Chile’s economy contracts for second month as recovery fades

(Bloomberg) — Chile’s economic activity fell for a second straight month on declines in mining and trade, adding to evidence that the growth spurt earlier in the year was short-lived.

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The Imacec index, a proxy for gross domestic product, fell 0.3% in April from the previous month, less than the -0.6% average forecast in a Bloomberg survey. From a year ago, activity gained 3.5%, the central bank reported on Monday.

Chile’s economy is slowing this quarter after gross domestic product grew the most since 2021 at the start of the year. The growth outlook is being supported by interest rate cuts as well as higher prices for copper, the nations main export. However, mining output has been volatile and high labor informality points to continued weakness in the labor market.

What Bloomberg Economics Says

April data showed that Chilean activity and domestic demand lost momentum in the second quarter after a sharp increase in the first quarter. The figures are in line with the central bank’s forecasts for a small quarterly decline and a narrowing of the positive output gap. They also keep interest rate cuts in line with policymakers’ baseline scenario on the table.

Felipe Hernandez, Latin American economist

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Mining activity fell 2.4% in April from a month earlier, while trade fell 1.4%, according to the central bank.

Separate data released on Friday had shown that retail sales had posted a year-on-year increase in April that was in line with analysts’ expectations. On the other hand, copper production, manufacturing and industry are disappointed.

Read more: Copper leader Chile posts worst monthly output in more than a year

While it takes time for the full impact of higher copper prices to strengthen activity, there are some immediate effects such as an improvement in the current account balance and an increase in fiscal revenues, Finance Minister Mario Marcel said in a May 30 interview. The economy is in a period of expansion, he added.

In May, Chile’s government raised its economic growth forecast for 2024 to 2.7% from 2.5% on stronger-than-expected activity across all sectors at the start of the year and higher copper prices. Analysts polled by the central bank have raised their estimates to 2.5% from 1.7% in February.

In the medium to long term, Chile’s government has said there are economic opportunities in industries including copper, lithium and green hydrogen.

On Friday, state-owned Codelco signed a definitive agreement for a public-private partnership with SQM that will increase lithium production at the Atacama salt flat from less than 200,000 metric tons a year to 300,000 tons.

–With the help of Giovanna Serafim.

(Updates with Bloomberg Economics quotes in the fourth paragraph)

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