Country Report Chile September 2009

Outlook for 2009-10

• Sebastian Pinera of the Coalicion por el Cambio remains favourite to win December's presidential election and take office for a four-year term in March 2010. He would maintain broad policy continuity if elected.
• Policymakers will maintain stimulatory fiscal and monetary measures to mitigate the damage to the domestic economy wreaked by the global recession, backed by sovereign savings and a comfortable cushion of reserves.
• The fiscal deficit will reach 4.2% of GDP in 2009 and 1.7% of GDP in 2010, with the structural targets being missed this year owing to the government's stimulus plan. This will not dent Chile's reputation for fiscal rectitude.
• The BCC will maintain its accommodative stance until at least the first quarter of 2010, raising rates only slowly thereafter to 2% by end-2010. Complementary measures will encourage a renewed rise in bank lending.
• The worst of the global GDP contraction is over, and we have revised up our US, China and global GDP forecasts in 2009-10. Copper prices will be high enough to keep Chile's terms of trade stronger than in the years prior to 2006.
• Our GDP forecast of a 1.2% contraction in 2009 and 3.5% growth in 2010 (revised up from 3% last month following our global revisions) is based on a mild recovery getting under way in the third quarter of this year.
• Inflation will edge up in late 2009 and slowly in 2010, moving back within the 2-4% target late in the first quarter of 2010 and ending that year at 3.2%.
• The current-account deficit will narrow to 0.3% of GDP in 2009, as a fall in the trade surplus is more than offset by a falling income deficit. Recovering import growth will lead the deficit to widen again in 2010, to 0.7% of GDP.

Monthly review

• Mr? Pinera remains favourite to win the presidential election, with Mr? Frei damaged by intra-coalition squabbles and the rise of a third challenger.
• Mr? Pinera has been further boosted by the official backing of a number of high-level Concertacion defectors.
• Fiscal spending growth has started to ease as the government seeks to control the deficit in the light of sharp revenue falls.
• GDP contracted by 0.4% in seasonally adjusted terms in the second quarter, though there are signs that growth is returning, with the Imacec strengthening every month since May in seasonally adjusted terms.
• The external accounts are strengthening, with a sharp fall in the income deficit offsetting a lower trade surplus and producing a second-quarter current-account surplus.

Source: Country Report

This report covers the following industry codes:
SIC Code: 1
NAICS Code: 11