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 Chilean economic system in the period 2014 and the first months of 2015.
The President of the Republic, as well as Head of Government, Michelle Bachelet, supported by the coalition of centre-left parties and has succeeded in getting important reforms approved in recent years. With the tax reform, which provides, among other things, theincrease in corporate income tax, the Government intends to find resources equal to 3% of GDP, useful for financing education and aimed at reducing the structural budget deficit.
The growth rate forecasts for 2014, assumed to be between 3,5 and 2,5%, have not been met. The growth rate went from 4,3% in 2013 to 1,9% in 2014. In particular, the change in stocks weighed on the economic trend investments (-6,1% year/year)partly due to the less favorable climate caused by some reforms. The exports, slowing down but still growing, went from +3,6% in 2013 to +0,7% in 2014. The change in cheap imports, on the other hand, is negative (-7% compared to the previous year).
Specifically, the sector manufacturing it has a limited weight (about 11% of the GDP) and sees the prevalence of the processing industries of agricultural, fish and forest products (over 50% of the total manufacturing) and metals. The primary sector continues to be critical to the Chilean economy. The state, through the state-owned company CODELCO, has control over the extraction of copper. Chile extracts a third of the copper produced in the world. In the last ten years, the weight of exported copper on total exports has increased from 41% to 56%. Both agricultural and manufacturing production, compared to 2013, both recorded a negative sign (-0,3%). Extraction and construction activities, on the other hand, remain positive but will show a slowdown (respectively: +1,4% in 2014 compared to +6% in 2013; +1,5% from +4%). Services are also slowing down: trade goes from +6,8% in 2013 to +0,6%, while financial services go from +6,2% to +3%.
The data for the last months of 2014 and the first months of 2015 bode well for the Chilean economy for 2015 (expected GDP growth: +2,8%). In particular, the factors that will have a positive effect on GDP in 2015 are: the previous cuts in monetary rates; the boost to exports, coming specifically from the depreciation of the exchange rate; the reduction in the cost of hydrocarbons which should favor energy-intensive companies; the expected limited recovery in investments.
The trend rate of inflation it first grew and then partially decreased (3% in 2013; 5,7% in October 2014; 4,6% at the end of 2014). However, it remained well beyond the limits set by the central bank's target range (2-4%).
Since October 2013, the central bank's reference rate has decreased by 150 basis points, currently standing at 3%.
The Chilean peso depreciated from January 2014 to mid-March 2015 by 20% against the US dollar.
From the 2011, the Balance of payments of Chile recorded a current account deficit (on average equal to 2,4% of GDP in the period 2011-14) mainly due to the remuneration of foreign capital invested in the country. The trade balance shows a surplus thanks to exports of raw materials (mainly minerals and agricultural products) while imports mainly concern durable and semi-durable goods, especially capital goods. The financial account shows a sizeable surplus from direct and portfolio investment.
Chile among the various economies of Latin America is the most appreciated by the 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, the low public debt and the effective management of the economic policy.
The main risk factors they are linked to the excessive dependence of GDP dynamics on the state budget and on the external balances of the primary sector (agro-fishing and mining) and on the vulnerability of the national energy balance. The energy produced in the country is a lot but, since it is produced by hydroelectric plants, it is greatly affected by the climatic conditions.
