Chile Will Continue Its Low-Unemployment, Low-Inflation Growth In 2014

  @PReyMallen on January 09 2014 8:14 AM

Along with other Latin American countries, Chile had a successful 2013. Its GDP grew 4.2 percent, which was a decline from 2012’s 5.6 percent -- it was lower than initially expected but still higher than in the main economies of the region. According to BBVA Research firm, Chile, together with Colombia and Peru, will be integral in propelling Latin American growth. 

Chile’s economy is driven by domestic demand, which grew 3.9 percent last year. Inflation for 2013 was an estimated 2.6 percent, unemployment reached a historical low of 5.7 percent and exports had a push forward thanks to the increase of trade with China, which experienced growth of 22 percent compared to 2012.

With the happy memories of last year and the optimism of a new government, led by socialist Michelle Bachelet, here is how 2014 looks for Chile.

GDP growth

The Central Bank of Chile expects GDP to grow 4.2 percent, which is the same rate as 2013. The stagnant figure comes from a slowdown in domestic demand that's due to a reduction in the rate of jobs creation and the freezing of salaries, which started to be noticeable in late 2013, according to analyst Fernando Sáenz.

“The job market will be less flexible in 2014, and the credit volume will be smaller. Both issues will have a significant impact in economic growth,” Sáenz said.

Inflation & unemployment

Inflation evolved according to plan in 2013, and, at 2.6 percent, stayed in within the target margins (between 1 and 3 percent). The forecast for the next two years expects inflation to stay around 3 percent, due to the stabilization of energy prices.

Unemployment has stayed in historic lows all throughout the year, and it is expected to stay around 5.5 percent for the upcoming months. Salary increase will remain at 4 percent -- down from 6.2 percent increase in 2012. 

Policies: fiscal, monetary, currency

Chile’s fiscal policy remained focused on budget balance. Between January and October, the government spending was 5.8 percent of the GDP -- larger than its growth and a significant change from the previous two years in which it was smaller.

The monetary policy was focused on keeping inflation under 3 percent. The central bank was also successful in keeping the interest rate under the 5 percent that had been the norm since January 2012; since October 2013, the rate was reduced to 4.5 percent.

The currency, the Chilean peso, kept a steady exchange rate with the American dollar, at 530 pesos per $1.

In terms of investment, Chile was named the best country in Latin America to do business by the World Bank in 2013, due to its open laws on enterprising and starting companies (which can be done in a day) and its trade policies. As one of the countries in the world with the most free-trade agreements, it has few obstacles to imports and exports. 

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