2013-01-01 13:31:51 - Chile Business Forecast Report Q1 2013 - a new country guide report on companiesandmarkets.com

We expect the Chilean economy to struggle to rebalance following robust growth driven by the global commodity boom of the past decade. Given our view for slowing growth in China, we expect the process of rebalancing away from rapid Chinese copper consumption to weigh on the Chilean economy for many years to come. As such, we expect real GDP growth to average 3.8% from 2013-2017, down from 4.4% from 2002-2011.

We believe a substantial narrowing in Chile´s trade balance will keep the current account in deficit in 2012, and we have revised our forecasts to reflect wider current account shortfalls over the coming years. However, Chile´s strong international asset position leaves us confident that the country´s external account sector will remain

 

 

broadly stable.

After a brief spike and then retracement following the US Federal Reserve´s QE3 announcement, technical indicators suggest that the Chilean peso may trade slightly lower in the coming weeks. We believe that falling copper prices will bring about a weakening in the peso from the current spot price of CLP474.00/US$ to CLP485.00/ US$ by the end of 2012.

We expect Chilean President Sebastián Piñera´s chronically low approval ratings to persist, as we believe unrest from the student movement, a weakening economy and rising unemployment will keep the president and his coalition unpopular. That said, the inability of the opposition to capitalise on the president´s weakness thus far suggests that his Coalición por el Cambio could hold onto the presidency and perform well in elections scheduled for December 2013.

Major Forecast Changes

The strong performance of the Chilean peso in recent months, which has pushed the 2012 average exchange rate to CLP490.04/US$, has led us to revise our average exchange rate forecast for 2012 from CLP510.00/US$ to CLP486.00/US$.

We have revised our monetary policy rate forecast for Chile. We initially expected 50 basis points (bps) worth of cuts; we now expect it to hold at 5.00% through end-2012 owing to signs of strong domestic demand growth and elevated inflationary pressure. That said, we believe weakening external demand will drag down the rest of the economy in 2013, prompting the central bank to implement 50bps of cuts by end-2013, bringing the policy rate to 4.50%.

Key Risks To Outlook

Upside Risks To Real GDP Growth Outlook: Despite weakening copper exports, if private consumption growth should remain strong, real GDP growth could exceed our real GDP growth forecast of 4.8% in 2012 and 4.0% in 2013.

Downside Risks To Peso Depreciation View: Copper prices have remained somewhat elevated, despite slowing Chinese demand. If these prices stay higher than expected, we could see the Chilean peso remain close to its current levels throughout 2012 and into 2013.

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