Chile’s Economic Slump Deepens: Imacec Contraction Fuels Rate Cut Bets
Chile’s economic activity took an unexpected turn for the worse in September, contracting for the second consecutive month and fueling speculation of further interest rate cuts, Bloomberg reports.
The Imacec index, a key indicator of GDP performance, fell by 0.8% in September compared to August, according to data released by the central bank on Monday. This decline, significantly larger than analysts’ expectations of no change, represents the most negative surprise of the year.
While temporary factors like heavy rains and mining sector strikes have contributed to volatility in recent months, the September contraction is a stark reminder of the fragility of Chile’s economic recovery.
“The decline comes as a blow to the government, which had been forecasting a pick-up in growth in the final months of 2024,” remarked an analyst.
The central bank has already indicated plans to lower interest rates more aggressively than previously anticipated, aiming to reach a “neutral” level that neither stimulates nor hinders the economy. Borrowing costs have been slashed by 6 percentage points since mid-2023, yet credit demand remains weak, and unemployment sits above pre-pandemic levels.
Further fueling the call for rate cuts, mining activity slumped by 2.8% in September, while industrial production dropped 1.6%, and services declined 0.2%.
The central bank has already cut interest rates by a quarter-point in both September and October. Traders surveyed by the monetary authority anticipate this easing pace to continue through March, potentially bringing rates down to 4.5% from the current 5.25%.
President Gabriel Boric’s government is pushing to boost economic growth through investment in key sectors like copper and green hydrogen. In late September, the administration announced the identification of new lithium reserves that will be offered to the private sector.
While retail sales beat analysts’ expectations, rising 3.9% in September compared to the previous year, both industrial production and manufacturing contracted during the same period, adding to the gloomy economic outlook.
Chile’s government predicts a 2.6% GDP expansion this year and 2.7% in 2025, according to estimates released on October 1.
