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Chile Country Risk Reports Q2 2015

Chile Country Risk Reports Q2 2015

Core Views

Chilean real GDP growth hit bottom in 2014, and will accelerate modestly in 2015. An improving net exports position, combined with the government's fiscal stimulus and tailwinds from lower oil prices will support stronger economic activity, although headline growth will remain below the historical trend.

Chile's ongoing external account rebalancing will continue in the coming years, as a weaker average peso bolsters the economic competitiveness of manufactured goods exports, offsetting weakness in mining exports. Moreover, structurally lower oil prices will reduce Chile's import bill, contributing to a widening of the goods trade surplus.

The Chilean peso will remain under broad downside pressure from falling copper prices and a bull run in the US dollar over the coming quarters. However, structurally lower oil prices will bolster the country's terms of trade, helping the unit to stabilise following a significant sell-off.

The Chilean government's expansionary fiscal policies will drive a widening of the nominal budget shortfall in 2015. Beyond 2015, the deficit will begin to gradually narrow as spending policies normalise and an increase in the corporate tax rate bolsters revenues.

Major Forecast Changes

Chile's 2014 tax reform law will be implemented gradually over a multi-year timeframe. This has encouraged us to modestly adjust our 2015-2017 forecasts for government revenues. As a result, our 2015 nominal fiscal deficit forecast of 1.9% marks a downward revision from our previous forecast for a 1.8% of GDP shortfall. Moreover, we have revised up our 2016 fiscal deficit forecast from 1.8% of GDP to 1.2%, and our 2017 forecast from 1.6% of GDP to 0.3%.


Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Centre-Right Opposition To Stymie Labour Reform
Chile's centre-right opposition will succeed in blocking, or watering down, the labour reform bill proposed by President Michelle
Bachelet, overriding the legislation's backing from union groups.
TABLE: Political Overview
Long-Term Political Outlook
Broad Stability To Persist
Market-friendly policies and strong institutions have been the hallmark of the Chilean government in recent years, and we believe that
the country will continue to set the benchmark for political stability in the region going forward.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Activity
Lower Oil Prices To Provide Modest Tailwind For Growth
Chilean real GDP growth hit bottom in 2014, and will accelerate modestly in 2015. An improving net exports position, combined with the
government's fiscal stimulus and tailwinds from lower oil prices will support stronger economic activity, although headline growth will
remain below the historical trend.
TABLE: Economic Activity
Monetary Policy
Drop In Inflation Expectations Unlikely To Prompt Additional Rate Cuts
Above-target inflation will see the Banco Central de Chile hold the benchmark policy rate at 3.00% through end-2015, despite a tepid
economic recovery.
TABLE: Monetary Policy
Fiscal Policy
Deficit To Peak In 2015
The Chilean government's expansionary fiscal policies will drive a widening of the nominal budget shortfall in 2015. Beyond 2015, the
deficit will begin to gradually narrow as spending policies normalise and an increase in the corporate tax rate bolsters revenues.
TABLE: Fiscal Policy
Balance Of Payments
Oil Price Decline To Support Rebalancing
Chile's ongoing external account rebalancing will continue in the coming years, as a weaker average peso bolsters the economic
competitiveness of manufactured goods exports, offsetting weakness in mining exports.
TABLE: Curent Account
Exchange Rate Policy
CLP: Falling Oil Prices To Temper Downside Pressures
The Chilean peso will remain under broad downside pressure from falling copper prices and a bull run in the US dollar over the coming
quarters. However, structurally lower oil prices will bolster the country's terms of trade, helping the unit to stabilise following a significant
sell-off.
TABLE: CURRENCY FORECAST
TABLE: Exchange Rate
Chapter 3: 10-Year Forecast
The Chilean Economy To 2024
Slower Growth, But Strong Fundamentals
A stable political outlook and sound economic fundamentals position Chile for steady, albeit slower, economic progress, underpinning
our view that the country will have achieved developed state status by 2024. While obstacles such as high reliance on copper exports
continue to pose a risk to economic progress, especially in light of what we view as a long-term downturn in Chinese demand for
Chilean copper, we remain optimistic about Chile's economic potential over the next 10 years. Diversification away from commodity
exports and further development of regional and South-to-South trade will provide an important platform for growth over the next
decade.
TABLE: Long-Term Mac roec onomic Forecasts
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: Operational Risk
Availability Of Labour
TABLE: Latin America – Availability of Labour Risk
TABLE: Lab our Force Empl oyme nt By Sector ('000), 2011-2013
TABLE: Top 10 Source Countries For Mig rant Workers
Crime Risk
TABLE: Latin Ame rica – Crime Risk
TABLE: Crime Statistics
Chapter 5: Key Sectors
Autos
TABLE: Autos Total Market – Hist orical Data And Forecasts
TABLE: TOP 10 BEST-SELLING HCV/BUS BRANDS, 8M14
Food & Drink
TABLE: Food Consumpti on Indicators – Hist orical Data & Forecasts
TABLE: Hot Drink Value /Volume Sales , Production & Trade – Historical Data & Forecasts
TABLE: Mas Grocery Retail Sales By Format – Historical Data & Forecasts
Other Key Sectors
Table : Pharma Sector Key Indicators
Table : Defence and Security Sector Key Indicators
Table : Telec oms Sector Key Indicators
Table : Oil and Gas Sector Key Indicators
Table : Infrast ructu re Sector Key Indicators
Table : Freight Key Indicators
Chapter 6: BMI Global Assumptions
Global Outlook
New Era For Oil
Table : Global Assumptions
Table : Devel oped States , Real GDP Growt H, %
Table : BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GRO WTH FORECASTS, %
Table : Eme rgi ng Markets , Real GDP Growth , %

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