Via IMF (Den Internationale Valutafond)

IMF Staff Mission Concludes Visit to Chile

June 19, 2019

An International Monetary Fund (IMF) staff team led by Mr. Luca Antonio
Ricci visited Santiago during June 5-12, 2019 to discuss recent economic
and policy developments. The IMF mission met with government officials,
private sector representatives and academics during its stay. At the
conclusion of the visit, Mr. Ricci issued the following statement:

“Economic activity has decelerated, partly owing to a temporary
weather-related decline in mining.

Following a strong rebound in 2018, with real GDP growing at 4 percent, the
deceleration in economic activity since the start of 2019 has been stronger
than expected. GDP expanded by only 1.6 percent (yoy) in the first quarter,
dragged down by a contraction in mining and overall exports, despite solid
domestic demand. Headline inflation, after dropping significantly under its
new CPI measure starting in 2019, picked up somewhat in recent months due
to its non-core food and energy components. By contrast, core inflation has
remained subdued and close to the lower bound of the Central Bank’s target
Nominal export registered a fourth consecutive month of contraction
(yoy) in May.
Confidence indicators have moderated lately against the backdrop of higher
external and domestic uncertainty.

“Global risks remain skewed to the downside amidst high policy

Global financial conditions remain broadly favorable but could change
rapidly, triggered for example by a shift in global risk appetite,
worsening of trade tensions, higher political uncertainty, or a
stronger-than-expected growth slowdown. Trade tensions could persist or
further escalate, hampering confidence, investment, and growth. Sovereign
risk concerns could return in the euro area and a hard Brexit could create
financial stability risks. Overall, external developments are likely to
continue to instill volatility in copper prices and global trade.

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“Overall, the worsening global environment and its impact on economic
performance have called for support from macroeconomic policies while
preserving macroeconomic stability:

  • The government recently announced a stimulus package to support

    The announced package of about USD 1.4 billion (about ½ percent of GDP)
    envisages both front-loading of public investment projects that should
    be fully financed by reallocation of resources from under-executed
    items within the existing budget and accelerating private sector
    investment by a fast-track expansion of existing concessions. Overall,
    the authorities expect an annual contribution to growth of about 0.4
    percentage points spread over 2019 and 2020.
  • The Central Bank recently cut the policy rate by 50 basis points,
    increasing the expansionary stance of monetary policy at a critical
    The decision was motivated by the weakening global outlook,
    weaker-than-anticipated growth in the first quarter, low inflation
    (especially core inflation remaining stubbornly close to the lower
    bound of the target range), as well as the revision of the Central
    Bank’s estimates for trend growth (up by 25 basis points) and for the
    neutral policy rate (down by 25 basis points).

“Maintaining the structural fiscal balance and inflation targets
remains a priority for the authorities
. Staff expects the authorities to meet the structural balance targets,
though headline fiscal deficit is expected to be larger in 2019, mainly
owing to the expectations of lower copper prices than envisaged in the
budget. Debt is expected to stabilize by early 2020s. Given the looming
uncertainty, the role of strong guidance on future monetary policy actions,
which will need to remain conditional on clear signs of the expected
inflation path, would become even more important.

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“The government has been aiming to support growth and address
development and social needs through a broad set of policy reforms.

These reforms relate to the tax, pension, and healthcare systems, as well
as the labor market, among others. While the lengthy
legislative process has strived to garner broad support, it has also been
contributing to domestic policy uncertainty, impairing confidence and
investment decisions.

“Going forward, it is crucial to reach a broad agreement over the
policy reforms soon, so as to support domestic confidence in this
period of heightened global uncertainty

“The IMF mission wishes to thank the authorities for their kind hospitality
and fruitful discussions.”

IMF Communications Department


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