Central Bank of Chile reduces GDP growth forecast for 2023

He Central Bank of Chile On Wednesday, it slightly reduced its projection for the growth of the Gross Domestic Product (GDP) for 2023, which, affected mainly by mining, will not grow or even contract 0.5% according to the entity.

The latest Monetary Policy Report (IPOM) reveals an adjustment in growth forecasts this year compared to the latest June projections, with a decrease in GDP from -0.5% / 0.25% to -0.5% / 0%.

According to the report, it is about “minor revisions”, focused on lower-than-expected performance in mining. Chile is the world’s leading producer of copper and the second of lithium.

“This projection considers the impact of the operational problems that have affected mining production in recent months.”, explained the issuing entity.

For 2024, the BC projects growth of between 1.25% and 2.25%, while for 2025 it forecasts between 2% and 3%.

The analysis adds that although the macroeconomic scenario has evolved as expected, inflation remains high. In July the rate closed at 6.5% per year.

The bank projects that inflation will close at 4.3% this year, slightly above what was expected last June (4.2%). In the second half of 2024, inflation would reach 3% per year, the goal of the central.

According to the issuing entity, “headline inflation will continue to decline”, projecting a closing this year at 4.3% annual (0.1 points more than what was stipulated in June).

On Tuesday afternoon, the agency lowered the benchmark interest rate by 75 basis points to 9.5%, the second drop since last October, when it raised it to its highest level since 2001.

The decision was made based onthe magnitude and timing of the process of reducing the Monetary Policy Rate will take into account the evolution of the macroeconomic scenario and its implications for the trajectory of inflation”.

The Chilean Central Bank also indicated that service inflation has fallen more slowly. Regarding inflation expectations for two years, both the Survey of Economic Expectations (EEE) and the Survey of Financial Operators (EOF) are at 3%.

The Chilean economy recovered faster than expected after the pandemic, with a historic increase of 11.7% in 2021, but in 2022 it began to slow down and closed with growth of 2.4%.

The financial aid provided by the Government to alleviate the impact of the crisis, as well as early withdrawals from pension funds, considerably boosted consumption and inflation, to which are added the effects of the war in Ukraine.

For this year, the Chilean Central Bank estimates that the GDP will vary between -0.5 and 0% and that the goal of 3% can be reached by the end of 2024.

This week, ECLAC predicted a contraction of 0.3% in the Chilean economy. Chile will be, according to this organization, the only country in the region along with Argentina that will see economic activity shrink in 2023.

With information from AFP and EFE