Chile’s Economy Nears Recession After Surprise Activity Drop - BLOOMBERG
BY Bloomberg News,
(Bloomberg) -- Chile’s economic activity posted its biggest monthly drop since May as services declined, pushing one of Latin America’s richest nations toward recession and paving the way for more big interest rate cuts.
The Imacec index, a proxy for gross domestic product, fell 0.5% in August from July, compared to the median estimate for a 0.2% gain from analysts in a Bloomberg survey. It matched the 0.5% decline recorded in May. From a year prior, the index dropped 0.9%, the central bank reported on Monday.
Chile has been battered this year by high interest rates, above-target inflation and uncertainty among top trading partners like China. Today’s figures indicate the country is heading back into recession after GDP contracted in the second quarter. Still, the economy is expected to gradually bounce back, expanding 2% in 2024 after posting one of the region’s worst performances this year.
Read more: Chile Central Bank Sees Rates Trending Down, Warns of Volatility
“A technical recession in the third quarter is very probable, as it only requires a 0.3% month-on-month drop in September,” Jorge Selaive, chief economist at Scotiabank Chile, posted on X, the platform formally known as Twitter.
The peso fell as much as 0.5% against the dollar in morning trading. Two-year swap rates, a measure of key rate expectations, dropped 6 basis points to 6.39%.
Services declined 0.9% on the month in August with the sector dragged down by eduction, while mining slipped 0.3%, according to the central bank. On the other hand, commerce gained 0.6% on the back of automobile sales.
What Bloomberg Economics Says
“August activity data added evidence that domestic demand is cooling in Chile. Activity figures support decelerating inflation and back our expectations for the central bank to continue cutting interest rates into 2024. They are likely to keep weakening pressure on the currency.”
— Felipe Hernandez, Latin America economist