JPMorgan lowered its growth forecasts for Chile from 1.1% to 0.9% by 2020, an estimate only higher than 0.7% of UBS, and slightly below the midpoint of the Central Bank range (0,5%-1,5%). In addition to the impact of the coronavirus emergency on the Chilean economy, its latest report adds concern about social instability in the country with potential repetition of violent demonstrations in March prior to the plebiscite for a new Constitution.
The Chilean economy will slow down drastically in 2020 and inflation in Q3 and Q4 will be close to 4%, said Vice President of Chile Central Bank, Joaquín Vial, during a seminar at the headquarters of the Central Bank of Spain in Madrid. He estimated that core inflation will increase to just over 3.5% in mid-year in response to the depreciation of the peso. GDP in 2020 will be between 0.5% and 1.5%. He also analysed the impact of social unrest at the end of last year on the country economy.
The board of Chile's Central Bank decided to keep the interest rate at 1.75% and was concerned about the possible impact of lower consumption and fiscal expansion on the country's economy. In the minutes of the meeting, board members also suggest closely following a possible weakening of the economy due to the coronavirus outbreak in China which has caused commodity prices, including copper.
Foreign direct investment (FDI) in Chile in 2019 was up by 78%, on the previous year, at $10.797 billion. This was its second consecutive year of growth, after a 4% increase in 2018 ($6.1 b), and the total for the year was close to the annual average for 2015-2019 ($11.2 b). According to figures published this morning by the Central Bank of Chile, net FDI in December reached $181 million.
Experts consulted by Chile's Central Bank project a growth of 1.2% of GDP in 2020 and 2.2% in 2021. The Monthly Economic Activity Indicator (Imec) of January foresees an advance of 1%. Accumulated inflation in 2020 is estimated at 3.2%. The interest rate will remain frozen at 1.75%. The exchange rate will average CL$780 over the next two months and fall to CL$758 in 11 months.