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
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
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 Barclays research.
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
"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
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
"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 Barclays. LF
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 slowing economy.
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