Chile's Economy Expands at Second-Slowest Pace in Six Years

  • GDP expanded 1.3% in the fourth quarter from year earlier
  • The central bank kept borrowing costs unchanged yesterday

Chile’s economy grew less that expected in the fourth quarter, expanding at the second-slowest pace in six years, as two years of weak growth was exacerbated by a renewed decline in manufacturing.

Gross domestic product grew 1.3 percent from a year earlier, compared with the 1.6 percent medium estimate of 19 economists surveyed by Bloomberg, the central bank said on its website Friday. From the previous quarter, GDP expanded 0.1 percent.

Increased fiscal spending helped prop up domestic demand in the fourth quarter as it did for the whole of 2015 as the country reels from a slump in copper prices. The rise in spending, plus loose monetary policy has failed to trigger a broader rebound in the economy though, prompting the central bank to cut its growth forecast seven times since March 2013. Policy makers kept borrowing costs unchanged at 3.5 percent Thursday for a third straight month, citing weaker-than-forecast growth.

“GDP is still struggling to recover from the steep slowdown seen in 2014-2015,” Andres Abadia, a senior economist at Pantheon Macroeconomics, said in a note to clients. “The weak sentiment indexes at a national level, and the deceleration in China, suggest that the rhythm of growth will remain very weak for the next few quarters.”

Domestic demand rose 1 percent in the fourth quarter from the year earlier, led by a 4.9 percent gain in fiscal spending, the central bank said. Investment fell 1.3 percent over the same period.

Full-Year Growth

Fourth-quarter growth brought expansion for the full year to 2.1 percent, the second consecutive year of lackluster expansion in an economy that grew an average 4.3 percent a year in the 17 years through 2013.

Still, Chile’s performance remains around the middle of its regional peers, with Brazil shrinking 5.89 percent in the fourth quarter from the year earlier, Colombia expanding 3.3 percent and Mexico growing 2.5 percent.

With Chile’s industrial output contracting at the fastest pace in at least six years in January, the long-forecast rebound in growth is unlikely to start until later in the year. The government has also pared back spending growth as copper revenue declines. Industrial production tumbled 8.3 percent in January from the year earlier, with manufacturing down 4.6 percent.

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