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Chile Country Risk Report Q2 2016

  • January 2016
  • -
  • Business Monitor International
  • -
  • 41 pages

Core Views

Chilean real GDP growth will remain modest in 2016. An improving netexports position, combined with the government's fiscal stimulus andtailwinds from lower oil prices will support stronger economic activity,although headline growth will remain below the historical trend.Chile's ongoing external account rebalancing will continue in the comingyears, as a weaker average peso bolsters the economic competitivenessof manufactured goods exports, offsetting weakness in miningexports.

Moreover, structurally lower oil prices will reduce Chile'simport bill, contributing to a widening of the goods trade surplus.The Chilean peso will remain under broad downside pressurefrom falling copper prices and a bull run on the US dollar over thecoming quarters. However, structurally lower oil prices will bolsterthe country's terms of trade, helping the unit to stabilise following asignificant sell-off.The Chilean government's expansionary fiscal policies will drive awidening of the nominal budget shortfall in 2016. Beyond 2016, thedeficit will begin to gradually narrow as spending policies normaliseand an increase in the corporate tax rate bolsters revenues.

Table Of Contents

Chile Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Employment Gains In Services To Drive Growth8
Private consumption in Chile will drive a rebound in growth over the coming quarters following employment gains in services Falling
producer costs will bolster the competitiveness of domestic industries, allowing manufacturing to strengthen over a multi-year
horizon
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS9
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: GROSS FIXED CAPITAL FORMATION FORECASTS10
TABLE: NET EXPORTS FORECAST10
Fiscal Policy And Public Debt Outlook 11
Fiscal Deficit Will Peak In 2016 11
Chile's fiscal deficit will peak in 2016 as the administration of President Michele Bachelet continues to support real GDP growth through
elevated expenditures Thereafter, the government will temper spending growth, gradually narrowing the deficit and returning to
balance by 2019
Structural Fiscal Position 12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES 12
External Trade And Investment Outlook 13
Weak Peso Will Drive External Account Rebalancing13
Chile's current account deficit will narrow slightly in 2016 as a weak peso drives imports to contract, offsetting sluggish exports
Investment will begin to flow in to non-extractive industries, as firms leverage the country's robust regulatory environment and increasing
cost competitiveness
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE13
Outlook On External Position 14
TABLE: TOP 5 GOODS IMPORTS IN 2014 14
TABLE: TOP 5 GOODS EXPORTS IN 201415
Monetary Policy 16
Elevated Inflation Will Lead To Additional Hikes16
The BCC will continue its rate hiking cycle in 2016, as inflation remains elevated due to currency weakness This will help to anchor
inflation within the BCC's target range in the latter half of 2016
Monetary Policy Framework 17
Currency Forecast 18
CLP: Pace Of Depreciation To Slow18
The Chilean peso will remain historically weak in 2016, trading at its lowest levels in more than a decade However, it will begin to
strengthen modestly in the latter half of the year as copper prices find a base and the Banco Central de Chile continues its rate-hiking
cycle
TABLE: BMI CURRENCY FORECAST18
TABLE: EXCHANGE RATE18
Chapter 2: 10-Year Forecast 21
The Chilean Economy To 2025 21
Slower Growth, But Strong Fundamentals21
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 2025 While obstacles such as high reliance on copper
exports continue to pose a risk to economic progress, especially in light of 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
TABLE: LONG-TERM MACROECONOMIC FORECASTS 21
Chapter 3: Political Outlook 23
SWOT Analysis 23
BMI Political Risk Index 23
Domestic Politics 24
Pace Of Bachelet's Reforms Will Be Tepid24
Chilean President Michelle Bachelet's ambitious suite of reforms will be held up by competing demands from businesses, unions,
teachers and opposition parties However, the gradual enactment of proposed reforms will result in improvements in the country's
operational environment with little downside to businesses or policy continuity
TABLE: POLITICAL OVERVIEW 24
Long-Term Political Outlook 26
Broad Stability To Persist26
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 29
SWOT Analysis 29
Operational Risk Index 29
Operational Risk 30
TABLE: OPERATIONAL RISK30
Trade Procedures And Governance 31
TABLE: EXPORT AND IMPORT DOCUMENTS31
TABLE: TRADE PROCEDURES BREAKDOWN31
TABLE: LATIN AMERICA - TRADE PROCEDURES AND GOVERNANCE RISK 32
Vulnerability To Crime 33
Chapter 5: BMI Global Macro Outlook 37
Global Macro Outlook 37
Unfinished Business In 201637
TABLE: GLOBAL ASSUMPTIONS37
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %38
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 38
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %39
TABLE: CHILE - MACROECONOMIC DATA and FORECASTS 41

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