Hopes for Deliverance
The latest economic activity data are discouraging, with growth at only about 1% in February, and manufacturing production and real retail output negative, y/y. Though lending to the private sector rebounded in March, banks in Q1 saw a deterioration in the conditions for lending supply and demand.
GDP growth expectations fell in April and, according to the Central Bank’s Survey of Experts, the median expected growth for 2017 fell for the third consecutive month. Yet experts seem more optimistic about H2 than before.
The labor market is leaving its 2016 resilience behind. In the December 2016 to February 2017 rolling quarter, unemployment was 6.4%, the highest for that quarter in five years. The 12-month variation in the number of employed people remained marginally positive, but payrolls contracted by more than 2%. Wage and labor cost indices continued to slow in February.
Inflation keeps falling, with annualized CPI remaining under 3%, along with all core measures. This is the sixth consecutive month in which the prices of durable goods have had a negative impact on inflation.
One more 25 bp cut and then wait for recovery, was the main message of the Central Bank’s latest Monetary Policy Report (IPoM). Although the Bank slashed its 2017 projection, the outlook for the year was up from December. So let’s not be misled: the IPoM in practice has a fairly auspicious outlook for Chile. Yet there are no signs of a recovery; things are, rather, moving in the opposite direction.
The government has announced a new, seemingly improvised, pension system reform. Will this act as a new bomb to the weak Chilean economy? It’s hard to say. The current pension system is based on individual capitalization. The inescapable fact is that pensions are low in Chile. The new plan is incomplete, and lacks a strong technical underpinning.
The central committee of the Chilean Socialist Party chose its presidential candidate in mid-April, tapping Senator Alejandro Guillier, a TV journalist affiliated with the Radical Party, over former president Ricardo Lagos, a life-long socialist, who founded the Party for Democracy in the last 1980s as a way of bypassing dictatorship-era prohibitions on left-wing parties. Why? Lagos was badly trailing in the polls, true -- but his leadership in resisting dictatorship has also been forgotten by members of a generation born into a democracy that allows them to march in the street, and to complain that he did too little.
Now read on...
Register to sample a report