Chile: Macroeconomic Country Outlook
- According to GlobalData, Chile's economy is expected to grow at a slower pace of 2.6% in 2022, compared to 10.8% real GDP growth in 2021.
- Chile was ranked 33rd out of 136 nations in the GCRI Q1 2022.
- According to GlobalData estimates, exports grew by 4.3% in 2021, compared to contraction of 4.2% in 2020.
Chile is a member of OECD, WTO, and the Cairns Group, and has signed 30 trade agreements, including 17 FTAs, three Economic Association Agreements, and six Economic Cooperation Agreements. This network of trade agreements has significantly improved market access for Chilean products and exports. Chile’s economy is based on striking foreign investment; it allows repatriation without impediments, making it one of the freest economies in the world. Chile has high level of property rights, investment, monetary, and trade freedom. Chile has a strong legal framework for attracting foreign direct investment. However, resolving legal disputes in courts can be a lengthy process, making arbitration and mediation attractive alternatives for resolving business controversies.
Key Findings
- Stable democracy: Chile entered a period of stable democracy, with general elections conducted every four years. A smooth transition of power took place in 2018, as Pinera was once again elected for the presidency in the general elections of November 2017. In October 2021, members of the constitutional assembly began the process of writing a new Chilean Constitution. In the November 2021 general elections, left wing legislator Gabriel Boric won with 56% of votes polled and has been elected as the next president of Chile.
- Chile economy is expected to slow down to 2.6% in 2022: According to GlobalData, Chile economy is expected to grow at a slower pace of 2.6% in 2022, compared to 10.8% real GDP growth in 2021, due to persistently high inflation amid global supply shortages, and monetary tightening by central bank. Chile’s central bank has revised its 2022 economic growth forecast for Chile to a range of 1% to 2% in March 2022 from its earlier projected range of 1.5% to 2.5%. GlobalData also projects the inflation rate of Chile to rise to 6.9% in 2022 from 4.5% in the previous year. The central bank also increased its key benchmark rate by 150 bps to 7% as it rapidly withdraws monetary stimulus.
- Chile ranks 59th out of 190 countries in the World Bank’s doing business ranking in 2020: In the World Bank’s Doing Business Report (2020), Chile ranked 59th out of 190 countries with a score of 72.6 out of 100 in ease of doing business. In order to start a business in Chile, it takes six procedures and four days as compared to the OECD high income average of 4.9 procedures and 9.2 days. Chile ranked 51st in protecting minority investors and 41st in dealing with construction permits. Chile is one of the most advanced economies for doing business in the Latin American region.
- Balance between economic development and environmental protection is the need: The government needs to establish a balance between economic development and protecting the environment. Economic growth and development are putting pressure on the country’s natural resources. Widespread deforestation and a larger reliance on mining threaten Chile’s natural resources. According to Environmental Performance Index (2020), Chile ranked 44th with a score of 55.3. It ranked 153rd in terms of air pollution. Chile’s development will not be sustainable unless the government focuses on green growth, eliminating environmentally damaging tax concessions. Authorities must use environmental taxation effectively to reduce negative externalities from the use of fossil fuel.
- Chile offers over 10,800 ha of land for renewables: In April 2022, the Chilean ministry of national assets has launched a tender process to offer over 10,800 hectares (26,687 acres) of public land in the region of Antofagasta for renewable energy development. According to the ministry, around eight sites across Antofagasta have been made available in this round. All eight are described as being relatively close to power transmission lines. The winning bidder will be entitled to a concession to use the land. The deadline to submit the offer is set for May 25, 2022. The government is keen on increasing research and development into the renewable energy sector to encourage alternative sources of energy given the increase in fuel costs.
- Strong technological readiness: Chile has better access to latest technologies and telecommunication facilities than its peers in the Latin American and Caribbean region. The Network Readiness Index (2021) ranked Chile 44th among 130 countries. In the Global Innovation Index (2021), Chile ranked first among 18 economies in the Latin America and the Caribbean region. Start-Up Chile, among other such policies, has outlined initiatives for higher adoption and domestic absorption of latest technologies in various fields. According to GlobalData, Chile has a broadband penetration rate of 19% with 3.7 million broadband subscribers as of 2021.
Key Fundamentals
Sectoral outlook
- Hopeful outlook for copper mining sector: The Chilean Copper Commission (Cochilco) has made a significant increase in the copper price projection for 2022, compared to its previous forecast from $3.95 a pound to $4.40 a pound for copper. While for 2023, it raised the estimate from $3.80 to $3.95 per pound of metal. Cochilco has stated that for the year 2022, a refined copper supply of 21.9 million tons is projected, this is 3.6% more than in the previous year, while a total of 25 thousand tons is expected for demand, 1.9% more than in 2021, generating a market deficit of 104 thousand tons of copper. The uncertainty over war between Russia and Ukraine has driven up the price of copper, which has led Cochilco to increase its projection for 2022 and 2023. However, there are signs of weakness in demand from China, the main consumer of copper. The country’s copper production is expected to reach 5.78 million tons in 2022, which is 2.6% more than in 2021.
- Telecom and pay-tv market to expand: According to GlobalData, while the contribution of mobile voice has been declining over the past several years as a result of a significant decline in mobile termination rates, mobile data’s contribution has been expanding rapidly supported by the increasing uptake of smartphones and growing availability of 4G/LTE networks. GlobalData forecasts that the mobile data will continue increasing its weight over the total market revenue and is forecast to expand at a 7.1% CAGR between 2021 and 2026. Fixed broadband revenue will expand at a 4.6% CAGR between 2021 and 2026, mainly as a result of an increase in operators’ investments in FTTH/B and advanced cable networks, as well as the implementation of government initiatives aimed at promoting the rollout of backbone fiber infrastructure in less penetrated parts of the country, such as the National Fibre-Optic (FON) project or the Fibra Optica Austral project.
- Chile’s construction sector set to rise: According to GlobalData, the construction industry is anticipated to witness buoyant growth over the period 2022–2024, due to increasing investments in transport infrastructure, energy, commercial and industrial projects, as well as improvement in consumer and investor confidence post-COVID-19 crisis. The government plans to invest CLP9.3 trillion ($14 billion) to develop the country’s roads, railways, hospitals, and other social infrastructure during the period 2019–2023. The government’s stimulus measures, along with the recently launched infrastructure plans to revive the economy and higher vaccination rate, present optimism for the outlook over the short term. Furthermore, an improving external environment, due to an increase in demand from China, has prompted a recovery of the price of copper, Chile’s main export is expected to provide a boost to exports and business confidence. According to GlobalData, the country’s construction sector is projected to grow at an average annual rate of 4.4% over 2022−2024.
GlobalData Country Risk Index (GCRI) - Q4 2021
Chile was ranked 33rd out of 136 nations in the GCRI Q1 2022. The country’s score is in the low-risk nations band (30-40). Chile’s overall risk score is lower than the Latin America and the world average in GCRI Q1 2022. The country had an overall score of 33.9 and stable political framework makes it one of the safest countries for doing business in the world. However, its risk score was relatively higher in environment parameter as compared to Latin America and the world average.
GCRI Methodology
GlobalData’s unique Country Risk Model determines the existing and future level of country risk by assessing various qualitative and quantitative factors. The index is designed to help firms formulate their global business strategies based on historical developments in an economy.
The Country Risk Index incorporates the latest available macroeconomics, political, social, technological, environmental, and legal data from a range of recognized national and international statistical sources and incorporates proprietary data from GlobalData. Latin American nations in this publication include Venezuela, Brazil, Chile, Colombia, Mexico, Peru, Argentina, and Ecuador.
About the Report
GlobalData Macroeconomic Outlook report is designed to provide detailed macro-economic analysis which will help clients in their business planning, investment and strategic decisions, and analysis. It also provides a quick view of the current situation and the risk score of the country in comparison to region and world based on the proprietary risk framework. The report also highlights key strengths, weaknesses, opportunities, and threats in each of the pillars of PESTLE, economic growth prospects, and key events which can impact the country’s future outlook.
More details: Macroeconomic Outlook Report: Chile
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