Chile’s Growth Expectations Revised Upwards

The central bank of Chile (BCCh) revised upwards its 2010 GDP growth expectations to the 5-5.5% range from 4-5% in the previous release, thanks to a stronger-than-expected recovery during H1 2010 and early data for Q3 2010. The driver of growth has been domestic demand, characterized mainly by fixed capital formation and inventory restocking. Investment composition is expected to shift toward construction from machinery and equipment, which buoyed in H1 2010. Both transitory (earthquake rebound and low base) as permanent (monetary stimulus, credit and labor markets, consumer and business confidence) factors are behind Chile’s rapid recovery. This recovery has translated into an earlier closing of the output gap than expected in June’s IPOM, now expected for H1 2011. Still, economic expansion in upcoming quarters should remain strong, albeit slower than in H1 2010 as recovery effects from the earthquake vanish and the global economy slows down. In 2011, the economy is expected to expand between 5.5-6.5%, aided by a low base effect in Q1.

Editor’s Note: This post is excerpted from a much longer analysis available exclusively to RGE Clients, LatAm Focus: Week Ahead (Week of September 13, 2010)

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