Bear Story
On February 29, the Minister of Finance announced a fiscal adjustment package of 0.3% of GDP. When Rodrigo Valdés was appointed Minister of Finance, he promised to gradually reduce the structural deficit. The 2016 budget was designed under the requirement that the structural balance be reduced from -1.6% of GDP in 2015 to -1.3% in 2016. But, if the structural balance is re-calculated using more realistic parameters, it will actually be between -1.4% and -1.6% of GDP. If the government does not adjust the parameters this year, the fiscal adjustment needed in 2017 to bring down the structural balance further would then be much larger.
Most recent sectoral data are consistent with an economy that is growing very little. The latest data puts a downward bias on our expected growth for 2016. We now believe that the most likely scenario is that the economy will expand by less than 1.5%.
The unemployment rate reached 5.8% in the November-January moving quarter. Employment in the commerce sector seems to be playing a "buffer" role, absorbing workers who cannot find jobs of better quality.
Inflation fell from 4.8% in January to 4.7% in February. While the y-o-y variation of total CPI decreased from the previous month, several core measures pointed in the opposite direction. Inflation of durable goods suggests that the effect of the depreciation is losing traction.
In the most recent Monetary Policy Meeting, the Central Bank kept the Monetary Policy Rate unchanged at 3.5%. Board Members deepened their increasingly dovish views. The minutes show strong concern over the effects that external financial turmoil could have on the local economy. There is no doubt that the next Inflation Report (to be released March 28) will contain a downward revision of growth prospects. It will be particularly interesting to see the Central Bank´s first projection for 2017.
The political reaction to the triumph of the Chilean animated film Bear Story says much about the cleavages and divisions in Chile's political system. The government's celebration of state support for the film's production seemed to downplay one slightly embarrassing detail: the university that also provided financial support, and where the production team works as academics, is one of several private universities being targeted by the educational reform for its presumed profit-taking. Universities that have qualified for the government's new free tuition scheme are, in many cases, of far worse quality than the university whose academics brought home an Oscar. In this way, Bear Story offers some insight into why many Chileans, despite benefitting from this new handout, continue to doubt the government's reform agenda.
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