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Chile Business Forecast Report Q2 2010
Management Report
Published: February 2010
Pages: For full details, please email keithw@cmsinfo.com
Tables: For full details, please email keithw@cmsinfo.com
From: GBP 480.00 Buy Now!
Research from: Business Monitor International
Sector: Regional Markets
In our Q210 Chile Business Forecast Report we focus on the likely impact the first rightist governmentin two decades will have on Latin America’s fifth largest economy. What is more, with theeconomy showing ever-more encouraging signs that the recovery is gathering pace, we outlinethe prospects for a strong rebound in 2010 and beyond, as demand picks up both at home andabroad. A key theme across the report is Chile’s progression towards developed-state status, withthe country possessing a stable democracy, strong and transparent institutions, robust macroeconomicfundamentals and the most favourable business environment in the region. Indeed, while wecontinue to draw attention to the risks presented by the country’s ongoing overreliance on copperexports, we believe that the upcoming decade will see the country begin to move further awayfrom an export-led economy, towards domestic-demand driven growth.
Following Sebastián Piñera’s victory in January’s presidential election run-off, Chile is set for its firstcentre-right president since the collapse of the Augusto Pinochet regime in 1990. While we believethat Piñera’s presidency will bode well for Chile’s already stable economic outlook and the prospectof a more robust private sector, we believe he will face a number of key policy challenges whenhe takes office in March. Foremost among these will be the centre-left Concertación de Partidospor la Democracia coalition’s ongoing prominence in congress, which will likely hamper Piñera’sefforts to pass some of his more far-reaching legislation, in particular the planned part-privatisationof Codelco, the state-owned copper company. Moreover, Piñera’s ambitious growth projections riskheightening expectations of a buoyant economy during his tenure to unrealistic levels, potentiallyweighing on his popularity should the global economic recovery prove relatively weak.
Having moved out of recession in the third quarter of 2009, we are increasingly confident that theChilean economy will rebound strongly in 2010, to record real GDP growth of 5.0%. While ongoinggovernment stimulus programmes and the restocking of depleted inventories will spur growth duringthe recovery period, we believe that it is private consumption and gross fixed capital formation and- the dominant components of domestic demand - that will drive expansion over the longer-term.Indeed, we see Chile’s economy continuing to expand at an impressive pace, with growth set toaverage 3.6% over our 10-year forecast horizon. The country is blessed with some of the region’sstrongest macroeconomic fundamentals, with its attractive investment climate, history of fiscaldiscipline and high degree of transparency set to pave the way for robust growth going forward.
Chile’s strong and effective institutions, business-friendly policies and favourable physical infrastructurewill see its business climate remain a regional out-performer. With the new government likely to stepup the focus on attracting foreign investment, there is little to threaten the country’s very open foreigntrade regime and competitive operating environment over our 10-year forecast horizon. Nevertheless,we note that labour market disruption is likely to persist among the country’s workforce. Recent strikesat both state- and foreign-owned copper mines were halted only on the back of generous wage andbenefit offers, a move that is likely to further embolden unions in upcoming negotiations.
Having moved out of recession in the third quarter of 2009, we are increasingly confident that theChilean economy will rebound strongly in 2010, to record real GDP growth of 5.0%. While ongoinggovernment stimulus programmes and the restocking of depleted inventories will spur growth duringthe recovery period, we believe that it is private consumption and gross fixed capital formation and- the dominant components of domestic demand - that will drive expansion over the longer-term.Indeed, we see Chile’s economy continuing to expand at an impressive pace, with growth set toaverage 3.6% over our 10-year forecast horizon. The country is blessed with some of the region’sstrongest macroeconomic fundamentals, with its attractive investment climate, history of fiscaldiscipline and high degree of transparency set to pave the way for robust growth going forward.
Chile’s strong and effective institutions, business-friendly policies and favourable physical infrastructurewill see its business climate remain a regional out-performer. With the new government likely to stepup the focus on attracting foreign investment, there is little to threaten the country’s very open foreigntrade regime and competitive operating environment over our 10-year forecast horizon. Nevertheless,we note that labour market disruption is likely to persist among the country’s workforce. Recent strikesat both state- and foreign-owned copper mines were halted only on the back of generous wage andbenefit offers, a move that is likely to further embolden unions in upcoming negotiations.