Chile Business Forecast Report Q4 2008

Publication Date	August 2008
Publisher	Business Monitor
Product Type	Report
Pages	66
ISBN Number	1745-0500
Product Code	BMI02417

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Summary

Long-Term Outlook Still Upbeat

Things are not getting any easier for Chilean policymakers as signs of an imminent economic slowdown are mounting amid industrial output constraints and a deteriorating external economic environment. While a period of slower economic activity is on the cards in the near term, we maintain an upbeat long-term outlook on Chile. Firstly, the country's relatively attractive investment climate and sound institutional and regulatory framework will see large investment flows into infrastructure over the coming five to ten years, unlocking greater economic potential going forward. Secondly, while a change of government is looking increasingly likely after 2009, we believe that policymakers will remain business friendly and new reforms after the upcoming elections will help to boost Chile's business environment. Finally, although risks of short-sighted economic policies could extend the ongoing slowdown in growth well beyond 2008, we remain confident in prudent macroeconomic policies and believe that monetary policy in Chile will be tightened to firmly tackle high inflation.

President Michelle Bachelet's centre-left government looks bruised and battered following several months of public unrest and growing disenchantment with the Chilean political leadership. The month of July was particularly unpleasant for the ruling Concertacin de Partidos por la Democracia (CPD) alliance, with an unpopular education reform bill leading to several violent standoffs between riot police and Chilean teachers and students. Coupled with 14-year high headline inflation, growing signs that the economy is braced for a slowdown this year, and the occasional headline-making political scandal, it appears that the odds for another CPD government after next year's elections are increasingly unfavourable.

Chile's latest economic indicators overwhelmingly point towards a more pronounced slowdown in growth this year. As such, we caution that the central bank's commitment to anchoring inflation, which reached 9.5% y-o-y in June, could be tested over the coming months. Should efforts to tackle inflation be abandoned in favour of a more growth-oriented monetary policy, we believe that Chile's economic downturn could be extended well beyond 2008, as inflation creates uncertainty for investment. This, however, is not our core scenario.

Plans are afoot to relax trading regulations on equity and fixed-income assets in Chile, in a bid to boost volumes and create a more attractive investment environment. While we await a more extensive blueprint on the proposals, we are largely encouraged by efforts to deepen the country's capital markets, especially the promotion of more sophisticated derivative products. However, we caution that an initial public offerings (IPO) rush could lead to inflated valuations, which could temper potential gains going forward.

Content

Executive Summary
- Long-Term Outlook Still Upbeat
Chapter 1: Political Outlook
- SWOT Analysis
- Bmi Political Risk Ratings
- Domestic Politics
- Centre-Left Rule: down and out?
- Although President Michelle Bachelet Has Fared Relatively Well in Recent Opinion Polls, An Initial Look at Prospective
- Presidential Candidates to Replace The Outgoing President in next Years Elections Suggests That The 18-Year Reign
- of The Concertacin De Partidos Por La Democracia Alliance May Be Coming to An End.
- Table: Chile Political Overview
Chapter 2: Economic Outlook
- SWOT Analysis
- Bmi Economic Risk Ratings
- Economic Activity
- More Bad News for Growth
- The Outlook for Chiles Economy Continues to Deteriorate. with Inflation Still Topping The Governments Political
- Agenda, Prospects for A Fiscal Stimulus Package Remain Low.
- Table: Economic Activity
- Monetary Policy
- Stagflationary Forces Brew
- as The General Price Level in Chile Accelerates, We Are Growing Less Confident That Falling International Energy Prices
- Will Be Enough to Bring down Inflation.
- Table: Monetary Policy
- Exchange Rate Policy
- Clp: Keeping Faith in The Peso
- Although The Chilean Pesos Recent Recovery against The US Dollar Has Suffered A Series of Setbacks, We Continue
- to See Room to The Upside for The Currency over The Coming Months.
- Table: Exchange Rate Policy
- Balance of Payments
- Current Account Deficit Unavoidable
- There Is Little to Prevent Chiles Current Account from Swinging into Deficit over Our Five-Year Forecast Period.
- Table: Balance of Payments
- Investment Climate
- Capital Market Reform on The Horizon
- Plans Are Afoot to Relax Trading Regulations on Equity and Fixed-Income Assets in Chile, in A Bid to Boost Volumes
- and Create A More Attractive Environment for Investors.
Chapter 3: Bmi 10-Year Forecast
- The Chilean Economy to 2017
- Light at The End of The Tunnel
- Regular Observers of Chiles Economy Will Be Familiar with The Troubling Set of Recent Data from The Country,
- Raising Concerns about Chile Heading for A Stagflationary Period.
- Table: Long-Term Macroeconomic Forecasts
Chapter 4: Special Report
- Mega-Urban Regions
- Table: The Worlds 30 Largest Urban Agglomerations
- Table: The Worlds Richest Cities in 2020 by Gdp
- Table: The Worlds Fastest Growing Urban Areas by Population
Chapter 5: Business Environment
- SWOT Analysis
- Bmi Business Environment Risk Ratings
- Business Environment Outlook
- Table: Bmi Business and Operational Risk Ratings
- Table: Bmi Legal Framework Ratings
- Institutions
- Infrastructure
- Table: Latin America, Annual Fdi Inflows
- Market Orientation
- Table: Bmi Trade Ratings
- Table: Top Export Destinations
- Operational Risk
Chapter 6: Key Sectors
- Oil &Gas
- Oil Consumption, Which Fell Significantly in 2000 from 1999 Levels, Has Been Pretty Stagnant over The past Three
- or Four Years. as The Economy Recovers, We See Scope for Higher Levels of Demand.
- Table: Chile Oil &Gas Historic Data &Forecasts
- Food &Drink
- Table: Chile Mass Grocery Retail Value Sales by Format
Chapter 7: Bmi Global Assumptions
- Global Outlook
- Table: Global Assumptions
- United States
- Eurozone
- Japan
- China
- Commodities