|Chile’s rapid economic growth has slowed sharply since mid-2013 and is projected to pick up only modestly in the near term. Declining copper prices and lower demand from China have reduced the terms of trade, business confidence and investment. A moderate recovery is expected in 2015 and 2016, driven by supportive monetary policy, expansionary fiscal policy and stronger external demand.
The sharp depreciation of the Chilean peso has put upward pressure on inflation. However, inflation expectations remain well anchored, and hence the central bank has space to react to the incipient slack and weakening labour market with another interest rate cut. In 2015, a significant expansion in public spending is appropriate to support aggregate demand, and there is fiscal space to extend this stimulus into 2016 if needed. The official commitment to balance the budget in the longer term is welcome.
Note: All data definitions based on internationally comparable standards and may differ in specific cases from common national definitions.