Chile’s economy slowed in Q4 2024 but saw a full-year growth of 2.6%, surpassing expectations. GDP rose 0.4% quarterly and 4.0% annually. Policymakers are expected to keep interest rates at 5.0% amid high inflation concerns. The outlook for 2025 suggests continued momentum, albeit with risks.
In the fourth quarter of 2024, Chile’s economy experienced a slowdown compared to the previous quarter, yet exhibited an annual growth rate that surpassed expectations, according to data from the central bank released on Tuesday. Ahead of the March 21 interest rate-setting meeting, economists anticipate that policymakers will maintain borrowing costs at 5.0% due to persistent consumer price inflation concerns.
Chile, being the world’s largest copper producer, reported a 0.4% increase in GDP for the fourth quarter compared to the preceding three months. This growth was slightly lower than the 0.5% projected by economists in a Reuters poll. The slowdown from the earlier quarter’s 1.5% growth was attributed to decreased mining activity, although gains in the service and agricultural sectors provided some compensation.
Economist Kimberley Sperrfechter from Capital Economics noted, “More timely monthly activity data suggest that the economy headed into 2025 with more momentum. This, combined with above-target inflation, means that the central bank is likely to stand pat on Friday.”
On a year-over-year basis, Chile’s economy expanded by 4.0% in the fourth quarter, exceeding the Reuters poll forecast of 3.7%. After a weak performance in 2023, Chile regained economic momentum largely due to interest rate reductions, with the central bank pausing its easing cycle in January amid concerns over inflation after cutting rates by a total of 625 basis points since July 2023.
For the entirety of 2024, the Chilean economy grew by 2.6%, primarily driven by exports, alongside a 1.3% increase in internal demand. This full-year growth rate surpassed the central bank’s December projection of 2.3% and represented an acceleration from the previous year’s 0.5% growth, marking the strongest expansion since the post-pandemic recovery in 2021.
Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, remarked that Chile concluded the year on a robust note, with resilient domestic demand suggesting potential growth acceleration this year due to strong private consumption. Nonetheless, he cautioned that risks remain, mainly due to unstable external conditions and tight financial constraints that limit policymakers’ flexibility.
In conclusion, while Chile’s economy faced a slowdown in Q4 2024, it outperformed expectations on an annual basis. Full-year growth was bolstered by exports and resilient domestic demand. Although the central bank is expected to maintain interest rates due to inflation considerations, optimistic projections suggest continued economic momentum into 2025, albeit with prevailing external risks.
Original Source: money.usnews.com
