Chile's Economic Growth Remains Steady in December, Fueled by Copper and Lower Interest Rates
Chile's economic activity rose for the third consecutive month in December, driven by lower interest rates, robust copper production, and increased demand.
The Imacec index, a measure of GDP, increased by 0.9% month-over-month, surpassing analysts' average forecast of 0.7% in a Bloomberg survey. Year-over-year, activity surged by 6.6%, the highest gain since January 2022 and exceeding all predictions.
Despite a turbulent year, Chile's economy has stabilized, with the central bank projecting GDP growth of approximately 2.3% for 2024. Reduced interest rates, rising real wages, and strong copper exports have fueled demand.
Mining led growth in December with a 4.7% increase, followed by commerce (2.7%) and services (unchanged).
"This represents a strong end to the quarter, with total output rising 0.4% quarter-on-quarter in Q4," said Andres Abadia, chief Latin America economist at Pantheon Macroeconomics. "It supports our expectation of stable interest rates in the near term."
Policymakers, led by Rosanna Costa, held the benchmark interest rate steady at 5% last week, after a series of rate hikes in mid-2023. However, they indicated that rates could remain unchanged due to ongoing inflation concerns.
Annual inflation stood at 4.5% at the end of 2024, exceeding the 3% target. Costa has stated that consumer price increases will remain elevated around 5% early in the year, driven by currency weakness and utility tariff hikes.
Congress has recently approved a pension reform, reducing uncertainty. The legislation is expected to increase payments for both current and future retirees, contributing to a record high in the stock market.
Under the reform, employers will be obliged to contribute to individual retirement savings accounts for the first time, which will be invested by pension fund managers (AFPs).
The official fourth-quarter GDP report from the central bank is scheduled for release on March 18.