Worries rise over Chile’s long term growth after disappointing 4Q
Lower than expected Chilean GDP data, weighed down by falling copper prices, compounds analyst concerns about the outlook for the Andean economy
Poor growth figures posted by Chile this week are adding to
concerns about the impact of a sell-off in the copper market,
as analysts examine the new government's economic
Central bank data released on Monday showed Chile's economy
grew by 2.7% in the fourth quarter of 2013, below market
expectations and sharply down on the 4.7% posted in the third
quarter, according to Capital Economics in London.
Peru, which is hoping to ramp up investment and become the
world's second biggest copper producer after Chile by 2016,
also looks vulnerable.
Francisco Klapp, researcher in the economic program of
Chile's conservative Libertad y Desarollo think-tank, says
the government's plans to scrap a fund which allows
companies to set aside profits to reinvest tax-free could
further undermine Chile's economy.
"We are very concerned about this change, which will have a
substantial impact," said Klapp. "The current system has been
the catalyst for business sector investment and the new
administration is planning nothing to replace this.
"The government has created a tremendous amount of
expectations in an uncertain economic climate for Chile and
emerging markets in general."
set out in the March/April edition of
LatinFinance, come as copper last week fell to its
lowest level since 2010. The mineral is Chile's biggest export
and source of more than 10% of its tax revenue. "Copper is one
of the world's most growth-sensitive and China-leveraged
assets, and recent signals have been worryingly weak," said
The dip in the copper price adds to idiosyncratic risks to
investment in Chile and Peru including the new Chilean
government's plans for tax reforms to fund an election pledge
to introduce universal free higher education.
"Growth looks set to remain weak throughout 2014 and 2015 as
the copper boom comes to an end," said Capital Economics of
Chile's economy. "But rising inflation, a weakening currency
and a substantial current account deficit mean there is little
scope for interest rate cuts."
The growth figures were Chile's lowest since the first
quarter of 2010, when a major earthquake hit the country,
according to Credicorp Capital. A slowdown in investment was
the main drag on growth, the investment bank said.
Forecasts on China are not offering much hope, either. A
survey by Barclays research showed 84% of investors reckon
China's growth in 2014 will be below the country's official
7.5% target. Only 1% of investors believe growth in China will
exceed 8%, according to Barclays.
"China's first bond default has triggered fears that the
country's financial sector clampdown will force copper
inventories to be liquidated, since imports have been used to
be turned into credit," said separate commodities research from
CHILE: Agenda for change Chile's
incoming government plans to introduce a raft of new
legislation, including a landmark tax reform. But concern is
growing that the proposals will limit investment in an already
PERU: Limits of pragmatism Peru
remains an investment hotspot-for now. The government hopes to
double copper mining by 2016. But the country remains
vulnerable to slowing Chinese demand and domestic political