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The Chilean economy is beginning to feel the
rebound of the global economy, which will provide a solid backdrop for
robust growth in 2004. Higher demand from China and other world regions has
boosted the copper price well above last year’s level and exports of Chile’s
main commodity have grown significantly. However, the resilience of the
external sector has yet to feed through to the domestic side of the economy,
which remains sluggish despite favourable interest rates. |
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Strong
September reading lifts third quarter growth above expectations
In September, the economy expanded 4.2% compared to the same month last
year, according to the monthly indicator for economic activity (IMACEC,
Indicador Mensual de Actividad Económica). The reading came in well above
the 3.5% growth rate that Consensus Forecast panellists had expected last
month. Moreover, the September reading represents an acceleration when
compared to the 3.5% and 1.3% growth registered in July and August
respectively. Owing to the unexpected upward tick at the end of the
quarter, full third quarter growth also exceeded expectations. According
to the Central Bank, gross domestic product (GDP) expanded by 3.0% in the
third quarter over to the same period last year, compared to 2.7% expected
by the Consensus. In the second quarter, the economy grew at an annual
2.8%.
External sector drives economy but domestic side lags behind
The acceleration of economic growth observed in the third quarter was
entirely driven by a buoyant external sector, whereas the domestic side of
the economy deteriorated. Domestic demand increased by only 0.3% over the
third quarter last year, following on 3.5% growth in the second quarter.
The subdued development in domestic demand was reflected in both by
consumption and investment. Gross fixed investment added only 0.6% over
the same period last year, as businesses pared spending for machinery and
equipment (down to 4.7% growth in Q3 versus 9.0% in Q2). Investment in
construction and other works, on the other hand, tripled from 1.5% in the
second quarter to 4.5% in the third quarter. The remainder of domestic
demand (the Central Bank only publishes joint data for consumption and
change in inventories) shrivelled from 3.3% growth in the second quarter
to 0.2% in the third. With consumption and investment well below last
quarter’s reading and expectations, resilient exports were the key behind
the behind the lifting of overall economic growth beyond expectations.
Exports of goods and services increased a whopping 13.5% over the same
quarter last year (Q2: +1.9% year-on-year) due to both higher volumes and
prices for Chile’s main commodities, in particular copper. Imports, on the
other hand, increased just 4.0% (Q2: +4.3% yoy) reflecting subdued
domestic demand.
Mining
leads growth amid strong demand for copper
Mining led other sectors by a significant margin in terms of growth. In
the third quarter, mining activity added 8.6% over the same quarter last
year. Copper accounted for the strong reading, as increased production
from private mining operations bolstered output. In addition, high growth
also reflects a low comparison base in the third quarter of 2002.
Commerce, restaurants and hotels constituted the second fastest growing
sector. According to the Central Bank, the sector profited from healthy
industrial and agricultural sales activities. On the lower end of the
spectrum, fishing was the only sector that contracted. Lower output from
the fish farms rather than adverse climatic conditions accounted for the
slump.
Robust
growth ahead amid global rebound
Preliminary data suggest an annual economic growth rate of 3.8% in
October, according to this month’s Consensus. For the fourth quarter,
Consensus Forecast panellists expect economic growth to accelerate from
3.0% in the third quarter to 3.9%. Buoyant demand from China and a rebound
in demand from other world regions continue to fuel copper price
increases. As a result, the average copper price in November was 29.9%
above the level registered in the same month last year and the current
dynamics of the global economy suggest that the price trend for Chile’s
key commodity will persist into the near future. Moreover, the expected
general economic strengthening in key global regions also bodes well for
the rest of the economy. With almost a third of total output directed to
overseas markets, Chile is the most open economy in Latin America and
stands to profit most from the long anticipated rebound in global economic
activity. Exports are already exhibiting strong growth and are likely to
pull other sectors of the economy ahead. However, the resilience of the
external sector will only be felt to have a sizeable positive impact on
the rest of the Chilean economy in the coming year, when GDP is expected
to expand by 4.3%, following on this year’s 3.2% growth.
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