22 May 2017

Country Economic Forecast

Chile

Economist
In line with the IMACEC data, the national accounts for Q1 showed the economy
Luiz Kessler expanding at its weakest year-on-year pace since 2009. Although the latest
Economist quarterly performance was severely affected by one-off factors such as
widespread forest fires and the 43-day strike at the Escondida copper mine, the
+44(0)20 7803 1442
expenditure breakdown of the national accounts points to an economy whose
underlying health remains fragile. As a result, notwithstanding interest rates
being reduced to their lowest level since 2010 and the likely rebound in exports,
we still expect fairly sluggish growth during the remainder of the year. We
continue to forecast GDP growth of 1.6% this year.

National accounts In contrast to much of last year, inflationary pressures are not a major concern for the
central bank (BCCh) in 2017 (thereby providing scope for a flexible monetary policy).
breakdown for Q1
The annual rate of CPI inflation was stable at 2.7% in April, for the third month in a
shows an economy
row. Meanwhile, core measures of inflation edged closer to the lower bound of the
that is still fragile
target range (2-4%). On the back of a stable currency and subdued economic activity,
we expect inflation to stay close to current levels over the next year or so.

In May, the central bank surprised markets once again by its decisiveness over the
pace of policy easing, cutting its key interest rate for a third month in a row by 25bp.
While a further rate cut had been generally expected, many had thought that the
BCCh would adopt a wait-and-see attitude unless the news on the real economy was
obviously disappointing. However, with the policy rate now down to 2.5% the lowest
level since 2010 we think that the easing cycle has ended and we expect the BCCh
to maintain the interest rate at its current level through the remainder of the year.

Growth is unlikely to Forecast for Chile

surprise on the
(Annual percentage changes unless specified)
2015 2016 2017 2018 2019 2020
upside during the Domestic Demand 2.0 1.1 2.0 2.5 3.4 3.5
remainder of 2017 Private Consumption 2.0 2.4 2.6 2.8 2.8 2.7
Fixed Investment -0.9 -0.6 -0.3 5.0 3.6 3.2
Stockbuilding (% of GDP) -0.2 -1.1 -1.2 -2.0 -1.6 -1.0
Government Consumption 4.5 5.2 4.3 3.2 3.1 3.0
Exports of Goods and Services -1.9 -0.1 2.0 3.0 1.5 1.9
Imports of Goods and Services -2.8 -1.6 3.4 2.6 3.0 3.9
GDP 2.2 1.5 1.6 2.6 3.0 2.9
Industrial Production 0.6 -1.6 0.4 5.2 3.7 3.6
Consumer Prices 4.3 3.8 2.7 2.9 2.9 3.0
Government Budget (% of GDP) -2.2 -2.7 -3.1 -2.7 -2.4 -2.0
Trade Balance ($bn) 3.5 5.3 5.9 5.9 5.2 4.4
Current Account ($bn) -4.7 -3.6 -4.3 -5.3 -6.3 -7.3
Current Balance (% of GDP) -1.9 -1.4 -1.6 -1.9 -2.1 -2.3
Short-Term Interest Rates (%) 3.55 3.75 3.01 2.94 3.56 4.06
Exchange Rate (Per US$) 654 677 664 670 665 659

Contact: Luiz Kessler | lkessler@oxfordeconomics.com

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Country Economic Forecast | Chile

Forecast overview
Q1 shows slowest annual growth since 2009 Chile: Contributions to GDP
% year
The national accounts confirmed that the Chilean economy 15
expanded by 0.2% q/q in Q1, resulting in year-on-year F'cast

growth of just 0.3% the weakest pace of expansion since 10 GDP

2009. One-off factors such as the widespread forest fires
and the 43-day strike at the Escondida copper mine played a 5
crucial role in dragging activity down in the quarter. But the
expenditure breakdown of the national accounts showed that 0
the underlying health of the economy remains fragile.
Domestic demand did pick up in Q1 but this was helped by a -5
Domestic
Net exports
sharp acceleration in public consumption and a partial demand

rebound in investment after it slumped in Q4 2016. Private -10

1995 1998 2001 2004 2007 2010 2013 2016 2019
spending continued to grow, albeit only by 2% y/y. On the Source: Oxford Economics
external front, net exports exerted a heavy drag on growth,
reflecting the drop in mining exports and a pick-up in imports
in response to the rise in domestic demand.
Chile: Monthly business confidence
points
reflecting fragile underlying performance 65

Moreover, looking forward, domestic demand is unlikely to

60
build momentum in the coming quarters. First, a fragile
labour market, coupled with pessimistic household 55
sentiment, suggest that private spending might falter.
50
Second, the structural fiscal balance target is likely to mean
a smaller boost from government consumption in the rest of 45
2017. Third, low levels of business confidence and
heightened uncertainty about the presidential election will 40

probably constrain a recovery in private investment.

35
However, there is likely to be a silver lining from the 2005 2007 2009 2011 2013 2015 2017
tradable sector, with net exports bouncing back after the end Source: ICARE / Haver Analytics

of the strike at the Escondida mine (in addition to the boost

from higher copper prices than a year earlier).

Chile: CPI inflation and wage growth

On the monetary policy front, we expect that the BCCh will % year
maintain the key interest rate at 2.5% for the rest of 2017, 10
having cut by 100bp so far this year. Hourly remuneration
8

We maintain our GDP growth forecasts at 1.6% in 2017 and 6

2.6% in 2018. Short-term performance will be affected by: 4

2
Modest consumption growth: despite below-target
inflation, smaller wage gains should mean that household 0
spending grows at only a modest pace while public -2
consumption will be affected by an austere budget plan. CPI inflation
-4
2005 2007 2009 2011 2013 2015 2017
Sluggish investment: given the continued pessimistic Source: Haver Analytics
level of business sentiment (although it is less downbeat
than in mid-2016) and the weakness of capital spending

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Country Economic Forecast | Chile

in H2 2016, we now forecast that investment will shrink

Chile: Consumption and investment
by 0.3% in 2017, notwithstanding higher copper prices % year
30
F'cast
Tighter fiscal policy: in response to lower growth, and
20
Consumption
therefore lower revenues for the government, the finance
minister announced the most austere budget plan in 10
fourteen years for 2017. The plan reflects the countrys
0
commitment to a disciplined fiscal policy and looks to
reduce the structural deficit by 0.25% points of GDP per -10
year over the next few years.
-20
Improving external demand: reasonably solid Chinese Investment
-30
growth and higher demand for copper in the US 1995 1998 2001 2004 2007 2010 2013 2016 2019
economy, should lead to exports increasing once the Source: Oxford Economics

impact of the strike at Escondida fades. We expect

export volumes to rise by 2.0% in 2017.

Monetary stimulus: during the rest of the year we

Chile: Exchange and interest rates
expect the BCCh to leave its policy rate on hold at 2.5%,
Per US$ %
its lowest level since 2010. 750 18
Monetary
700 policy rate
but medium-term prospects are better 650
(RHS) Exchange rate
(LHS)
15

GDP growth is expected to be reasonable in the medium 600

12

term, averaging 2.6% pa in 2017-24 (although this profile is

550 9
quite a bit more cautious than a year ago). Key factors
500
affecting the outlook are: 6
450
3
Macroeconomic stability: the country has built a robust 400
F'cast
fiscal position since 2009, but much lower copper prices 350 0
in 2015 and 2016 have had a substantial impact on 1995 1998 2001 2004 2007 2010 2013 2016 2019
Source: Oxford Economics
revenues. However, the structural balance fiscal rule,
adopted in 2001, should guarantee the countrys macro
stability. The fiscal deficit is projected to be 3.1% of GDP
this year but have narrowed to 2.0% of GDP by 2020.
Chile: Government budget balance & debt
Financial resilience: the funds built up in the % of GDP % of GDP
10 45
Stabilization Fund during the years of fiscal surplus will Government
F'cast
act as a buffer now that copper prices are lower than in 8 balance (LHS) 40

the boom years. And the financial system is well 6

35

insulated from external shocks, lending standards remain 30

4
quite conservative and central bank credibility is well- 25
2
established. 20
0
15
-2
10
Government
-4 5
debt (RHS)
-6 0
1995 1998 2001 2004 2007 2010 2013 2016 2019
Source: Oxford Economics

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Country Economic Forecast | Chile

Economic Risk Evaluation

Overall risk for Chile: 3.4/10*
Chiles overall economic risk score of 3.4 places it 31st out Chile:
of 164, with the level of risk far below the Americas' Economic risk index
average. (Scores from 1 to 10 with 10 = highest risk)
Score
Rank out of change
Growth over the last three years has been depressed by two May 2017
164 from
key factors. First, by the impact of low copper prices on the November
Overall 3.4 31 0.0
mining sector, investment and government revenues (with
Market demand 4.0 46 0.0
the latter leading the administration to dampen spending
Market cost 3.1 29 0.1
growth to curb the rise in the fiscal deficit). Second, by the
Exchange rate 3.4 24 -0.1
impact of President Bachelets far-reaching reform agenda Sovereign credit 2.3 21 0.0
that made both households and firms more cautious. Trade credit 4.4 38 0.1
However, growth is expected to start edging higher in 2017, (1 indicates lowest risk ranking)
and there is the possibility that the pick-up will be faster if the
surge in copper prices since November last year is
sustained throughout 2017.

Market demand: 4.0/10

The market cost risk score is at 4.0; this is well below the
regional average, partly reflecting a relatively strong and
high-income domestic market.

Despite the slow pace of overall growth, employment has

continued to edge higher. And with inflation having fallen to
Economic risk: Chile vs Emerging markets
below 3% at the same time as wages are rising by 4-4.5%, average
private consumption should be able to grow steadily this Risk score, 10 = highest
year. Domestic political change at the end of 2017, stable 10
growth in China and higher copper prices could be positive 8 Emerging markets average
catalysts for a strengthening in business confidence.
6

Market cost: 3.1/10 4

The market cost risk score of 3.1 is well below the regional 2

average, partly reflecting the fact that inflation has now fallen 0
Peru
Panama

S Africa

Puerto Rico
Mexico

Bolivia
Colombia

Russia

Brazil
Chile

Paraguay
Turkey
US

Poland

Venezuela
Uruguay

Ecuador

Argentina

back to the central bank's target and is expected to hover

around this level throughout the forecast period.

Source : Oxford Economics

Growth in labour costs should fall in response to lower price
inflation via the wage indexation mechanism. Also, a
stronger peso will dampen the cost of imported machinery
and manufacturing goods. But Chiles mining production
costs will remain elevated considerably higher than in Peru
while competitiveness will be affected by a stronger
currency.

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Country Economic Forecast | Chile

Exchange rate: 3.4/10

Exchange rate risk is low at 3.4, and below the Americas'
average, reflecting Chiles political stability and fiscal Economic risk: Chile vs Emerging markets
discipline as well as a sound financial system and credible average
Market demand
central bank. 10.0
8.0
6.0
Exchange rate risk is low despite the substantial 4.0
Trade credit Market cost
depreciation seen between 2013 and 2016. The IMF 2.0
calculates that the value of the peso is now broadly in line 0.0

with fundamentals. The authorities have a strong record of

financial management and the financial sector is deep and
stable, though some regulatory and supervisory Exchange rate Sovereign credit

improvements are still required.

Emerging markets average Chile Chile 6 months ago

Sovereign credit: 2.3/10 Source : Oxford Economics

The sovereign credit risk score of 2.3 is considerably lower

than the Americas' average.

Chile has one of the strongest economies in the region and

an investment grade sovereign rating with all three major
ratings agencies. Fitch rates Chile at A+ while S&P places it
at AA- and Moodys Aa3. However, both Fitch and S&P have
changed the rating outlook to Negative from Stable in
recent months, concerned that a long period of slow growth
could damage the long-term fiscal position.

Trade credit: 4.4/10

Trade credit risk a measure of private sector repayment Risk warnings
risk remains low by regional standards at 4.4, with
financing conditions for businesses reasonably Generalised uncertainty to
GDP growth dampen growth this year
accommodative. This reflects Chiles high standards of
Inflation to remain close to
governance and transparency, which are well above CPI inflation the BCCh target
emerging market and regional averages. Chile also has an Higher copper prices to
Current account balance support exports this year
excellent payments history, with no instances of disruption in
Prudent fiscal management
the recent past. Government balance to keep deficit in check
Good management of copper
Government debt revenues limits borrowing
Maturing domestic financial
External debt sector limits foreign debt

* Risk scores are from 1 to 10, with 10 representing the highest risk.
For our full country risk service, see www.risk-evaluator.com

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Country Economic Forecast | Chile

What to watch out for

Presidential elections: President Bachelets ruling coalition
Copper price and Chilean copper exports
may struggle to retain power at the 2017 presidential US$ mn US$ per tonne
elections. Policy is expected to move towards a more 5500
Copper price (RH scale)
10000

market-friendly agenda, crucial to reviving business and 5000

9000
consumer sentiment after the current administrations 4500
4000 8000
ambitious and far-reaching reform agenda led to business
confidence falling to very pessimistic levels for a prolonged 3500
7000
3000
period. However, there is some uncertainty about the policy
6000
2500
platform of Alejandro Guillier (from the ruling coalition).
2000 Chile copper exports 5000
1500
Higher copper prices: with copper accounting for 10% of 4000
1000
the countrys GDP, a quarter of its fiscal revenues and a half
500 3000
of its export earnings, changes in the price of the commodity 2005 2007 2009 2011 2013 2015 2017
clearly have a significant impact on the countrys economy. Source: Haver Analytics

The rise in the metal price since November is a positive

catalyst for the Chilean economy, if sustained, but, because
structural budget laws prevent spending windfalls from
commodity earnings, its impact on the public finances are Impact of scenarios on GDP growth
unlikely be meaningful in the short term. However, if prices Average annual impact over the next 5 years (% points)

remain at current levels, this should be enough to revive the

mining sector and cause positive spillovers in other 0.1 Trump: US growth surges
industries as well.
-0.3 Bond market sell-off
Dovish central bank: the BCCh has implemented four rate
cuts already this year and is now expected to leave policy -0.5 Trump weighs on global growth
on hold. But an even more aggressive policy easing could
-0.6 Tighter policies China
not be ruled out entirely if the projected economic rebound in
Q2 (reflecting the return to work at Escondida) falls short of
expectations.

Exposure to key global risks

Tighter policies in China: as the countrys biggest export
partner, a deceleration in Chinese growth would have a
substantial impact on Chile. Export volumes and GDP would UK: Consumer spending and income
%Impact
year of scenarios on GDP growth
be hit, while the further fall in the copper price would put 6% year
6.0 Real disposable Baseline
pressure on the currency and the governments finances. income
Forecast
Trump weighs on global growth
4
5.0 Tighter policies China
Trump weighs on global growth: in this scenario, fiscal
2 Trump: US growth surges
stimulus hopes are dashed as Trump refuses to negotiate 4.0

with Congress and reverts to the protectionist and 0

3.0
isolationist stance of his campaign rhetoric. With the US
-2
economy falling into recession by the end of 2018, world 2.0
growth and global trade would falter, with knock-on effects -4
1.0
for commodity prices.
Consumer spending
-6
0.0
2004 2006 2008 2010 2012 2014 2016 2018 2020
2012 2014 2016 2018 2020
Source: Oxford Economics
Source : Oxford Economics

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Country Economic Forecast | Chile

Long-term prospects Chile: Real GDP and potential output

Peso trn, 2013 prices
200
Reasonably positive long-term outlook
180
Despite the modest performance in 2014-16, GDP growth is
160
expected to average 2.5% in the medium to long term.
Underpinning this will be investment and productivity gains, 140

and a steady, albeit slower, expansion of the labour force. 120 Actual GDP

100 Potential
Supporting growth over the next decade will be a stable output
macro environment. Although revenue growth is currently 80
Forecast
being undermined by the lower copper price than in the
60
boom years, widening the budget deficit, the structural 2000 2004 2008 2012 2016 2020 2024
balance rule means that gradual fiscal adjustments will be Source: Oxford Economics

implemented to ensure that the gap narrows in the future.

And the funds built up in the ESSF during the years of fiscal Potential GDP and Its Components
surplus will act as a buffer should a weaker scenario arise. Average Percentage Growth
The financial system is well insulated from external shocks, 2006-2015 2016-2025
and lending standards remain quite conservative, which
should maintain financial stability. Central bank credibility is Potential GDP* 3.9 2.5
Employment at NAIRU 2.1 0.5
well-established and we expect inflation to average 3% over
Capital Stock 7.4 4.1
the medium term. A stable macroeconomic backdrop should
Total Factor Productivity 0.2 1.0
promote investment, boost capacity and raise living
*ln(Potential GDP)=0.70*ln(Employment at NAIRU)
standards.
+0.30*ln(Capital Stock)+ln(Total Factor Productivity)

Long-Term Forecast for Chile

(Average annual percentage change unless otherwise stated)
2006-2010 2011-2015 2016-2020 2021-2025
GDP 3.8 3.9 2.3 2.7
Consumption 5.6 4.7 2.6 2.6
Investment 6.3 4.8 2.1 2.6
Government Consumption 5.2 3.6 3.7 2.7
Exports of Goods and Services 1.9 1.5 1.7 2.1
Imports of Goods and Services 8.3 2.4 2.2 2.9
Unemployment (%) 8.9 6.4 6.3 6.1

Consumer Prices 3.8 3.4 3.1 3.0

Current Balance (% of GDP) 1.6 -2.7 -1.9 -2.1
Exchange Rate (vs US$) 529 538 667 651
General Government Balance (% of GDP) 3.1 -0.5 -2.6 -1.2
Short-term Interest Rates (%) 4.3 4.7 3.5 4.3

Working Population 1.4 1.2 0.8 0.5

Labour Supply 2.3 2.0 0.7 0.3
Participation Ratio 64.3 68.6 69.1 68.2
Labour Productivity 0.9 1.5 1.6 2.4

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Country Economic Forecast | Chile

Background
Economic development
In the mid-1970s under the influence of the Chicago boys group of economists, the military dictatorship adopted
neoliberal economic reforms that allowed the country to achieve steady economic growth and poverty reduction. The
reforms that took place from 1973 to 1982 had three main objectives: economic liberalization, privatization of state-owned
companies and stabilization of inflation. However, the period ended with the international debt crisis, followed by
unemployment surging to over 20% and a substantial increase in poverty. In the 1990s, when the post-Pinochet centrist
government was elected, a commitment to poverty reduction was made, while strengthening previous economic reforms.
As a result, poverty rates fell by almost 50%, to an estimated 14.4% in 2013 while GDP per capita on PPP basis reached
US$22,995 in 2014 the highest in the region. According to the World Bank, 60% of Chiles 1990s poverty reduction can
be attributed to economic growth while government programmes accounted for the rest.

In the 2000s, the surge in commodity prices, the so-called commodity super-cycle, allowed the economy to expand at an
average 4.5% per year between 2002 and 2013. But the background started to change in early 2013, by which time
copper prices were already well below their 2011 peaks and the message that the Fed was about to embark on a process
of monetary normalization prompted a sharp turn of capital flows out of emerging markets. Subsequent to that, copper
prices have declined substantially, affected by a major re-evaluation of Chinese economic prospects, with negative spill-
overs for non-mining investment, business and consumer confidence, and activity in general. Together, the end of the
commodity super cycle and the reversal of capital flows led to a major depreciation of the nominal exchange rate, leading
to rising inflationary pressures.

In addition to such challenges, a far-reaching and ambitious reform agenda adopted by President Bachelets second
administration, from free university education to changes in the tax system, led to increasing uncertainty among firms,
which contributed to keeping confidence at pessimistic levels and postponed a rebound in private investment. In
response, the government has increasingly focused on raising growth by fostering productivity and economic
diversification (especially into services).

Although the current scenario is challenging, from a macroeconomic perspective Chile still has strong fundamentals: the
current account deficit has been contained, net public debt is negligible, inflation expectations remain well-anchored and
the financial system is well-regulated and supervised.

Structure of the economy

On the expenditure side, the economy is heavily influenced by the trade sector, where exports and imports together
account for around 60% of GDP (in nominal terms). This reflects the liberalization in the traded sector since the 1970s
prior to that, Chile was one of the most protectionist economies in the world.

In 2015, Financial and Business services accounted for 20% of GDP, followed by Personal Services (12%),
Manufacturing (12%), Wholesale (9%) and Mining (9%). The remaining 38% come from primary activities, utilities and
construction.

Balance of payments and structure of trade

Successive administrations pursued trade-liberalization agreements, turning Chile into a small open economy. China has
become the countrys main trading partner, accounting for 26% of total exports, and copper the countrys main export
product, responsible for a fifth of fiscal revenues and half of total exports followed by fruits, salmon and wine. That
makes Chile both more open to trade and more linked to China than any other economy in South America.

Although this has allowed the country to grow at a rapid pace while accumulating fiscal resources and foreign exchange
reserves (over US$38bn in September 2016), the economy has failed to reduce its dependency on copper, with the

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Country Economic Forecast | Chile

sectors share in GDP remaining stable since 2003. Therefore, although Chile has adopted a set of polices to reduce the
impact of large swings in copper prices on the economy, its increasing trade with China and lack of diversification have
made it one of the EM countries most vulnerable to a sharp slowdown in China.

Policy
Chile has some specific features in its macroeconomic framework which have shaped in important ways how the country
has responded to the changing economic environment. The first one is the structural government budget rule (a structural
surplus of 0.5% of GDP). The second pillar is an independent central bank with a credible inflation-targeting regime that
looks to set monetary policy to achieve a gradual convergence of inflation towards the target (3%) within a two-year
horizon. The third pillar is a fully flexible exchange rate regime, which allows the economy to rapidly and effectively
accommodate external shocks, such as large changes in the terms of trade. Finally, the country relies on a sound and
well-regulated financial system.

Politics
After 17 years of military government, from 1973 to 1990, Chile transitioned to a democratic society. From 1981 to 1990,
several constitutional laws were approved leading to the final restoration of democracy. The 1980 Constitution, still in
force today (albeit modified), created more seats in the senate, diminished the role of the National Security Council and
equalized the number of civilian and military members. The last traces of the military dictatorship were removed in the
2005 reform, which eliminated undemocratic areas of the text, such as non-elected Senators and the inability of the
President to remove the Commander in Chief of the Armed Forces. Under the current Constitution, the President is
elected to serve a period of four years, with immediate re-election prohibited.

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 Country Economic Forecast | Chile

Data & Forecasts

Key Indicators: Chile

Percentage changes on a year earlier unless otherwise stated
Ec Activity Industrial CPI Manuf. Unemploy- Hourly Export Trade
Imacec production PPI ment (INE) wage value in $ balance
(s-a m/m) % index ($ mn)
Apr -1.0 -3.4 4.2 2.9 6.4 5.3 -12.2 805
May 0.5 -3.1 4.2 4.1 6.8 5.3 1.8 564
Jun 0.3 -4.7 4.2 3.6 6.9 5.5 -11.8 375
Jul 0.1 -2.5 4.0 2.2 7.1 4.9 -6.0 -32
Aug 0.5 3.1 3.4 1.5 6.9 5.5 6.1 -235
Sep 0.1 -0.5 3.1 1.6 6.8 5.0 5.5 214
Oct -0.9 -7.2 2.8 1.2 6.4 5.1 0.9 52
Nov 0.4 -0.1 2.9 0.3 6.2 4.9 8.0 390
Dec 0.2 1.3 2.7 0.5 6.1 4.7 18.8 970
2017
Jan 0.6 -1.2 2.8 0.2 6.2 4.4 10.3 756
Feb -0.8 -8.3 2.7 1.1 6.4 4.2 -2.6 205
Mar -0.3 -8.3 2.7 2.3 6.6 4.3 6.1 243
Apr - - 2.7 - - - -0.9 507

Financial Indicators: Chile

Percentage changes on a year earlier unless otherwise stated
MPR Interbank Money Copper Exchange Share Reserves Imports
rate loan/disc supply price rate obs. price index end-month cover
% % (M1) $/tonne Peso/$ avg. 31/12/80=100 $mn months
Apr 3.50 5.5 8.3 4851 669.5 19411 39868 8.5
May 3.50 5.4 6.3 4708 683.7 19576 39848 8.4
Jun 3.50 5.3 5.0 4630 679.2 19613 39694 8.5
Jul 3.50 5.8 3.7 4855 657.6 20158 39427 8.5
Aug 3.50 5.3 2.9 4758 660.1 20477 39077 8.4
Sep 3.50 5.5 2.9 4707 668.0 20314 39437 8.5
Oct 3.50 5.2 3.4 4732 663.1 20876 39528 8.6
Nov 3.50 5.3 4.5 5443 666.6 21041 39430 8.6
Dec 3.50 5.3 4.1 5666 666.3 20872 40494 8.8
2017
Jan 3.25 4.9 2.4 5737 659.8 21079 39883 8.6
Feb 3.25 5.0 2.9 5941 643.4 21562 39710 8.4
Mar 3.00 4.7 6.8 5821 661.8 23119 39022 8.2
Apr 2.75 4.4 9.5 5697 655.4 24303 38952 8.2

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 Country Economic Forecast | Chile

CHILE TABLE 1 SUMMARY ITEMS

Annual Percentage Changes, Unless Otherwise Specified

CONSUMERS TOTAL TOTAL REAL INDUSTRIAL UNEMPLOY- AVERAGE WHOLE COMPETIT- PRODUCER CONSUMER
EXPENDITURE FINAL FIXED GDP PRODUCTION MENT RATE EARNINGS ECONOMY IVENESS PRICES PRICES
EXPENDITURE INVESTMENT (%) PRODUCT- (2008=100)
IVITY
(C) (TFE) (IF) (GDP) (IP) (UP) (ER) (GDP/ET) (WCR) (PPI) (CPI)

YEARS BEGINNING Q1
2015 1.97 1.05 -0.88 2.21 0.55 6.21 6.20 0.62 97.26 -1.23 4.35
2016 2.36 0.83 -0.55 1.53 -1.58 6.49 5.24 0.44 99.19 -0.70 3.79
2017 2.56 2.02 -0.33 1.64 0.41 6.61 4.37 1.02 100.90 4.79 2.72
2018 2.80 2.59 4.97 2.59 5.18 6.18 4.59 1.70 99.56 1.98 2.88
2019 2.75 2.98 3.59 2.98 3.74 6.09 4.86 2.46 99.42 3.00 2.95
2020 2.70 3.16 3.18 2.94 3.61 6.08 4.88 2.58 98.88 3.00 2.97
0 0.00 0.0 0.00 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
2015 0.00 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Q1 1.68 0.66 -4.28 2.11 0.69 6.13 7.09 1.10 99.41 -0.19 4.37
Q2 1.94 0.40 -5.62 2.25 1.16 6.52 6.30 0.73 100.44 1.80 4.18
Q3 2.26 2.51 6.34 2.55 0.23 6.42 5.96 0.28 95.01 -2.73 4.75
Q4 2.02 0.66 0.48 1.93 0.13 5.78 5.48 0.39 94.20 -3.65 4.10
2016 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Q1 2.57 0.94 1.32 2.19 -0.47 6.26 5.54 0.87 96.46 -1.58 4.65
Q2 2.22 0.92 4.28 1.42 -3.72 6.88 5.35 0.32 97.65 -2.47 4.21
Q3 2.23 0.81 -2.65 1.71 0.02 6.75 5.14 0.74 99.72 -2.15 3.49
Q4 2.43 0.65 -4.92 0.81 -2.03 6.07 4.93 -0.18 102.95 3.48 2.83
2017 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Q1 1.97 1.14 -2.42 0.26 -6.02 6.61 4.28 -1.17 104.55 8.58 2.75
Q2 2.65 2.16 -3.14 1.69 2.04 6.66 4.35 1.50 99.77 3.74 2.68
Q3 2.71 1.91 -1.37 1.68 1.27 6.64 4.39 0.96 99.76 3.55 2.70
Q4 2.89 2.86 5.96 2.93 4.29 6.52 4.44 2.83 99.51 3.37 2.73
2018 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Q1 2.83 2.55 4.88 3.05 9.48 6.29 4.48 3.20 99.43 -0.98 2.80
Q2 2.80 2.72 5.40 2.52 3.91 6.19 4.53 0.81 99.21 3.00 2.87
Q3 2.79 2.62 5.07 2.45 3.87 6.14 4.62 1.40 99.63 3.00 2.92
Q4 2.78 2.49 4.54 2.35 3.83 6.10 4.71 1.43 99.97 3.00 2.93
2019 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Q1 2.77 2.81 4.04 2.81 3.79 6.09 4.79 2.14 99.54 3.00 2.93
Q2 2.76 2.96 3.57 3.05 3.76 6.09 4.88 2.52 99.06 3.00 2.94
Q3 2.75 3.04 3.37 3.04 3.72 6.09 4.88 2.59 99.41 3.00 2.95
Q4 2.73 3.09 3.37 2.99 3.69 6.08 4.88 2.60 99.67 3.00 2.96
2020 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Q1 2.70 3.15 3.33 2.97 3.66 6.08 4.88 2.59 99.21 3.00 2.96
Q2 2.69 3.20 3.25 2.95 3.62 6.08 4.88 2.58 98.62 3.00 2.97
Q3 2.70 3.16 3.14 2.93 3.59 6.08 4.88 2.57 98.79 3.00 2.98
Q4 2.71 3.11 3.02 2.91 3.56 6.08 4.88 2.56 98.93 3.00 2.98

COPYRIGHT (C) , OXFORD ECONOMICS

CHILE TABLE 2 SUMMARY ITEMS

TRADE CURRENT CURRENT GOVERNMENT GOVERNMENT SHORT-TERM SPREAD REAL EQUILIBRIUM EXCHANGE
BALANCE ACCOUNT ACCOUNT FINANCIAL FINANCIAL INTEREST OVER US SHORT-TERM EXCHANGE RATE PER
(KR BN) (KR BN) (% OF GDP) BALANCE BALANCE RATE SHORT-TERM INTEREST RATE PER US
(PESO BN) (% OF GDP) RATE RATE US DOLLAR DOLLAR
(BVI/1000) (BCU/1000) (BCU*100 (GB) (GB*100 (RSH) RATE (Note 1) (RXEQUIL) (RXD)
/GDP!) /GDP!)

YEARS BEGINNING Q1
2015 3.5 -4.7 -1.9 -3412.8 -2.2 3.6 3.2 -0.8 553 654
2016 5.3 -3.6 -1.4 -4595.4 -2.7 3.8 3.0 0.0 566 677
2017 5.9 -4.3 -1.6 -5377.5 -3.1 3.0 1.6 0.3 581 664
2018 5.9 -5.3 -1.9 -5044.5 -2.7 2.9 0.6 0.1 592 670
2019 5.2 -6.3 -2.1 -4656.7 -2.4 3.6 0.6 0.6 600 665
2020 4.4 -7.3 -2.3 -4269.9 -2.0 4.1 1.0 1.1 605 659
0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
2015 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Q1 2.4 0.4 0.6 114.2 0.3 3.3 3.1 -1.1 549 624
Q2 2.3 -0.6 -0.9 -617.5 -1.6 3.4 3.2 -0.7 551 617
Q3 -1.2 -2.7 -4.7 -726.1 -1.8 3.6 3.3 -1.2 554 677
Q4 0.0 -1.8 -3.0 -2183.4 -5.4 3.8 3.4 -0.3 557 698
2016 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0 0
Q1 2.2 0.4 0.6 825.3 2.0 3.9 3.3 -0.8 561 703
Q2 1.7 -1.0 -1.6 -834.1 -2.0 3.7 3.1 -0.5 565 678
Q3 -0.1 -2.2 -3.5 -1912.5 -4.5 3.7 2.9 0.2 568 662
Q4 1.4 -0.7 -1.1 -2674.2 -6.3 3.7 2.8 0.8 572 666
2017 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0 0
Q1 1.2 -1.0 -1.5 46.0 0.1 3.4 2.3 0.6 576 655
Q2 1.5 -1.3 -2.0 -865.1 -2.0 3.2 1.9 0.5 580 665
Q3 1.7 -1.1 -1.6 -1879.9 -4.3 2.8 1.1 0.0 583 667
Q4 1.5 -0.9 -1.4 -2678.5 -6.0 2.8 0.9 0.0 586 670
2018 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0 0
Q1 1.5 -1.2 -1.8 220.7 0.5 2.8 0.7 0.0 588 670
Q2 1.5 -1.5 -2.2 -755.3 -1.6 2.9 0.6 0.0 591 670
Q3 1.5 -1.5 -2.1 -1837.8 -3.9 3.0 0.6 0.1 594 670
Q4 1.4 -1.1 -1.6 -2672.2 -5.6 3.1 0.5 0.2 596 670
2019 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0 0
Q1 1.4 -1.4 -2.0 422.2 0.9 3.4 0.7 0.4 598 668
Q2 1.3 -1.8 -2.4 -624.6 -1.3 3.5 0.6 0.6 600 666
Q3 1.3 -1.7 -2.3 -1787.3 -3.6 3.6 0.6 0.7 602 664
Q4 1.2 -1.4 -1.8 -2667.0 -5.3 3.8 0.7 0.8 603 663
2020 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0 0
Q1 1.2 -1.7 -2.2 631.1 1.2 3.9 0.8 0.9 604 661
Q2 1.1 -2.1 -2.6 -499.0 -1.0 4.0 0.9 1.0 605 660
Q3 1.1 -2.0 -2.4 -1740.7 -3.3 4.1 1.0 1.1 605 659
Q4 1.1 -1.6 -1.9 -2661.4 -5.0 4.3 1.2 1.3 606 658
Note 1 : REAL INTEREST RATES = Nominal interest rate (RSH or RLG) - % change in CPI

COPYRIGHT (C) , OXFORD ECONOMICS

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 Country Economic Forecast | Chile

Long-Term Forecast for Chile

Annual percentage changes unless otherwise specified

2006-2015 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016-2025
GDP 3.8 5.4 4.1 1.9 2.2 1.5 1.6 2.6 3.0 2.9 2.9 2.8 2.7 2.6 2.6 2.5
Consumption 5.2 6.1 4.6 2.7 2.0 2.4 2.6 2.8 2.8 2.7 2.7 2.6 2.6 2.6 2.5 2.6
Investment 5.6 11.1 4.0 -5.0 -0.9 -0.6 -0.3 5.0 3.6 3.2 2.9 2.7 2.6 2.5 2.3 2.4
Government Consumption 4.4 3.8 3.0 4.4 4.5 5.2 4.3 3.2 3.1 3.0 3.0 2.9 2.8 2.6 2.4 3.2
Exports of Goods and Services 1.7 0.3 3.3 0.3 -1.9 -0.1 2.0 3.0 1.5 1.9 2.0 2.1 2.1 2.1 2.2 1.9
Imports of Goods and Services 5.3 5.1 2.1 -6.5 -2.8 -1.6 3.4 2.6 3.0 3.9 3.5 3.1 2.7 2.5 2.4 2.5
Unemployment (%) 7.7 6.4 5.9 6.4 6.2 6.5 6.6 6.2 6.1 6.1 6.1 6.1 6.1 6.0 6.0 6.2

Consumer Prices 3.6 3.0 1.9 4.4 4.3 3.8 2.7 2.9 2.9 3.0 3.0 3.0 3.0 3.0 3.0 3.0
Current Balance (% of GDP) -0.5 -4.0 -4.1 -1.7 -1.9 -1.4 -1.6 -1.9 -2.1 -2.3 -2.3 -2.3 -2.1 -1.9 -1.7 -2.0
Exchange Rate (per $) 533 486 495 570 654 677 664 670 665 659 656 653 650 647 647 659
General Government Balance (% of GDP) 1.3 0.6 -0.6 -1.6 -2.2 -2.7 -3.1 -2.7 -2.4 -2.0 -1.7 -1.4 -1.1 -0.9 -0.9 -1.9
Short-term Interest Rates (%) 4.5 5.6 5.1 3.9 3.6 3.8 3.0 2.9 3.6 4.1 4.3 4.3 4.3 4.3 4.3 3.9

Working Population 1.3 1.3 1.2 1.1 1.0 0.9 0.9 0.8 0.7 0.7 0.6 0.5 0.5 0.4 0.3 0.6
Labour Supply 2.1 1.1 1.6 2.0 1.4 1.4 0.7 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.5
Participation Ratio (%) 66.4 68.1 68.3 68.9 69.2 69.5 69.4 69.1 68.9 68.7 68.5 68.3 68.2 68.1 68.1 68.7
Labour productivity 1.2 3.5 2.0 0.4 0.6 0.4 1.0 1.7 2.5 2.6 2.5 2.5 2.4 2.3 2.3 2.0
Employment 2.6 1.9 2.1 1.5 1.6 1.1 0.6 0.9 0.5 0.4 0.3 0.3 0.3 0.3 0.3 0.5

Output gap (% of potential GDP) 1.3 2.2 2.4 1.0 0.5 -0.5 -1.3 -1.3 -0.9 -0.5 -0.2 0.0 0.2 0.3 0.4 -0.4

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 Country Economic Forecast | Chile

Key Facts
Politics
Head of state: President Michelle BACHELET
Head of government: President Michelle BACHELET
Political system: Democracy
Date of next presidential election: November 2017
Date of next legislative election: November 2017
Currency: Chilean peso (CLP), floating exchange rate

Long-term economic & social development

1980 1990 2000 2015*
GDP per capita (US$) 2454 2402 5229 13526
Inflation (%) 35.1 26.0 3.8 4.3
Population (mn) 11.23 13.14 15.19 17.97
Urban population (% of total) 81.2 83.3 86.1 89.5
Life expectancy (years) 67.9 72.7 76.8 81.8
Source : Oxford Economics & World Bank

Structure of GDP by output * 2015 or latest

2015 available year
Agriculture 3.9% Source : CIA Factbook
Industry 32.8% Location : Southern South America, bordering the South Pacific
Services 63.3% Ocean between Argentina and Peru (CIA Factbook)
Source : World Bank

Long-term sovereign credit ratings & outlook Corruption perceptions index 2016
Foreign currency Local currency Score
Fitch A+ (Negative) AA- (Negative) Developed economies (average) 75.3
Moody's Aa3 (Stable) Aa3 (Stable) Emerging economies (average) 38.0
S&P AA- (Negative) AA (Negative) Chile 66.0
Western Hemisphere 39.9

Source: Transparency International

Structural economic indicators Scoring system 100 = highly clean, 0 = highly corrupt
1990 1995 2000 2015*
Current account (US$ million) - -947 -7 -4669
Trade balance (US$ million) 1283 1382 2119 3465 Composition of goods & services exports 2015
FDI (US$ million) 648 2186 866 3726
11.9%
Debt service (US$ million) 2778 4972 6182 23417 1.1%
Debt service (% of exports) 25.9 24.6 24.8 32.6 4.7%
External debt (% of GDP) 61.1 30.9 47.2 64.1 3.3%
46.8%
Oil production (000 bpd) 14 8 5 6 5.3%
Oil consumption (000 bpd) 145 212 240 337
Source : Oxford Economics / World Bank / EIA

26.9%
Destination of goods' exports 2015
China 26.3% Agricultural products Fuels and mining products
European Union (28) 13.2% Manufactures Other goods exports
United States 13.0% Transport Travel
Japan 8.6% Other commercial services Other services exports
Other 38.8%
Source : WTO Source : WTO

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 May
Chile
Country Economic Forecast | Chile
2017

Overall risk for Chile: 3.4/10

Factors affecting risk scores: Chile

Overall risk: 3.4/10

2015 2016 2017 2018 2019 2020 2021

Market demand rating: 4.0/10
Domestic demand, % y/y 2.0 1.1 2.0 2.5 3.4 3.5 3.3
Government balance, % of GDP -2.1 -2.7 -3.0 -2.7 -2.3 -2.0 -1.7
Gross government debt, % of GDP 16.4 19.9 23.5 26.6 28.9 30.4 31.4
Policy interest rate, % 3.06 3.50 2.78 2.69 3.31 3.81 4.00
Domestic credit, % of GDP 123.3 125.8 127.2 128.5 129.9 131.2 132.5
Fixed investment, % of GDP 23.6 23.2 22.3 22.9 23.0 23.1 23.1
Output gap, % of GDP 0.5 -0.5 -1.3 -1.3 -0.9 -0.5 -0.2
Real GDP per capita, 2010 US$ 14715 14790 14883 15120 15423 15732 16039

Market cost rating: 3.1/10

Nominal unit wage costs, 2008=100 115.8 121.4 125.4 128.9 132.0 134.9 138.0
Real fuel imports % total imports 18.8 19.7 20.0 20.4 20.6 20.2 19.8
Energy use per unit of GDPPPP 99.5 99.1 98.6 98.2 97.7 97.3 96.8
Exchange rate, average, LCU per US$ 654.1 676.9 664.3 669.8 665.4 659.2 656.0
Output gap, % of GDP 0.5 -0.5 -1.3 -1.3 -0.9 -0.5 -0.2
Unemployment rate, % 6.2 6.5 6.6 6.2 6.1 6.1 6.1
Real GDP per capita, 2010 US$ 14715 14790 14883 15120 15423 15732 16039

Exchange rate rating: 3.4/10

Exchange rate, average, LCU per US$ 654.1 676.9 664.3 669.8 665.4 659.2 656.0
Exchange rate, avg, PPP, LCU per US$ 372.0 381.1 385.0 390.0 395.5 400.7 405.7
Current account of BOP, % of GDP -2.0 -1.4 -1.6 -1.9 -2.1 -2.3 -2.3
External debt, % of GDP 64.1 66.2 63.1 62.3 59.9 57.5 55.5
Policy interest rate, % 3.06 3.50 2.78 2.69 3.31 3.81 4.00
FX reserves, months of imports 7.8 8.2 8.5 8.5 8.5 8.5 8.6

Sovereign credit rating: 2.3/10

GDP, real, % y/y 2.2 1.5 1.6 2.6 3.0 2.9 2.9
GDP per capita, PPP, US$ 21834 21945 22083 22435 22884 23343 23799
Government balance, % of GDP -2.1 -2.7 -3.0 -2.7 -2.3 -2.0 -1.7
Gross government debt % of GDP 16.4 19.9 23.5 26.6 28.9 30.4 31.4

Trade credit rating: 4.4/10

GDP, real, % y/y 2.2 1.5 1.6 2.6 3.0 2.9 2.9
External debt, % of GDP 64.1 66.2 63.1 62.3 59.9 57.5 55.5
GDP per capita, PPP, US$ 21834 21945 22083 22435 22884 23343 23799

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