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Chile’s Economy Grew Slower-Than-Forecast 3.4% in October

Chile’s economy grew 3.4 percent in October from a year earlier, less than analysts had forecast and the weakest expansion since the aftermath of a devastating earthquake in February 2010, the central bank said.

The median forecast of nine economists surveyed by Bloomberg was for the economy to expand 4.2 percent in October. The economy shrank 0.6 percent from the previous month on a seasonally adjusted basis, the bank said on its website today.

The report adds to evidence that Europe’s debt crisis is beginning to damp growth in Chile, with industrial production falling in October for the first time since April 2010, the National Statistics Institute said on Nov. 29. Still, with unemployment declining in the same month, the central bank may wait for more evidence of a slowdown before changing policy.

“We have little in common with views of a sharp deceleration and significant external impact on the local economy so far,” Jorge Selaive, chief economist at Banco de Credito & Inversiones, said in a report today. The bank “will hold the monetary policy rate at the current level until it thinks it necessary to stimulate investment and consumption.”

Chile’s central bank has kept its key rate unchanged at 5.25 percent for the past five months, while Brazil, which has been harder hit by the global slowdown, has reduced borrowing costs in each of the past three meetings.

Three-month interest rate swaps, which reflect traders’ views of average borrowing costs, fell two basis points to 4.96 percent at 9:19 a.m. Santiago time. The swap rate indicates policy makers will cut borrowing costs within three months.

Slowing Down

A deceleration in mining output and a decline in industrial production partially offset gains in retail sales in October, the central bank said in today’s report. Industrial output shrank 0.8 percent in October as retail sales expanded 8.6 percent after growing 9.6 percent in September, the statistics institute said last month.

“Today’s data confirm two effects we’re seeing on the economy: the impact of slower growth in developed economies and the convergence of internal demand,” Matias Madrid, chief economist at Banco Penta in Santiago, said by phone. “The central bank will reduce rates by a quarter-point this month with its mind on the impact of the external crisis.”

Chile’s economy will expand about 6.5 percent this year, before decelerating to 5 percent growth in 2012, according to government forecasts made in October. President Sebastian Pinera said last month the economy may grow as little as 6 percent this year and 4 percent in 2012 as a European recession weakens demand for Chilean exports.

“The Chilean economy sooner or later will be affected by the external situation,” central bank President Jose De Gregorio said last week in Santiago. “No matter what scenario we face, Chile’s economy -- and monetary policy in particular -- has the tools, the flexibility and the willingness needed to reduce the costs of a deteriorated external environment.”

To contact the reporter on this story: Randall Woods in Santiago at rwoods13@bloomberg.net.

To contact the editor responsible for this story: Philip Sanders at psanders@bloomberg.net.

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