Change of mind

CHILE - Report 13 Sep 2024 by Igal Magendzo and Robert Funk

The significant expansion of the Monthly Index of Economic Activity (IMACEC) in July should be taken with a grain of salt. Recent data show increased volatility. These wide swings were primarily driven by successive one-off events. Everything points to a likely reversion in the IMACEC in coming months. No shift in the trend has been observed in the IMACEC’s consumption-related sectors.

In its September monetary policy report, the Central Bank cut its 2024 growth projections to 2.25%-2.75%. The output gap is now projected to be negative. Forecasts for both gross capital formation and consumption were lowered. Conditions for investment are still sluggish. Not only do interest rates remain relatively high, but pessimism persists. External conditions for the Chilean economy are mixed. The terms of trade remain favorable, but global growth continues to be sluggish. In this context, goods exports remain at relatively high levels, and the 12-month cumulative trade balance continued to improve.

Labor market figures for the May-July quarter showed a considerable downturn. The decrease in employment growth extended beyond the usual seasonal patterns. The national unemployment rate increased for the third consecutive quarter. In July, real wages marked their highest y/y variation in 2024.

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