Chile’s Economy Grows More Than Forecast as Demand Picks Up

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Chile´s economy grew at the fastest pace in one year in the first quarter, beating analysts’ expectations, as domestic demand rose for the first time since 2013. Investment declined for the seventh consecutive quarter.

Gross domestic product grew 2.4 percent from a year earlier, the central bank said on its website Monday, compared with the 2.2 percent medium estimate of 17 economists surveyed by Bloomberg. From the previous quarter, GDP expanded 1 percent.

“It’s a combination of a recovery in exports, particularly in mining, and consumption,” said Miguel Ricaurte, chief economist at Banco Itau Chile. “We are cautiously optimistic. Still, we don’t see an economy that has taken off completely.”

Policy makers kept borrowing costs unchanged at 3 percent for a seventh straight month on May 14, warning that some recent indicators showed growth may be losing dynamism “at the margin.” The bank has said rates won’t rise until around the end of the year.

The comments came after the statistics agency reported that manufacturing contracted 2.8 percent in March from the year earlier, while retail sales gained 0.4 percent, the slowest pace in four months.

Apart from manufacturing and fishing, all other sectors of the economy expanded in the first quarter, the central bank said.

Domestic Demand

Domestic demand rose 1.3 percent in the first quarter from the year earlier, the first gain since the last three months of 2013. Household demand gained 1.6 percent and government demand gained 5.6 percent.

The pick-up in demand helped economic growth accelerate from 1.8 percent in the fourth quarter and 1 percent in the previous three months. Third-quarter growth was the slowest since the 2009 recession.

Still, investment fell 1.7 percent in the first quarter from the year earlier, after gaining 0.5 percent in the previous three months, the central bank said Monday. Spending on machinery and equipment tumbled 7.4 percent.

“We still see skepticism from the business community about how strong the recovery is and that is reflected in investment numbers,” Ricaurte said. “Confidence hasn´t turned around.”

Cabinet Change

Chile’s poor growth performance was one of the factors behind President Michelle Bachelet’s decision to remove Finance Minister Alberto Arenas last week. Arenas was replaced by Rodrigo Valdes, chairman of state-owned Banco del Estado and former economist at the central bank, Barclays Plc and BTG Pactual.

Chile’s benchmark IPSA equity index led gains among major Latin American equity indexes on the day of Valdes’ appointment, with a 1 percent increase to 4,144.98, its highest level since June 2013. It is little changed since then.

While growth has remained weak, the labor market has been stronger than analysts expected. The jobless rate was unchanged at 6.1 percent in the three months through March, less than analysts expected for the fifth time in seven months.

As the labor market remains tight, wages rose 7.1 percent in March from the year earlier. Wage growth combined with a decline in the peso have been the principle factors behind faster-than-expected inflation.

Monday’s “figures confirm that the economy has picked up speed and are consistent with our view that steady, moderate growth is now likely for the rest of the year,” Andres Abadia, senior international economist at Pantheon Macroeconomics Ltd. in Newcastle the U.K., said in an e-mailed note.