2012-02-07 14:05:49 - New Country Reports research report from Business Monitor International is now available from Fast Market Research

Core Views Robust economic growth will continue to be driven primarily by strong private consumption levels, with consumer-focused industries such as telecoms, financials and autos to benefit as a result. Although President Sebastián Piñera continues to face an oppositiondominated congress and an electorate unhappy with recent reforms, political stability will persist in Chile over the long term. We expect Chile's fiscal accounts to register a marked improvement in 2011 based on the positive outlook for tax and copper export revenues, and on the administration's commitment to fiscal retrenchment. Major Forecast Changes Despite the government's ability to implement growth-supporting policies, the precarious global economic recovery combined with a gradual cooling of domestic demand has prompted us to revise down our real

GDP growth forecast for 2012 to 4.8% from 5.0% previously. While the Chilean economy's fundamentals remain strong, we believe the central bank's rate hiking cycle has come to an end, and on the back of significant external downside risk to the country's growth outlook, we have revised down our end-2011 and end-2012 interest rate forecasts to 5.25% and 5.00% respectively, from 6.00% for both previously. We have revised our end-2011 and end-2012 nominal fiscal balance forecasts to 1.4% and 1.0% respectively, based on the assumption that international copper prices and strong domestic economic growth two key factors behind the forecasted return to surplus in 2011 will moderate in 2012. We expect the Chilean peso to remain weak on the back of persistent risk aversion towards emerging market assets and a consolidation of copper prices. We have therefore revised our average exchange rate forecasts for 2011 and 2012 to CL P489.00/US $ and CL P517.50US $ respectively, from CL P455.00/US $ and CL P445/US $ previously. Key Risks To Outlook Downside Risks To Inflation/Interest Rate Forecasts: A largerthan- expected downturn in the world economy could prompt the central bank to enter a monetary easing cycle earlier than we expect, in order to maintain the country on a high-growth trajectory. Downside Risks To Fiscal Outlook: An intensification of social unrest, combined with a drop in international copper prices and slower domestic economic growth could weaken the government's ability to carry on its fiscal consolidation agenda.
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