Intesa SanPaolo SpA, through its financial analyst of the Study and Research Service Giancarlo Frigoli, has published an interesting document entitled "Chile - Focus on Economy”. The publication illustrates the developments and weaknesses of the economic system Chilean in the period 2013 and the first months of 2014, as well as the Forecasts relating to the subsequent period, up to 2015.
Among the various economies of Latin America, Chile is the most appreciated by rating agencies (Chilean sovereign debt is rated AA- by S&P, A+ by Fitch and Aa3 by Moody's). This rating is justified by the solidity of the political-institutional framework, by the low public debt (16,9% of GDP), by the effective management of the economic policy and by the coverage of foreign financial needs guaranteed by reserves in foreign currency and assets of Sovereign Funds.
From an economic point of view, in the last year the Chilean economy has recorded a slowdown mainly due to the progressive exhaustion of the drive for investments in the mining sector and in reconstruction works after the 2010 earthquake. The trend growth rate of the GDP has passed from 5,2% in the 4th quarter of 2012 to 2,6% in the 1st quarter of 2014. In 2013, GDP growth amounted to 4,1%, from 5,4% in 2012. The most optimistic forecasts see a GDP in 2014 up by 3,5%, the less optimistic by 2,5%.
Compared to other Latin American countries, Chile is the country with the highest per capita income, the one with the best conditions of competitiveness (34th place out of 148 in the World Economic Forum ranking), the highest degree of human development (40th out of 172) and the most favorable climate for business (34th out of 189 in the ranking Doing business of the World Bank).
The manufacturing sector has a limited weight (about 11% of the GDP) and sees the prevalence of the processing industries of agricultural, fishery and forestry products (over 50% of the total manufacturing) and metals. The country imports most of the durable and semi-durable consumer, investment and intermediate goods.
Chile extracts a third of the copper produced in the world and in the last ten years the share of mining in exports it increased from 41% in 2003 to 57% in 2013. The state maintains control of this strategic sector through the state-owned company CODELCO. The entire mining sector accounts for 13,3% of GDP. The Chilean economy is greatly affected by the cyclical performance of other raw material consuming economies, especially emerging economies such as China, to which about a quarter of exports go.
In the first quarter of 1, compared to the previous period, agricultural activity showed a positive change (+2014%), while manufacturing and mining production did not undergo substantial changes (+8% and +0,2 % respectively).
As regards the trend ofinflation, the Central Bank has set the objective of keeping inflation controlled within a range of 2% to 4%. In the last months of 2013 and in the first half of 2014, the depreciation of the currency and the increases in the prices of food and energy products led to a substantial acceleration of the trend rate, which went from 1,9% at the end of October 2013 to 4,3% in June 2014. The Monetary Authority and the Government forecast that inflation will remain outside the target range for a few more months, to then drop to 3,9 .2014% at the end of December XNUMX.
In the first half of 2014 the Chilean peso, which follows a free-floating regime, was affected by new downward pressures, depreciating from January to mid-July by a further 8% against the dollar (to 566 CLP : 1 USD) after having lost almost 10% of its value last year. The rate cuts, which make peso assets less attractive, and the weakening of the economy weigh on the Chilean currency.
Of note is the slowdown of private consumption which go from +6% in 2012 and +5.6% in 2013 to +3.7% in the first quarter of 2014. In part this slowdown may be due to inflation and the substitution effect generated by higher consumption by the state .
Considerable attention deserves the dynamics of gross fixed investment, which went from +12,3% in the 4th quarter of 2012 to -5% in the 1st quarter of 2014.
From the point of view politician Chile is a presidential republic. The President of the Republic is also the Head of Government. The Lady Michelle Bachelet, who had already been President of Chile from 2006 to 2010, took office at the helm of the country for a second four-year term last March. The coalition that supports it is made up of centre-left parties (Nueva Mayoria), and has already started the discussion of a number of important reforms: electoral, education and fiscal. Particular attention should be paid to the latter which provides for the reduction of the maximum rate on natural persons (from 40% to 35%) e a simultaneous increase in that on businesses (from 20% to 25%). It will be interesting to evaluate the impact of this reform, whether it will be able to reactivate investments or just consumption and whether this will not generate further inflationary dynamics.
Some risks for the Chilean economy, as stated by the Intesa Sanpaolo Study and Research Service, seem to come in particular fromhigh volatility of the country's ability to obtain electricity. In fact, a good portion of the available energy comes from hydroelectric plants (52,8% in 2006, 42,7% in 2009 and 33% this year, a large part of these variations depend on climatic conditions).
Just as for the Russian economy, which was previously discussed in this section of FIRST online, the heavy dependence of the Chilean economy on the mining sector, in the specific case from copper production, and in particular from exports to China (1/4 of exports).
