Mixed out look for Chilean economy following mining slump

7 Aug 15

Chile’s efforts to refocus its economy following last year’s slump could boost long-term growth, although the short-term impacts might be negative, the International Monetary has said.

Growth in the South American’s country economy slowed to 1.9% last year because of a fall in private investment and plummeting copper prices, which hit the mining industry on which Chile is heavily reliant.

This turn in the economic tide prompted Chile to bring a range of education, labour market and tax reforms, but the fund warned that the impact of these changes would be mixed.

“If well implemented, the reforms have the potential to boost productivity and long-term growth, but the higher cost of capital and the complexity of the new tax regime are likely to have a negative effect on economic activity in the short-term,” the IMF said following an Article IV consultation.  

“Moreover, the announced constitutional and labour market reforms appear to have increased private sector’s uncertainty over Chile’s future economic environment.”

Growth in Chile is expected to pick up to 2.5% this year, thanks to strong fiscal support, the IMF said, while next year it will accelerate to 3.1%.

However, the fall in copper prices could derail any economic recovery. Prices were down 7.6% compared to a year ago, and the price is expected to continue to decline sharply to 2025 because of a lack of innovative technology.

  • Judith Ugwumadu
    Judith Ugwumadu

    Judith writes about public finance, public services and economics across Public Finance International and Public Finance. She previously undertook reporting stints at Financial Adviser, Global Security Finance and The Sunday Express.

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