Chile Growth Outpaces Forecasts, Buoyed by Stimulus Spending
(Bloomberg) -- Chile’s economy beat expectations in the second quarter as billions of dollars in fiscal stimulus triggered a retail sales frenzy during the pandemic.
Gross domestic product grew 1% from the first quarter, more than the 0.7% median estimate from analysts in a Bloomberg survey. The economy expanded 18.1% from a year prior, the central bank reported on Wednesday.
Chile has spent more to offset the economic impact of the pandemic than any other key emerging-market country, according to the International Monetary Fund, while a series of early pension withdrawals has put almost $50 billion in people’s pockets. That cash has fueled a consumption boom, with retail sales posting eye-popping year-on-year gains of 66% in June and 72% in May.
The stimulus also helped to offset the economic blow of strict lockdowns and longer nightly curfews implemented by the government to battle a record surge in virus cases during the second quarter. Going forward, growth is expected to speed up as the vaccination campaign drives down infections while the economy slowly reopens.
“The Chilean economy has continued to outperform market expectations, while the prospects for the second half of this year are tilted to the upside,” said Samuel Carrasco, a senior economist at Credicorp Capital Chile SA. “The economic recovery is gaining traction in lagging components such as services and investment.”
Mining increased by 3.1% from the first quarter, according to the central bank. Internal demand rose 1.6%, driven by household consumption of durable goods.
Chile’s economy has been boosted by recent drops in virus cases and hospitalizations, as well as by advances in vaccinations and a jump in investment, President Sebastian Pinera said later on Wednesday. In that context, emergency spending is only intended to be temporary, he said.
“Starting now, we should normalize our fiscal policy, and advance toward a recovery of our macroeconomic equilibrium,” he said.
The South American country will see GDP expand by as much as 9.5% this year, according to the central bank. On top of that, lawmakers are debating new pension drawdowns which may add even more impetus to economic growth.
At the same time, the seven-day moving average for virus cases has plunged to about 800 from over 7,000 at the start of June, government data show. Chile on Tuesday recorded its lowest test positivity since the start of the pandemic, at just 1.2%.
Prospects of a stronger recovery prompted policy makers to start raising key interest rate last month. Chile traders surveyed by the monetary authority expect borrowing costs to rise to 2.25% in a year from 0.75% currently.
“The recent positive surprises in inflation, economic activity and public finances, provide support to a more hawkish monetary policy stance,” said Credicorp’s Carrasco. “We estimate that the central bank will increase the policy rate in 50 basis points in each of the following meetings, to close the year with an interest rate of 2.25%.”
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