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Chile Country Risk Report Q4 2016

  • July 2016
  • -
  • Business Monitor International
  • -
  • 45 pages

Core Views

Real GDP growth in Chile will remain modest in 2016, as coppersector weakness will continue to drag on economic activity. Risingprices will buoy the copper sector heading into 2017 and investmentinto non-copper sectors will become a key driver of economic growth.Chile’s current account deficit will widen modestly in 2016 as weakcopper prices undermine exports. However, a diversifying exportbase and rising copper prices will support narrowing deficits in theyears ahead, while capital inflows support Chile’s balance of paymentsposition.The Chilean peso will gradually strengthen in H216 as copper pricesbegin to trade higher. Tighter monetary policy and improving investorsentiment toward the region will offer tailwinds in the coming quarters,as a diversifying export base reduces the unit’s close associationwith copper prices.The Banco Central de Chile will temper its rate hiking cycle, enactingjust one additional rate hike in 2016, in response to decelerating inflationand disappointing economic growth. Supported by the Chileanpeso’s strength, inflation will fall within the BCC’s target range inthe coming months.A narrowing fiscal deficit will keep Chile highly creditworthy in thecoming years, as tax reforms help to support revenues while politicalgridlock prevents the passage of any major spending measures.

Table Of Contents

Chile Country Risk Report Q4 2016
Executive Summary. 5
Core Views5
Key Risks..5
Chapter 1: Economic Outlook 7
SWOT Analysis.. 7
BMI Economic Risk Index 7
Economic Growth Outlook. 8
Growth Will Pick Up In H216..8
Real GDP growth in Chile will remain modest in 2016, as copper sector weakness will continue to drag on economic activity. Rising
prices will buoy the copper sector heading into 2017, as investment into non-copper sectors will become a key driver of economic
growth.
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS.9
TABLE: PRIVATE CONSUMPTION FORECASTS.9
TABLE: GOVERNMENT CONSUMPTION FORECASTS..9
TABLE: GROSS FIXED CAPITAL FORMATION FORECASTS10
TABLE: NET EXPORTS FORECAST.10
Fiscal Policy And Public Debt Outlook 10
Narrowing Fiscal Deficit To Reinforce Creditworthiness.10
Chile's fiscal deficit will narrow in 2016, as tax reforms help to support revenues while political gridlock will prevent the passage of any
major spending measures. As a result, the country will remain highly creditworthy in the coming years.
Structural Fiscal Position. 12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES..12
TABLE: FISCAL AND PUBLIC DEBT FORECASTS..13
External Trade And Investment Outlook. 14
Current Account Deficit To Improve In Coming Years..14
Chile's current account deficit will widen modestly in 2016 as weak copper prices undermine exports. However, a diversifying export
base and rising copper prices will support narrowing deficits in the years ahead, while capital inflows support Chile's balance of
payments position.
Outlook On External Position. 15
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE..15
TABLE: CURRENT ACCOUNT BALANCE FORECASTS16
TABLE: TOP 5 GOODS IMPORTS IN 201516
TABLE: TOP 5 GOODS EXPORTS IN 2015..16
Monetary Policy . 17
Pace Of Hikes Will Slow In Response To Tepid Growth17
The Banco Central de Chile will temper its rate hiking cycle, enacting just one additional rate hike in 2016, in response to decelerating
inflation and disappointing economic growth. Supported by the Chilean peso's strength, inflation will fall within the BCC's target range in
the coming months.
Monetary Policy Framework 18
TABLE: MONETARY POLICY FORECASTS.19
Currency Forecast. 19
CLP: Rising Copper Prices Will Drive Gradual Strengthening.19
The Chilean peso will gradually strengthen in H216 as copper prices begin to trade higher. Tighter monetary policy and improving
investor sentiment toward the region will offer tailwinds in the coming quarters, as a diversifying export base reduces the unit's close
association with copper prices.
TABLE: BMI CURRENCY FORECASTS..20
Chapter 2: 10-Year Forecast. 21
The Chilean Economy To 2025. 21
Strong Fundamentals And Gradual Diversification Support Robust Growth.21
Chile will remain among Latin America's most advanced economies over the coming decade, supported by its strong fundamentals.
Manufacturing and services will increasingly drive growth, as the end of the commodity boom dims the copper sector's outlook.
TABLE: LONG-TERM MACROECONOMIC FORECASTS.21
Chapter 3: Political Outlook. 25
SWOT Analysis 25
BMI Political Risk Index. 25
Domestic Politics.. 26
Reform Agenda Will Confront Gridlock26
Chilean President Michelle Bachelet is unlikely to secure major progress on key elements of her reform agenda in the coming months.
Judicial challenges and tensions within Bachelet's coalition will lead to legislative gridlock, which will underpin public unrest.
TABLE: POLITICAL OVERVIEW..26
Long-Term Political Outlook.. 27
Broad Stability To Persist.27
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 reliant on
copper export-led growth.
Chapter 4: Operational Risk. 31
SWOT Analysis 31
Operational Risk Index.. 31
Operational Risk. 32
TABLE: OPERATIONAL RISK32
Market Size And Utilities .. 33
TABLE: LATIN AMERICA - MARKET SIZE AND UTILITIES RISK.34
Labour Costs .. 37
TABLE: LABOUR REGULATIONS GOVERNING FLEXIBILITY OF WORKFORCE.. 38
Chapter 5: BMI Global Macro Outlook 41
Global Macro Outlook. 41
Brexit Risk Casts A Long Shadow..41
TABLE: GLOBAL ASSUMPTIONS..41
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %42
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %..43
TABLE: MACROECONOMIC DATA and FORECASTS.45

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