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Chile Business Forecast Report Q1 2015

  • October 2014
  • -
  • Business Monitor International
  • -
  • 53 pages

Core Views
The Chilean economy will expand at a sluggish pace in the coming quarters, as weaker growth in China and deteriorating business confidence weigh on fixed investment. In addition, falling consumer confidence indicates tepid household spending is ahead. A weakening economy will hurt the ruling Nueva Mayoría (NM) coalition's popularity, prompting the Chilean government to shelve its social agenda in favour of pro-growth policies. With the NM likely to backtrack on education reform, there is a rising probability that Chile's student protest movement will reignite in the months ahead. Chile's external account rebalancing will continue in the coming years, with a weaker exchange rate bolstering the country's good trade dynamics. This will see the current account deficit shrink to 1.9% of GDP in 2014 and 1.2% in 2015, from 3.4% of GDP in 2013.

Major Forecast Changes
We have revised down our 2014 real GDP growth forecast from 2.5% to 2.0%, and our 2015 forecast from 3.2% to 2.6%, implying a more substantial drop-off from 4.1% growth in 2013. We revised down our 2014 average exchange rate forecast from CLP562.0/USD to CLP573.9/USD, expecting the peso to average CLP613.7/USD through the remainder of 2014, compared to the current spot price of CLP598.5/USD.

Table Of Contents

Chile Business Forecast Report Q1 2015
Executive Summary 5
Core Views..5
Major Forecast Changes.5
Key Risks To Outlook..5
Chapter 1: Political Outlook 7
SWOT Analysis. 7
BMI Political Risk Index.. 7
Domestic Politics 8
Weak Economy To Put Brakes On Bachelet's Reform Agenda..8
A weakening economy will hurt the ruling Nueva Mayoría
(NM) coalition's popularity, prompting the Chilean government to shelve its
social agenda in favour of pro-growth policies.
Table: Political Overview8
Long-Term Political Outlook 9
Broad Stability To Remain In Place.9
Market-friendly policies and strong institutions have been the hallmark of the Chilean government in recent years, and we believe that
the country will continue to set the benchmark for political stability in the region going forward. That said, there is a risk that the political
landscape could fracture over the longer term if the leading parties fail to address long-term concerns about an economy over reliant on
copper export-and-investment-led growth.
Chapter 2: Economic Outlook. 13
SWOT Analysis.. 13
BMI Economic Risk Index 13
Economic Activity .. 14
No Major Rebound In Growth In 2015..14
The Chilean economy will expand at a sluggish pace in the coming quarters, as weaker growth in China and deteriorating business
confidence weigh on fixed investment. In addition, falling consumer confidence indicates tepid household spending is ahead.
Tab le: Ec onomic Acti vit y14
Monetary Policy. 15
Inflation To Keep Policy Rate On Hold15
The Banco Central de Chile has concluded its monetary easing cycle and we forecast that the policy rate will remain on hold at 3.25
%through to end-2015. Above-target inflation will forestall further cuts, despite weak economic growth.
Tab le: Moneta ry Polic y..16
Fiscal Policy. 17
Modest Fiscal Slippage On The Cards17
Subdued revenue growth and higher levels of government expenditure will lead Chile's primary budget surplus to narrow through 2015.
Stronger revenues, stemming from recent Chile's tax reform legislation, will see the surplus widen again beginning in 2016.
Table: Fiscal Policy.18
Balance Of Payments 19
External Account Rebalancing Well Under Way19
Chile's external account rebalancing will continue in the coming years, with a weaker exchange rate bolstering the country's good trade
dynamics. This will see the current account deficit shrink to 1.9% of GDP in 2014 and 1.2% in 2015, from 3.4% of GDP in 2013.
Table: Current Account.20
Exchange Rate Policy .. 21
CLP: Global Rebalancing To Maintain Downward Pressures21
The Chilean peso will remain under broad downward pressure from US dollar strength and a secular downtrend in average copper
prices in the coming years. That said, a narrowing current account deficit and more supportive monetary policy by the central bank
mean that the largest sell-off in the currency is behind us.
Table: CURENCY FORECAST..21
Table: Exchange Rate22
Chapter 3: 10-Year Forecast. 25
Tab le: Long -Term Mac roeconomic Forecasts 25
The Chilean Economy To 2023 25
Slower Growth, But Strong Fundamentals..25
A stable political outlook and sound economic fundamentals position Chile for steady, albeit slower, economic progress, underpinning
our view that the country will have achieved developed state status by 2023. While obstacles such as high reliance on copper exports
and oil imports continue to pose a risk to economic progress, especially in light of what we view as a long-term downturn in Chinese
demand for Chilean copper, we remain optimistic about Chile's economic potential over the next 10 years. Diversification away from
commodity exports and further development of regional and South-to-South trade will provide an important platform for growth over the
next decade.
Chapter 4: Operational Risk. 27
Operational Risk Index. 27
Operational Risk 28
Table: Operational Risk..28
Transport Network 29
Tab le: LATAM Transp ort Netw ork Ris ks.30
Economic Openness.. 32
Tab le: Latin America Ec onomic Op enn ess Ris k33
Table: Exports By Product.34
Chapter 5: Key Sectors.. 37
Oil and Gas 37
Tab le: Proven Oi l and Gas Reserves And Tota l Petroleum Data 38
Tab le: Proven Oi l and Gas Reserves And Tota l Petroleum Data 39
Infrastructure.. 42
Table: Construction And Infrastructure Industry Data43
Table: Construction And Infrastructure Industry Data44
Other Key Sectors 49
Tab le: Pharma Sect or Key Indicat ors.49
Tab le: Telecoms Sect or Key Indicat ors49
Table: Defence and Security Sector Key Indicators..49
Table: Food and Drink Sector Key Indicators.50
Table: Autos Sector Key Indicators.50
Chapter 6: BMI Global Assumptions.. 51
Global Outlook 51
Big Emerging Market Revisions.51
Tab le: Globa l Assumpti ons .51
Table: Developed States, Real GDP GrowtH, %..52
Tab le: BMI VER SUS BLO MBER G CONSENSUS RE AL GDP GRO WTH FORE CASTS, %.. 52
Tab le: Em erging Markets , Real GDP Growt h, %.53

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