Ministry of Finance updates forecasts

CHILE - In Brief 12 Jul 2016 by Igal Magendzo

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The Minister of Finance, Rodrigo Valdes, cut from 2% to 1.75% the growth forecast for this year, in line with market expectations. The budget this year was built with an expected GDP growth of 2.75%. The ministry also cut its forecast for the growth rate of domestic demand from 1.9% to 1.4%, and its forecast for 2016 average exchange rate from 700 pesos per USD to 690 pesos per USD. Year-end inflation was revised down from 3.6% to 3.5%, while the average price of copper remained in US $ 2.15 per pound.Effective tax revenue will contract 0.5% this year in real terms, despite the effect of higher revenues due to the tax reform. This contrasts with what was forecasted in October of 2015, when the Treasury estimated that revenues would expand 4.8%. Income from mining is falling at rates unthinkable a year ago, mostly due to the decrease in price.As for the effective fiscal deficit, according to the Valdes it will stand at 3.2% of GDP this year, an upward revision from 2.9% that was projected in March and 3.1% when the budget was presented in September of last year. In our opinion the deficit will reach 3.5% of GDP. The structural deficit will be 1.4% of GDP this year, up from 1.6% of GDP in 2015. Public spending will grow 4.2%.