Chile Economy Beat Estimates as Shoppers Ignore Global Woes

Chile’s economy grew at the fastest pace in four months in June as local demand showed few signs of contagion from abroad, cementing estimates that policy makers will continue to buck a regional trend of interest rate cuts.

The economy expanded 6.2 percent in June from last year, exceeding by half a percentage point the highest estimates made by 14 analysts polled by Bloomberg. The Imacec index, a proxy for gross domestic product, increased 0.4 percent from the previous month on a seasonally adjusted basis, the central bank said in a report posted on its website today.

Retail sales continue to drive growth as shoppers shrug off concern that Europe’s sovereign-debt crisis and China’s deceleration will damage Chile’s labor market. While industrial production has grown at a slower pace, companies may increase output as evidence mounts that internal demand remains strong, economist Felipe Alarcon said by phone from Santiago.

“This cycle of consumption and retail still is sustainable so long as it doesn’t generate strong inflationary pressures,” said Alarcon, deputy director of research at Banco de Credito e Inversiones. “This for now drives away any fear of contagion and also makes it less likely the central bank will try to reduce rates in at least its next meeting.”

Policy makers have kept borrowing costs unchanged for six months at 5 percent, which along with Colombia’s is the highest benchmark among rate-setting countries in Latin America behind Brazil.

Monetary Policy

While Brazil and Colombia reduced borrowing costs in their last meetings to stimulate growth, Chile will keep rates unchanged in August, according to the median estimate of 57 traders and investors surveyed by the central bank on July 24.

Still, policy makers will cut borrowing costs to 4.75 percent by November on estimates the economy will start to decelerate, according to the poll. The one-year interest rate swap, which reflects traders’ views of average borrowing costs, rose five basis points to 4.90 percent at 10:07 a.m. local time from 4.85 percent Aug. 3.

The government also has $15 billion in a sovereign wealth fund it can tap to stimulate investment and employment if a global slowdown reduces demand for Chilean exports, President Sebastian Pinera said in an interview in June.

“Chile is uniquely positioned among Latin American countries as it can easily resort to both fiscal and monetary policy tools, if necessary,” Standard Chartered Bank analysts Bret Rosen and Italo Lombardi wrote last week in a report e-mailed to investors. “As a particularly open economy, Chile is especially vulnerable to a global slowdown.”

Growth Outlook

Economic growth will ease this year, with GDP expanding 4 percent to 5 percent after climbing 6 percent in 2011, according to central bank forecasts. The average price of copper, Chile’s leading export, will fall 11 percent from last year to $3.55 a pound in 2012, policy makers said in their latest estimates published in June.

The economy had showed signs of deceleration with GDP expanding 5.6 percent in the first quarter from last year and 5.4 percent in the second, according to calculations made by Bloomberg based on Imacec data. Retail sales soared 9.5 percent in the first quarter from last year and 7.2 percent in the second, according to the National Statistics Institute.

Unemployment fell to 6.6 percent in the three months through June from 6.7 percent through May after opening 2012 at 6.6 percent. Manufacturing output expanded 1.1 percent in June and 2.2 percent in the previous month, the institute said last week. Inflation has slowed for four straight months, reaching 2.7 percent in June.

“We don’t see significant risks of inflationary pressures even though the economy is dynamic,” Finance Minister Felipe Larrain, a non-voting participant of central bank meetings, said in a speech televised live today. “That doesn’t mean we can abandon the important posture we’ve adopted, with the central bank and the government making their contributions.”

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