Chile plans to reorganize its economy by 2023, but activity has yet to begin

Chilean economy closes 2023 with conflicting signals On the one hand, it has been able to control its inflation, which will be 4% at the end of the year, but on the other hand, activity has not shown clear signs of recovery. According to Finance Ministry forecasts, economic growth will be 0%, i.e. zero, this year. This is a better number than the expectations for the end of 2022, which predicted an economic slowdown, but clearly, according to various analysts, this is not a good enough result.

“Many economic problems were expected. It was assumed that there was going to be a recession, that there were going to be several quarters of decline in activity, that we were going to have many problems. Fortunately, this year will end, probably, without red figures and with the job of reducing inflation,” Finance Minister Mario Marcel said on Sunday in a He said in a television interview.

The latest Monthly Economic Activity Indicator (Imacec), in October, marked a 0.3% expansion over the 12 months, completing two months of growth. However, the figure was below estimates for a 1.2% increase in the month. Now, the stakes are on the economic figures for November and December, which will be decisive in knowing whether Chile will end the year with zero growth or a slight decline in its activity.

“A year ago it was predicted that the economy would hit a recession this year. The Central Bank’s November 2022 Economic Expectations Survey predicted growth for the year at -1.4%, ending closer to 0% than expected a year ago. What the finance minister said is true. But the point is, 0 % growing or not growing is very bad news. Many economic sectors have slowed down and investments will fall this year,” analyzes Herman González, coordinator of the macroeconomic area of ​​the Clapps UC Research Center.

For González, who was head of the macroeconomic division of the Ministry of Finance in the government of Sebastian Piñera, the reasons for Chile’s economic weakness are factors outside the current government, such as natural adjustments to be made after the economy. More warming in 2021, but also in elements specific to the current administration. “Tax debate stifling investment decisions. The government chose to increase mining royalty and its reform included a tax on retained profits. “Finally, he had to go back. In the face of this, the financial agreement was a positive change, but it was an area of ​​uncertainty,” explains González.

The constitutional debate, now four years in the making, is also a constant element of uncertainty, the researcher says. One of the reasons Chile’s economy has been able to stay afloat this year, he says, is that the international situation has not been as dire as predicted. “A year ago, Economist He said that recession in 2023 was inevitable and it did not happen. “The U.S. and China grew more than expected, and that also had an impact on Chile, which has an economy that is integrated with the rest of the world.”

Rodrigo Wagner, professor at the Adolfo Ibáñez University Business School and director of Espacio Público, estimates that gross domestic product (GDP) in 2023 will close exactly at the level predicted by the Central Bank at the end of 2021, before the presidential election. Before knowing whether President Boric or Jose Antonio Cast, [el candidato de la derecha más extrema]. “It was already expected at that time that there should be an appropriate macroeconomic adjustment as the economy was completely overheated in 2021. “This year was completely expected, unlike other periods of zero or negative growth in Chile,” he notes.

According to Wagner, “The positive thing about 2022 and 2023 is that macro institutions were able to control inflation, fulfill their plan and contribute to anchoring expectations. In terms of the level of GDP, we are more or less on the trend of the years before the social explosion of 2019, but without growing, because we were normalizing.

“The big question now is whether growth will pick up again in 2024, which is in line with the trend (the finance ministry has estimated 2.3% of GDP to prepare its 2024 budget).” “The IMF’s forecast for Chile is that this should happen. I’m optimistic that it will,” the academics point out.

Will grow again in 2024

Economic growth worries Borik’s government. It took some time to catch up to the administration’s speech after 20 months in power, with the finance chief himself saying on the sidelines of a presentation to businessmen in early August that “the current government, at its inception, did not have growth as its central theme.” But now, that discourse has changed, backed by statistics. According to the report of the group of experts convened by the Ministry of Finance, within the framework of the fiscal agreement implemented by the administration in Congress, for each point of growth of the gross domestic product (GDP) 570 million net fiscal contribution dollars are generated.

Along these lines, this Monday the Chilean President announced the creation of an Economic Development Cabinet composed of ministers from the Treasury, Economy, Labor, Public Works and Science. Boric explained that it is a group that will have the task of “monitoring and accelerating private and public investment, creating new jobs in the country and preventing all the problems that exist to implement these investments. In this way, stimulating the economy.”

Boric added: “This growth cabinet with me today will be particularly concerned and concerned with growth in 2024.” He further explained that the main focus will be on employment generation. “As for employment, especially linked to these investment projects, we are going to estimate how many jobs each project we implement creates. In these ways, the idea is to create new jobs and quality jobs while speeding up and facilitating these investments,” Boric said.

The latest unemployment figures released last week show job creation remains weak. The unemployment rate was 8.9% in the August-October moving quarter, an increase of 0.9 percentage points over 12 months. According to the National Institute of Statistics (INE), this improvement is due to the fact that the increase in the number of workers (3.1%) is higher than that recorded in the employed (2.1%), so the market is not yet there. Be active enough to absorb all those willing to participate in the workforce.

By 2024, the administration expects Chile’s economy to grow by around 2.5%. “According to the estimates we have, Chile will grow again by around 2.5%, breaking the stagnation we have observed in recent years and then projecting upward growth,” Boric said this Monday.