Economy Still Slogging through Winter
Donald Trump's presidential victory will make an impact around the world, including in Chile. Some effects are already being felt: copper prices rose, evidently on expectations of a U.S. construction boom. Other effects are subtler. Trump's influence may extend to politics, as Chile historically has followed international political and ideological tendencies. Should Trump embrace global moves towards nationalist and populist discourses, and protectionist policies, Chile may well follow suit. That would reverse a decades-long trend in Chilean trade policy, but would be in keeping with discussions surrounding some domestic social movements, and presidential hopefuls.
At this writing, Chilean public employees have been on strike for two weeks. This is a consequence of annual negotiations over public sector wage adjustments. The talks typically involve strikes in public services and utilities, affecting both the public and the economy. How to prevent this tragicomedy from repeating itself indefinitely? Maybe an institutional framework to guide these talks is the answer.
Central Bank President Rodrigo Vergara ends his term on December 10th, and President Michelle Bachelet has already appointed Mario Marcel as his successor. A respected economist and public servant, Marcel joined the board about a year ago. Under his leadership, the board will undoubtedly become more dovish.
When economic activity figures came out last month, the Minister of Finance said: "I want to associate this with the beginning of spring.” And though spring has firmly arrived in the southern hemisphere, subsequent data suggested persistence of wintry conditions: the IMACEC came in well below market expectations. Overly optimistic expectations had been fed by positive sectoral activity signs, and by strong consumption indicators.
Credit keeps slowing, indicating that poor performance will probably extend into Q4.
The labor market remained weak in September, though there was no evidence of further deterioration. Annual employment growth went almost entirely to the self-employed, with payroll worker employment virtually unchanged. Job creation was anemic and of poor quality.
Twelve-month CPI variation in October fell below the Central Bank’s 3% target for the first time since January 2014; the 12-month changes in all underlying measures also fell. This October surprise should lead to lower inflation expectations for December – which of course has monetary policy implications.
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