The Chilean Economy will Grow 4% in 2022

This new projection has taken place after knowing the Monthly Index of Economic Activity  of the Central Bank of Chile in which the GDP rose 15% in October.

For the seventh consecutive month the country grows at double digits and in the first ten of 2021 it is equal to 11.9, predictably the year will close between 11.5% and 12.5%. To see an increase of this magnitude, we must go back to 1992 when the country touched the sky with 12.3%. While in 1989 and 1995 the comeback was 10.6%. In 2020 there was a decrease of -5.8%, reversed by the development of the previous semester.

Further refining, in the third quarter of 2021 there was an increase of 4.9% in relation to the second. Focusing on the tenth month, we observe that the progress registered has been influenced by manufacturing + 1.5%; electricity, water and gas + 4.9% and mining + 0.3%, the three fractions are components of the Industrial Production Index (IPI) which as a whole was higher by 1.3% compared to the same period of 2020. At the same time the numbers of the trade rebounded, the retail sales climbed by over 22% in twelve months.

Who foresees that there could be a better progression in 2022 is the current Chilean Finance Minister Rodrigo Cerda. In an interview with Bloomberg TV, he stated that the two presidential candidates Kast and Boric- are trying to move to the center, which he considers “good news for the economy and society.”

Referring to the political-electoral environment that Chile is experiencing at the moment, the Minister feels it is more “calm since the last round of elections, in which the center-right gained support and more politicians moved towards the center.” He added “in the future we will see much more political agreement, more restraint in our political discussion,” he said. “So if we are going to make changes, they will be more gradual. These are big changes in the political arena. There is more calm,” he said. He added that the new political landscape will make difficult decisions easier once they occur.

He recalled the pecuniary contributions made by the State during the pandemic such as direct cash transfers to families and companies, employment subsidies and special credit measures. To this must be added the three withdrawals from pension funds approved by Congress that entered 47,000 million dollars in the economy.

Fortunately, the fourth withdrawal of 10% that the Chamber of Deputies wanted to approve was rejected, immediately the Chilean stock market reacted to this decision with several values ​​accumulating significant increases.

Within the negative, caused in large part by the enormous outflows of the monetary mass of the Pension Fund Administrators (AFP), we find it in a soaring inflation issue that forced the Central Bank to intervene by raising the interest rate to lessen its effects , especially among low-income families.

Likewise, the report “Economic Outlook of the OECD”, of the Organization for Economic Cooperation and Development, of which Chile is one of its members, raised the forecast of growth of the Chilean economy to 12% for 2021 from a 6.7% previous forecast known last September.

Likewise, an OECD study comments that thanks to the tax incentives introduced to deal with Covid-19, together with the three withdrawals of 10% of the savings of money destined for pensions approved by Parliament and the attenuation of the impediments to mobility Chilean economic growth will be driven by private consumption.

In addition, the high prices of copper in the Metal Exchanges, a mineral of which Chile is the main global producer, and the measures adopted to accelerate private investment projects will boost fixed investment. They also value that Chile implemented one of the most effective vaccination programs against the pandemic in the world, reducing deaths attributable to the disease and facilitating the implementation of economic life.

Finally, by way of information for those who closely follow the Chilean economic situation, household consumption increased 27.5% year-on-year. This is what keeps domestic demand strong during this period, the same as what happened in the second quarter.

Thus, the pressure promoted by consumption meant that net exports had a negative influence on the performance of GDP in this stage, attributable to an increase in imports compared to a more limited evolution of shipments abroad. On the investment side, the Gross Formation of Fixed Capital (GFC), between July and September grew 29.8%.

Reviewer overview

The Chilean Economy will Grow 4% in 2022 - /10

Summary

This new projection has taken place after knowing the Monthly Index of Economic Activity  of the Central Bank of Chile in which the GDP rose 15% in October.

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