The Chilean economy concludes 2023 with mixed signals. On the one hand, it has managed to control the inflation rate, which will reach around 4% by the end of the year, but on the other hand, activity shows no clear signs of taking off. According to the Ministry of Finance’s expectations, economic growth will be 0% this year, that is, zero. This is a better number than expectations for the end of 2022, which predicted an economic recession, but it is clear, according to various analysts, that it is an insufficient result.
“Many economic problems were expected. It was thought that there would be a recession, that there would be several quarters of decline in activity, and that we would face many problems. Fortunately, this will end,” Finance Minister Mario Marcel said on Sunday in a television interview. “The year, most likely, is without red numbers and after it has done the job of reducing inflation.”
Latest Monthly economic activity index (Imacec), in October, saw a 0.3% expansion in 12 months, completing two months of growth. However, this figure came in at the bottom of estimates that expected a 1.2% increase that month. Now, the bets are on the economic numbers for November and December, which will be decisive in knowing whether Chile will end the year with zero growth or with a slight decline in its activity.
“A year ago, it was expected that the economy would suffer a recession this year. The central bank’s November 2022 Economic Outlook Survey forecast growth of -1.4% for the year, and we will eventually reach close to 0%, which is better than it was.” expected a year ago. What the finance minister said is true. But the point is that 0% growth or no growth at all is very bad news. “There is a slowdown in many From economic sectors, investment is likely to decline this year.”
For González, who was head of the Macroeconomic Division of the Ministry of Finance in the government of Sebastián Piñera, the reasons for Chile’s economic weakness lie in factors beyond the current government, such as the natural adjustment that had to take place after the economy overheated in 2021, but also in elements Especially for the current administration. “The tax debate that paralyzed investment decisions. The government chose to increase mining fees and its reform included a tax on retained profits. “Finally, he had to come back, and in the face of that, the fiscal agreement was a positive change, but that was part of the uncertainty,” he said. Gonzalez explains.
The researcher also emphasizes that the constitutional debate, which has now lasted four years, has also had a constant element of uncertainty. He points out that one of the reasons why the Chilean economy was able to stay afloat this year is that the international scenario was not as bad as expected. “a year ago, The Economist He said a recession in 2023 is inevitable and has not happened. He added, “The United States and China achieved greater growth than expected, and this also had an impact on Chile, which has an integrated economy with the world.”
Rodrigo Wagner, a professor at the Adolfo Ibáñez University Business School and director of Espacio Público, estimates that GDP in 2023 will close exactly at the level that the central bank expected towards the end of 2021, before the presidential elections and before it is known whether the president is Buric or José. antonio cast, [el candidato de la derecha más extrema]. “At that time, it was already expected that there should be a proper macroeconomic adjustment because the economy in 2021 was quite overheated. Unlike other periods with zero or negative growth in Chile, this year was quite predictable.
For Wagner, “the positive thing in 2022 and 2023 is that macro institutions were able to control inflation, achieve their plan, and contribute to stabilizing expectations.” In terms of GDP levels, we are more or less in the trend that we had in the years before the social outbreak in 2019, but without growth, because we were returning to normal.
The big question now, the economist points out, “is whether growth will rise again in 2024, converging with the trend (the Ministry of Finance estimated a GDP trend of 2.3% to prepare the 2024 budget).” “The IMF forecast for Chile is that this should happen. I am optimistic that this will be the case,” the academic notes.
Grow again in 2024
Economic growth worries Boric’s government. It is a concern that took some time to reach the discourse of the administration that has been in power for 20 months, as the head of public finance himself stated at the beginning of August, when he said in the context of a presentation to businessmen: He said, “The current government, in its beginnings, was not its primary issue.” It is growth.” But now that rhetoric has changed, also supported by numbers. According to the report of the expert committee formed by the Ministry of Finance within the framework of the financial charter that is being processed by the executive branch in Congress, each growth point in the gross domestic product has a net financial contribution of $570 million. Dollars are generated.
Along these lines, the Chilean President announced on Monday the formation of an economic growth government composed of the Ministers of the Treasury, Economy, Labour, Public Works and Science, which he will head. Buric explained that this team will have “the mission of working in coordination to monitor and accelerate private and public investments, generate new job opportunities in the country, and overcome all existing problems to be able to achieve these investments and revitalize the economy in this way.”
“The Growth Cabinet that accompanies me today will be particularly concerned and interested in growth in 2024,” Buric added. He explained that one of the main focuses will be on job creation. “With regard to employment, especially linked to these investment projects, we will estimate the number of jobs generated by each project that we implement. Along these lines, when accelerating and facilitating these investments, the idea is also to facilitate the creation of new employment opportunities and good jobs.
The latest unemployment figures, released last week, show that job creation remains weak. The unemployment rate was 8.9% in the August-October quarter, an increase of 0.9 percentage points in 12 months. The progress, according to the National Institute of Statistics (INE), is due to the fact that the increase in the labor force (3.1%) was greater than that recorded in workers (2.1%), so the market has not yet reached this point. Show enough dynamism to accommodate all those who wish to participate in the workforce.
By 2024, the executive expects Chile’s economy to grow by about 2.5%. “Our estimates indicate that Chile will grow again by about 2.5%, breaking the stagnation trend that we have observed in recent years, and therefore we expect upward growth later on,” Buric said on Monday.
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