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The economic recovery that had been
anticipated for this year will not materialise and economic growth will
remain even behind last year’s lacklustre performance, as weak global demand
for Chilean exports did not jumpstart the country’s all-important external
sector. Meanwhile, unfavourable climatic conditions, which pushed up food
prices, and higher oil prices led to a spike in headline inflation,
forestalling further monetary easing. |
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August
economic activity ahead of expectations
In August, the monthly indicator for economic activity (IMACEC,
Indicador Mensual de Actividad Económica) expanded by 1.7%. The August
reading remained below the 2.1% annual growth registered in July but
exceeded expectations by 0.3 percentage points. Moreover, August 2002
counted one working day less than the same month last year, which
according to the Central Bank costs between a half and a full percentage
point of growth. According to seasonally adjusted data, the economy
expanded at a fast 1.6% rate compared to the preceding month, the
strongest rate since February 2000.
Industrial production expands strongly in September but movement is in
line with volatile development observed in past months and does not
constitute a trend change
Industrial production continues to show erratic growth patterns. The
National Statistical Institute (INE) reported that the industrial sector
added 5.2% in September compared to the same month last year, following on
a 1.0% contraction in August, which in turn followed on 8.6% growth in
July. The erratic movements in INE’s industrial production data are also
mirrored by the numbers from the National Industry Federation (SOFOFA) and
industrial sales data. The volatility in industrial growth renders
establishing a trend difficult. Even the annual average is exhibiting
rather large swings with growth moving from 1.1% in August to 1.5% in
September (see chart). Unemployment, on the other hand, shows a far more
inert pattern. In September, the moving quarterly average unemployment
rate reached 9.7%, which is a notch above the August reading and follows
the seasonal upward pattern usually observed at this time of the year. The
September reading should mark the peak and unemployment is likely to drop
slowly amid seasonal hiring. Participants expect unemployment to drop
gradually and reach 8.8% by the end of the year.
Outlook
lowered amid diminished prospects for global recovery
Despite the favourable development of the domestic industry in September,
Consensus Forecast panellists expect economic growth to remain contained
at 2.1% growth, slightly below last month’s expectations of 2.3%. Growth
in the third quarter over the same quarter last year would thus reach just
1.9%, barely above the 1.7% registered in the second quarter this year.
Moreover, forecasts for the final quarter were lowered from 2.6% in
October. As a result, the annual forecast dropped yet again a notch over
last month. For 2003, panellists also lowered their growth projection yet
again. The 0.1 percentage point drop in the 2003 GDP forecast represents
the third downward revision in a row, as increased pessimism over the
global recovery clouds prospects for the all-important external sector.
Moreover, the potential for war in Iraq continues to loom, threatening to
drive the oil price upward again. As an oil importing country Chile would
suffer the full detrimental impact of such an oil price increase.
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