Country Report Chile January 2009

Outlook for 2009-10

• Sebastian Pinera of the centre-right opposition Alianza coalition is early favourite to win the December 2009 presidential election, which would end two decades of rule under the 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.
• Following the fiscal stimulus package in January we now expect the fiscal deficit to widen to 3% of GDP in 2009 (we had forecast a deficit of 0.4% of GDP last month), before narrowing to 0.9% of GDP in 2010 (previously 0.2%).
• 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 forecast for GDP growth of only 1% in 2009 (below the Chilean government's 2-3% projection), with exports, imports and investment falling. Recovery in 2010 will be mild, at 2.5%, and assumes a global pick-up.
• With inflation set on a downward path towards the 3% (plus or minus 1percentage point) target range, the Central Bank's interest rate will be cut to 4.25% by end-2009.
• After a downwards revision to our oil forecast, we now expect the current-account deficit to widen to 4% of GDP in 2009 (previously 5%).

Monthly review

• The Union Democrata Independiente (UDI) has backed Mr Pinera (of the Renovacion Nacional, RN) who will stand as the Alianza coalition's presidential candidate. He currently leads in the polls.
• Mr Pinera will face Eduardo Frei, a former president (1994-2000), who has emerged as the likely candidate of the ruling Concertacion coalition, probably without the need for a primary.
• The Central Bank cut its benchmark interest rate by 1 point to 7.25% on January 8th, from a peak reached in September 2008, marking the beginning of an easing cycle.
• The government announced a fiscal stimulus package worth US$4bn (2.8% of GDP) on January 5th, to cushion the impact of the recession.
• Monthly output expanded by just 2.7% year on year in October and only 0.1% in November, the lowest rate of growth in that month since 1998.

Source: Country Report

This report covers the following industry codes:
SIC Code: 49
NAICS Code: 22

This report covers the following industry codes:
SIC Code: 49
NAICS Code: 22