Country Report Chile February 2009

Outlook for 2009-10

• Sebastian Pinera of the centre-right opposition Alianza coalition is favourite to win the December 2009 presidential election, which would end two decades of rule by the centre-left Concertacion coalition.
• Policymakers will prioritise countercyclical measures to mitigate the damage to the domestic economy by the global financial crisis and recession, backed by sovereign savings and a comfortable cushion of reserves.
• In light of the fiscal stimulus package unveiled in January we expect the fiscal deficit to widen to 3% of GDP in 2009, before narrowing to 1% of GDP in 2010 (we previously forecast a 2010 deficit of 0.9% of GDP).
• We have made further downward revisions to our global growth forecasts. We expect the US, EU and Japan to be in recession in 2009, and China will grow by only 6%, as its resilience to the global downturn is tested.
• We maintain our GDP growth forecast of 1% in 2009 (below the government's 2-3% projection), with exports, imports and investment falling. Recovery in 2010 will be mild, at 2.3% (down from 2.5% in our January report).
• With inflation set on a downward path towards the 3% ±1 percentage point target range, the Central Bank's interest rate will be cut to 4.25% by end-2009 with a more neutral stance taking it to 4.5% in 2010.
• The current-account deficit will widen to 3.9% of GDP in 2009 (previously 4%), owing primarily to a sharp fall in the trade surplus, from 5.5% of GDP to 1.8% of GDP as volumes fall and Chile's terms of trade worsen.

Monthly review

• A former president, Eduardo Frei (1994-2000), is set to be nominated as the Concertacion's sole candidate for this year's presidential election after his endorsement by the Concertacion's three largest parties.
• The Central Bank has signalled that conditions will allow for a sharp cut in interest rates amid a gloomier international economic environment.
• Alleviating company cashflow difficulties is prioritised as a policy objective.
• Coal-fired generation plants are to face new emission controls.
• Fourth-quarter indicators show that the economy slowed sharply in late 2008, and that unemployment rose sharply, particularly in mining and construction.
• The government has identified restrictive bank lending policies as a concern. Bond markets remain open for the safest corporate issues.
• Energy and mining are expected to account for 70% of investment in 2009-12, although many projects are being postponed.

Source: Country Report

This report covers the following industry codes:
SIC Code: 37;53;49;60;2834;80;48;1;20;10
NAICS Code: 336;44;22;52;3254;62;517;11;311;212