Chile, still sound economic fundamentals

The short-medium term outlook for Chile remains very positive, although there are downside risks as the country's vulnerability to volatility in raw materials.
Analisis Credito y Caución
Madrid - 19-jan-2010

Chile is Latin America’s fifth largest economy. It continues to benefit from the region’s strongest macroeconomic fundamentals, with an attractive investment climate, high level of transparency, and strong fiscal discipline. Like all of its neighbours, it is not immune to the global economic crisis, experiencing three consecutive quarters of contraction for the first time since 1999. However, recent data already point towards a recovery, driven mainly by increased government spending, restocking of inventory levels and increased investment.

The government has launched a stimulus package totalling US-$ 4 billion, aimed at encouraging public spending on infrastructure and providing subsidies and tax rebates to cushion the effect of the global financial crisis. This package will be funded from copper windfall earnings saved in sovereign wealth funds.

Copper exports represent approximately 45% of GDP and have fallen sharply in 2009 as global inventories have been wound down and the global construction industry has contracted. Revenues from January to September fell by a massive 90% compared to the same period in 2008. However, while not returning to their peak of 2008, copper prices are rebounding, driven by Chinese demand, tight global supplies and restocking.

Although there has been a small increase in payment delays, this is not typical, and no doubt a direct result of the global economic crisis. Financial information is generally available and Chilean companies are usually very open to providing information when it is requested by our agencies.

Robust growth of 4% expected in 2010

Looking forward, Chile’s strong macroeconomic fundamentals should provide a solid basis for consistent growth. However, there are some downside risks, acording to Credito y Caución’s opinion. Chile remains over-reliant on copper exports, leaving it vulnerable to the volatility of commodity and equity markets. On balance, however, the overall short to medium-term outlook for Chile remains largely positive. The IMF expects GDP growth to rebound by 4% in 2010.

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