Brexit: Tremor but no earthquake
It is not evident what the economic cost of Brexit will be for Chile. At the macro level, Chile is not significantly exposed to the UK. What is relevant for Chile is the indirect effect through the impact on its trade partners and the price of copper. What was widely unexpected was the strong appreciation of the Chilean peso.
Concerning economic activity, the outlook is not particularly encouraging. The economy seems set to remain in a state of hibernation. The collapse of business confidence in the construction sector stands out. In this sector, confidence continued to fall, and the index reached its lowest level since its inception.
In the March-May rolling quarter, the labor market continued to show signs of deterioration, with an increase in the unemployment rate, while the 12-month growth of both the labor force and employment remained relatively stable. As has been the trend in recent months, the construction sector continued to create jobs, although fewer than in the last 11 moving quarters. Within the construction sector, the 12-month variation of both labor costs and wages decelerated, and the sector is among those where these variables are growing the least.
The 12-month variation of CPI was 4.2% in June, still above the Central Bank’s 2% to 4% target range. The behavior of core inflation, as well as the inflation of durable goods, indicates that inflation will continue to trend lower. Brexit can help this disinflationary trend.
In the most recent Monetary Policy Meeting, the Central Bank kept the Monetary Policy Rate (MPR) unchanged at 3.5%. The Board is in a “wait-and-see” mode, with no particular bias. Unless there is a significant shock, the MPR will stay where it is.
After a few years in office the Bachelet government has finally unveiled one of its principal campaign promises – reform of the university education sector. This is a response to years of student protest. The bill, however, has left few satisfied. Its main promise of universal, free, university education, has been linked to an increase in the size of tax revenue as a share of GDP, indicating that the fulfilment of the promise is still a long way off. This, together with the gradual implementation of the other conditions, and their implications for issues such as university governance, have already created resistance and disappointment from student groups, universities and other stakeholders.
Now read on...
Register to sample a report