table : Defence and Security Sector Key Indicators
45
Table : Telecoms Sector Key Indicators
45
Table : Oil and Gas Sector Key Indicators
46
Table : Infrast ructure Sector Key Indicators
46
Table : Freight Key Indicators
46
Chapter 6: BMI Global Assumptions
47
Global Outlook
47
New Era For Oil
47
Table : Global Assumpti ons
47
Table : Devel oped States , Real GDP Growt H, %
48
Table : BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FOR ECASTS, %
48
Table : Emerging Markets , Real GDP Growth , %
49

The Chile Country Risk Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in Chile. It is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.

An influential new analysis of Chile's economic, political and financial prospects through end-2019, just published by award-winning forecasters, Business Monitor International (BMI).

Key Uses

  • Forecast the pace and stability of Chile's economic and industry growth through end-2019.
  • Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
  • Assess the critical shortcomings of the operating environment that pose hidden barriers and costs to corporate profitability.
  • Contextualise Chile's country risks against regional peers using BMI's country comparative Risk Index system.
  • Evaluate external threats to doing business in Chile, including currency volatility, the commodity price boom and protectionist policies.

The Chile Country Risk Report by Business Monitor International (BMI) includes four major sections: Economic Outlook, Political Outlook, Operational Risk and Key Sector Outlook.

Economic Outlook:

How will the Chile' economic policy-making and performance impact on corporate profitability over 2015-2019?

BMI provides our fully independent 5-year forecasts for Chile through end-2019 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.

Economic Outlook Contents

The Chile Country Risk Report features BMI's forecasts with supporting analysis for 2015 through to end-2019, set against government views and BMI's evaluation of global and regional prospects.

Key Areas Covered:

Data:

  • Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
  • BMI's comprehensive Risk Index system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.

Written Analysis:

  • Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
  • Balance of Payments - trade and investment, current and capital account.
  • Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
  • Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
  • Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
  • Foreign Direct Investment - approvals, inflows and climate.
  • External Debt - debt profile (short and long-term plus public and private sector obligations).
  • Global Assumptions - forecasts for each year to end-2019 covering: major commodities, growth in key regions, inflation, and interest and exchange rates, in the United States, Japan, China and the eurozone.

Key Benefits

  • Rely upon BMI's 100% independent forecast scenarios for Chile and underlying assumptions - we take no advertising and are privately-owned.
  • Exploit the benefits of BMI's comprehensive and reliable macroeconomic database on Chile, sourced and fully maintained by BMI from an extensive network of private sector, government and multilateral contacts.
  • Gain key insights into the current and future direction of government economic policy, which could significantly affect your company's business prospects, from BMI's team of analysts and economists.

Political Outlook:

What are the political risks to doing business in Chile over the next 5-years?

BMI's Chile country Risk Index evaluates the short- and medium-term threats to political stability.

Political Outlook Contents

  • SWOT Analysis for the Chile Market - Political Strengths, Weaknesses, Opportunities and Threats facing Chile.
  • Political Stability and Risk Assessment - BMI's Risk Index assesses explicit short- and long-term risks to political stability; latest positioning and trends for Chile's risk are compared with regional and global averages.
  • Current Administration and Policy-making BMI assesses the threats to the continuity of economic policy, and likely changes to the business operating environment.
  • Long-Term Political Outlook BMI examines the structural risks to the stability of Chile’s political system and the dominant public policy issues likely to affect decision-makers, and outlines scenarios for how the state could evolve in the medium to long term.

Key Benefits

  • Benchmark Chile's risk profile against its neighbours, the global and regional average, allowing easy comparison of risks between key business markets.
  • Identify, evaluate and anticipate political and security risks to the business environment, and to your company's current operations and future plans.
  • Gain valuable insights into government and policy-making, through BMI's specialist team of analysts and economists, and their network of private and public sector sources.

Operational Risk

What are the current operational risks and difficulties associated with doing business in Chile?

The Operational Risk section gives an evaluation of current risks and difficulties associated with operating in the market. It also provides a brief overview of the regional Operational Risk Index which benchmarks Chile against its neighbours.

Operational Risk Contents

The chapter provides a summary of the main threats in the country, within:

  • Labour Market Risk (Education; Availability of Labour; and Labour Costs)
  • Logistics Risk (Market Size and Utilities; Quality and Extent of the Transport Governance)
  • Trade and Investment Risk (Economic Openness; Government Intervention; and Legal Risks)
  • Crime and Security Risk (Crime; Terrorism; and Interstate Conflict risks).

The report also drills down in greater depth to address key issues in one of the following segments most critical to the market:

  • Transport network, economic openness, cost and availability of labour, crime risks, bureaucratic environment, market size and utilities, and interstate conflict.
  • Assess your company’s exposure to country specific operational and business risks, using BMI’s insight on the current dangers of operating in the market.
  • Evaluate Chile’s risk profile against its regional peers, helping you understand the market’s strengths and weaknesses in relation to other countries.

Key Sector Outlook*

Which industry sectors in Chile will grow fastest, and where are the major investment opportunities in the market?

BMI identifies investment opportunities in Chile's high growth industries including automotives, defence & security, food & drink, freight transport, infrastructure, oil & gas, pharmaceuticals & healthcare and telecommunications & IT.

Key Areas Covered:

  • Market Overview - Size and value of each industry, including recent sector developments and major industry key performance indicators (KPIs) that have impacted company performance.
  • 5-year Industry Forecasts - Forecasts for each year over 2015-2019, using BMI's proprietary industry modelling technique, which incorporates key domestic and international indicators - including economic growth, interest rates, exchange rate outlook, commodity prices and demographic trends - to provide fully integrated forecasts across and within each industry.
  • Demand- and Supply-Side Data/Forecasts - BMI's industry data covers both the output of each industry and the domestic demand, offering clear analysis of anticipated import/export trends, as well as capacity growth within each industry.

Key Benefits

  • Target strategic opportunities in high growth industries, which are benefiting from global mega trends, and thus offer strong investment and growth opportunities.
  • Compare the growth path of different industries to identify which are best placed to benefit from domestic and international economic prospects, and which have historically suffered from volatile growth trends - a key indicator of future risks.

*Not all Country Reports contain the Key Sector Outlook chapter. Please enquire above for more information.

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Testimonials

The sections that I find most interesting and useful are the macroeconomic data and forecasts for the country, top export destinations and economic activity. The indicators/analysis of these areas helps us orient our thinking, our assumptions and, consequently, our decisions in the commercial area.

Country Manager, DHL Express