Chile Business Forecast Report Q3 2008

Publication Date	June 2008
Publisher	Business Monitor
Product Type	Report
Pages	61
ISBN Number	1745-0500
Product Code	BMI01220

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Summary

Monetary Policy Dilemma Chilean monetary policymakers are facing a familiar problem, seen across much of Latin America in recent months: economic activity is slowing, while inflation remains a key concern. We acknowledge that encouraging monthly inflation numbers in April may point towards a prospective interest rate cut at the end of the year. However, we caution that with headline inflation at 8.3% y-o-y, and the growing concern about rising global energy prices pushing up costs for Chile's industries, consumer price growth is likely to remain well above the Banco Central de Chile (BCC)'s 3% target.

Nevertheless, we are doubtful of the BCC's willingness to fight inflation, with daily central bank interventions of US$50mn in the forex market aimed at weakening the Chilean peso. Although a curb on the currency's appreciation will help the country's exporters amid slowing global economic activity, a weaker peso will remove the currency's disinflationary characteristics going forward.

Prospects of renewed strikes and disruptions to mining output at Chile's Codelco - the world's top copper producer - threaten to become a politically delicate issue for President Michelle Bachelet.

The recent three-week standoff at Codelco's largest copper mines highlights the still poor living conditions of many of its 30,000 subcontractors who receive no benefits and have no access to the company's pension scheme. While disruptions at Chile's major copper mines are not immediately attributable to rising living costs, we think that Codelco is a case in point regarding growing public pressure to address high social disparities. We have revised down Chile's public unrest score from seven to five out of 10, indicating that 'isolated violent unrest/strike action likely to impact upon specific government policies'.

Strong consumer demand and solid public finances will continue to keep Chile's economy relatively insulated from the shockwaves of the US subprime mortgage crisis and the ongoing slowdown in global economic activity. Nevertheless, we continue to call for a slowdown in economic growth in Chile this year, as industrial output, especially in the mining sector, will perform poorly in 2008.

While historically high copper prices and strong demand from China will remain supportive, we note that severe disruptions to Chile's mining output and energy supply shocks will have a negative impact on growth. We therefore expect Chile's economy to grow at 4.0% this year, down from 5.1% in 2007.

Chile's power shortages are presenting a growing risk to the wider economy. Droughts and a drop in natural gas imports from Argentina have driven up the price of energy, threatening to undermine the performance of Chile's economy going forward. This adds a growing sense of urgency to endesa Chile's planned hydroelectric power project in the southern Patagonian region. Chile's region of Aysen has presented itself as a particularly attractive source of untapped hydroelectric power, where water volumes remain stable throughout the year and are less exposed to variations in annual rainfall. Five hydroelectric power plants are expected to come online between 2009 and 2018, potentially providing the more populous central part of Chile with half of its growing energy demand.

Content

Executive Summary
- Monetary Policy Dilemma
Chapter 1: Political Outlook
- SWOT Analysis
- Bmi Political Risk Ratings
- Domestic Policy
- Strikes to Put Bachelet to The Test
- A Three-Week Strike by Subcontractors at Chile's Largest Mining Company in April Has Become A Key Political
- Issue for The Current Administration of President Michelle Bachelet
List of Tables
- Table: Political Overview
Chapter 2: Economic Outlook
- SWOT Analysis
- Bmi Economic Risk Ratings
- Economic Activity
- Slower Growth, but Strong Fundamentals
- Disruptions to Chile's Mining Output and Energy Shortages amid The Country's Drought Are Likely to Weigh on
- Economic Activity This Year
List of Tables
- Table: Economic Activity
- Monetary Policy
- Inflation: Few Signs of Easing
- Lower April Inflation and Signs of Slowing Economic Activity Will Be Supportive of The Banco Central De Chile's
- More Dovish Monetary Policy Stance Going Forward
List of Tables
- Table: Monetary Policy
- Balance of Payment
- Sharp Decline in Export Growth in 2008
- Chile's Current Account Surplus Will Narrow to 2.2% of Gdp This Year, as A Less Favourable Global Macroeconomic
- Environment Will See Export Growth Slow Substantially
List of Tables
- Table: Balance of Payments
- Exchange Rate Policy
- Clp: Testing times Ahead
- Central Bank Intervention and Prospects of An End to Monetary Tightening Suggest That Room for Further
- Appreciation of The Chilean Peso Is Limited
- Regional Case Study
- Hydro Plant to Boost Regional Economy
- A Proposed US$3bn Hydroelectric Power Project in Chile's Southern Aysen Region Will, in Our View, Present
- Significant Opportunities for Local Infrastructure Development Projects and Widen The Regional Economy's Room
- for Growth Going Forward
List of Tables
- Table: Exchange Rate Policy
- Consensus Forecast
Chapter 3: Special Report
- Business Outlook for Global Frontier Markets
- Growing Fast on The New Frontier
- The 41 States That Bmi Examines in A New Report on Our Online Service May Make up Only A Small Slice of The World
- Economy, but They Possess Characteristics That Will See Them Gain Importance in The Eyes of Investors and Global
- Businesses over The Coming Years
List of Tables
- Table: Frontier Markets - Key Data and Projections for Top 10 Countries
- Frontier Investment
- Potential and Pitfalls
- The Spectacular Macroeconomic Performance of Frontier Markets in Recent Years Has Been Matched by Mildly
- Successful Efforts to Deepen Capital Markets
List of Tables
- Table: Gdp per Capita, US$ (in Order of % Increase)
- Table: Diversity through Frontier Markets - Correlation Coefficients January 2004-April 2008
- Table: Frontier Market Indices
- Regional Overview
- Laos
- Neighbouring Economies The Key to Growth
- Laos's Gdp Growth Has Been Boosted in Recent Years as Neighbours China, Thailand and Vietnam Compete
- for Its Natural Resources. Gdp Expansion in 2007 Has Been Estimated at 7.6% and We See Annual Growth
- Remaining above 7% for Our Five-Year Forecast Period
- Yemen
- Huge Potential, but Don't Bank on Gcc Membership
- Markets Do Not Come Much More Frontier than Yemen, and, as Would Be Expected, There Is Huge Potential
- for Development, with The Prospect of Eventual Gcc Membership Likely to Act A Key Investment Pull
List of Tables
- Table: Yemen Economic Activity
- Democratic Republic of The Congo
- Mining Industry to Drive Growth
- The Democratic Republic of The Congo's Mining Industry Will Be A Key Driver of Growth and Is Likely to Attract
- Significant Levels of Fdi, with Our Real Gdp Forecasts Standing at 8.3% and 7.9% in 2008 and 2009, Respectively
List of Tables
- Table: Democratic Republic of The Congo - Economic Activity
- Cuba
- Investment Prospects after Fidel
- The Accession of A New Leadership Structure in Cuba Has Sparked Excitement That The 45-Year-Old Trade Embargo
- with The US May Be Lifted and Cuba May Move toward Market Liberalisation
List of Tables
- Table: Cuba Macroeconomic Data and Forecasts
- Mongolia
- Minerals to Drive Economic Boom
- Mongolia Is in The Midst of A Massive Resource-LED Economic Boom That Should Lift Gdp Growth into The Double
- Digits and Underpin Robust Increases in Exports and Inflows of Foreign Investment Capital over The Long Term
List of Tables
- Table: Mongolia - Economic Activity
Chapter 4: Business Environment
- SWOT Analysis
- Bmi Business Environment Risk Ratings
- Business Environment Q308
List of Tables
- Table: Bmi Business and Operational Risk Ratings
- Institutions
List of Tables
- Table: Bmi Legal Framework Ratings
- Infrastructure
- Market Orientation
List of Tables
- Table: Latin America, Annual Fdi Inflows
- Table: Bmi Trade Ratings
- Table: Top Export Destinations
- Operational Risk
Chapter 5: Key Sectors
- Telecommunications
List of Tables
- Table: Chilean Telecoms Sector - Internet - Historical Data & Forecasts
- Freight Transport
List of Tables
- Table: Freight Carried, Domestic and International