Chile Labor Market Defies Slowdown as Manufacturing Shrinks

Updated on
  • Unemployment fell to 6.5% in three months through August
  • Manufacturing contracted 1.4% in August from the year earlier

Chile’s unemployment rate edged lower in the three months through August, even as manufacturing contracted and maintenance work and strikes slashed mining production.

The jobless rate fell to 6.5 percent from 6.6 percent in the month-earlier period, the national statistics agency reported on its website Wednesday, below the 6.7 percent median forecast of 19 analysts surveyed by Bloomberg. Manufacturing slid 1.4 percent in August from the year earlier, while retail sales gained 1.9 percent and mining slumped 9.3 percent, the agency said in a separate report.

“We expect Chile’s modest economic recovery to remain in place in coming months, despite these weak numbers, but the economy is clearly losing momentum,” Andres Abadia, senior international economist at Pantheon Macroeconomics Ltd., said in a note to clients. “The economy is not out of the woods yet.”

Chile’s jobless rate has undershot analyst estimates in five of the past seven months, helping to bolster retail sales after a year-and-a-half of sluggish economic growth. Now the economy faces fresh headwinds as monetary and fiscal stimulus wind down. Central bank President Rodrigo Vergara warned last week that interest rates will probably rise in the “short-term” as inflation remains high for a prolonged period. The government has also said spending growth will slow.

“We have to start a process of fiscal consolidation, to reduce the structural deficit that is wider than we forecast,” Finance Minister Rodrigo Valdes said Monday as he prepares the 2016 spending plan. Government expenditure is budgeted to leap 9.8 percent this year.

August’s decline in manufacturing compared with the median forecast of 16 economists surveyed by Bloomberg for an increase of 0.5 percent. Industrial production tumbled 5.2 percent over the same period, the biggest decline since July 2011.