Real GDP growth in Chile will remain modest in 2016, as copper sector weakness will continue to drag on economic activity. Rising prices will buoy the copper sector heading into 2017 and investment into non-copper sectors will become a key driver of economic growth.
Chile's current account deficit will widen modestly in 2016 as weak copper prices undermine exports. However, a diversifying export base and rising copper prices will support narrowing deficits in the years ahead, while capital inflows support Chile's balance of payments position.
The Chilean peso will gradually strengthen in H216 as copper prices begin to trade higher. Tighter monetary policy and improving investor sentiment toward the region will offer tailwinds in the coming quarters, as a diversifying export base reduces the unit's close association with copper prices.
The Banco Central de Chile will temper its rate hiking cycle, enacting just one additional rate hike in 2016, in response to decelerating inflation and disappointing economic growth. Supported by the Chilean peso's strength, inflation will fall within the BCC's target range in the coming months.
A narrowing fiscal deficit will keep Chile highly creditworthy in the coming years, as tax reforms help to support revenues while political gridlock prevents the passage of any major spending measures.
Should the Chinese economy deteriorate more significantly than currently anticipated by the end of the year, copper prices could continue falling, leading to weaker-than-expected export performance, slower growth and a further depreciation of the CLP.
Investigations into official corruption could further undermine President Michelle Bachelet's political support and derail her government's reform agenda.
|e/f = BMI estimate/forecast; Source: BCC, BMI|
|Real GDP growth, % y-o-y||1.9||2.1||2.1||2.7|
|Nominal GDP, USDbn||258.5||240.1||246.1||265.6|
|Consumer price inflation, % y-o-y, eop||4.6||4.4||3.5||2.9|
|Exchange rate CLP/USD, eop||606.45||708.60||650.00||630.00|
|Budget balance, % of GDP||-1.5||-3.2||-1.8||-1.3|
|Current account balance, % of GDP||-1.3||-2.0||-2.1||-1.4|
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