Chile´s Economy Expands at Second Slowest Pace in Five Years

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Chile´s economy expanded less than expected in May, rising at the second slowest pace in five years, as a rebound in growth earlier in the year faltered amid rising unemployment.

The Imacec index, a proxy for gross domestic product, rose 0.8 percent from a year earlier, the central bank said on its website Monday. That was less than forecast by all 21 economists surveyed by Bloomberg. In the month, the economy was unchanged.

Five months after the government said it could see the green shoots of recovery, Chile’s economy is slipping back into the doldrums. The jobless rate rose more than analysts expected in May, reaching the highest level in eight months, while manufacturing production declined for the third month in four.

“We don´t see any factors generating a reactivation of the economy, nor any drivers to improve expectations,” said Cesar Guzman, an economist at Banco Security in Santiago. “Growth will be around 2 percent this year. We don´t see a recovery scenario anywhere.”

Two-year rate swaps fell six basis points, the most in three months, to 3.37 percent, the lowest level this quarter. The one-year swap rate declined two basis points to 3.09 percent, implying traders now expect the first rate rise in February rather than January.

Guzman went further, forecasting the next move in rates would be a cut in December or January. The central bank has kept its key interest rate at 3 percent since October.

Short Lived

Gross domestic product expanded 2.4 percent in the first quarter from the year earlier, up from 1.8 percent in the fourth quarter and 1 percent in the previous three months.

Central bank director Sebastian Claro said in an interview on June 22 that industry shouldn’t expect a “rapid recovery,” while Finance Minister Rodrigo Valdes warned a day later that growth would be worse than expected in the second half of the year.

The central bank cut its growth forecast for the year on June 3 to 2.25 percent to 3.25 percent, from a previous estimate of 2.5 percent to 3.5 percent and from the 4 percent to 5 percent estimate in September 2013.

Growth in the world´s largest copper producer will accelerate to 2.7 percent this year, exceeding the Latin American average by more than 2 percentage points, according to economists surveyed by Bloomberg.