OECD Economic Outlook, Volume 2025 Issue 1

Chile

Output is projected to grow by 2.4% in 2025 and in 2026. Household consumption will benefit from rising real wages and job creation, while investment will be supported by reduced credit costs and improved business confidence. Export growth is projected to remain solid, despite ongoing global trade uncertainties. A broader expansion of global tariffs could affect Chile’s exports. Inflation is projected to gradually fall to 3.3% in 2026.

Monetary policy is expected to gradually converge to a neutral stance as inflation stays on a declining path. Fiscal policy will remain prudent, guided by the fiscal rule, and focused on keeping debt sustainable while supporting targeted investment and social spending. Advancing structural reforms to simplify regulations, improve permit procedures, and boost skills and innovation will be essential to lift investment and productivity growth.

Growth remains resilient despite global risks

Activity has strengthened since mid-2024, with annual seasonally adjusted GDP growth reaching 2.4% in the first quarter of 2025. The March monthly economic indicator points to continued expansion and an upward revision in growth in early 2025, driven mainly by non-mining components. Industrial output is recovering, helped by solid external demand and recovering business sentiment. Headline inflation has edged up recently, to 4.5% in April, reflecting the adjustment of electricity tariffs after a multi-year freeze, to align prices more closely with actual generation and distribution costs, and higher energy costs. Core inflation, however, has continued its downward trend, falling steadily to 3.7% in April 2025. The impact of the rise in energy prices on inflation is expected to be temporary. Two-year ahead inflation expectations remain firmly anchored around the central bank’s 3% target. Real wages are rising again and employment is growing, although the pace of job creation remains uneven across sectors.

Chile

1. Consumer price index excluding energy and food.

Source: Central Bank of Chile; and INE.

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Chile: Demand, output and prices

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External conditions are mixed. China’s improved outlook has sustained demand for Chilean commodities, reinforcing export revenues. Tourism inflows have recovered, benefiting retail and services. However, global uncertainty has intensified due to new tariff increases in the United States, Chile’s second-largest trading partner. The United States accounts for just 16% of Chilean exports of goods, with 45% of those shipments – including copper, other minerals, and wood products – currently exempt from US tariffs.

Monetary policy will be broadly neutral alongside fiscal consolidation

The monetary policy stance is expected to converge towards the estimated neutral rate of 4%, following a pause in the easing cycle, and the output gap is narrow. Gradual rate cuts are expected in 2025 by the central bank, with policy rates falling to 4¼ per cent in the latter half of 2026. On the fiscal side, policy is assumed to remain prudent in 2025 and 2026, in line with the government’s commitment to the fiscal rule. The government announced additional fiscal consolidation measures in the first quarter of 2025, totalling about 0.6% of GDP, mainly through administrative spending cuts. The primary balance is projected to improve gradually, with debt stabilising over the projection period. Revenue raising measures including a new mining royalty are set to support revenues and help finance key programmes over the projection period.

Growth will hold up amid trade uncertainty

GDP is projected to grow by 2.4% in 2025 and 2026, supported by rising real incomes, recovering consumer sentiment and investment. Business confidence has improved, and while global financial tightening remains a risk, domestic financial conditions have been easing, supporting the investment outlook. Despite improving real wages, private consumption will remain moderate, with elevated uncertainty and uneven job creation weighing on sentiment. Rising trade tensions, particularly involving the US and China, are expected to weaken growth in key export markets. Headline inflation is set to converge to 3% by the end of 2026, reflecting waning supply shocks, anchored expectations and contained wage pressures. Core inflation will continue declining, helped by prudent monetary policy and a stable exchange rate. Volatile energy and commodity prices and weather-related disruptions may cause temporary inflation fluctuations. Risks to the outlook include a sharper slowdown in global demand for copper, potentially triggered by weaker activity in China. Global uncertainty, if prolonged, could weigh on sentiment and investment. On the upside, faster progress in large mining projects and stronger household real wage growth may boost domestic demand more than expected. While financial spillovers remain contained for now, increased global market volatility could tighten financing conditions.

Streamlined regulation would improve the investment climate

Ensuring macroeconomic stability and public debt sustainability requires balancing fiscal consolidation with efforts to boost long-term growth. In addition to prudent budget management, continued progress in reducing regulatory barriers and fostering competition is essential, including through simplified procedures that lower entry barriers for new firms across sectors. Advancing the permit reform, currently underway, will simplify, standardise and speed up the issuance of multiple sectoral permits to boost investment while maintaining environmental safeguards. Promoting green and resilient infrastructure requires significant investment while fostering innovation, particularly in clean technologies.