Market Research Logo

Chile Country Risk Report Q2 2016

Chile Country Risk Report Q2 2016

Core Views

Chilean real GDP growth will remain modest in 2016. An improving netexports position, combined with the government's fiscal stimulus andtailwinds 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 comingyears, as a weaker average peso bolsters the economic competitivenessof manufactured goods exports, offsetting weakness in miningexports. Moreover, structurally lower oil prices will reduce Chile'simport bill, contributing to a widening of the goods trade surplus.

The Chilean peso will remain under broad downside pressurefrom falling copper prices and a bull run on the US dollar over thecoming quarters. However, structurally lower oil prices will bolsterthe country's terms of trade, helping the unit to stabilise following asignificant sell-off.

The Chilean government's expansionary fiscal policies will drive awidening of the nominal budget shortfall in 2016. Beyond 2016, thedeficit will begin to gradually narrow as spending policies normaliseand an increase in the corporate tax rate bolsters revenues.


Executive Summary
Core Views
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Employment Gains In Services To Drive Growth
Private consumption in Chile will drive a rebound in growth over the coming quarters following employment gains in services. Falling
producer costs will bolster the competitiveness of domestic industries, allowing manufacturing to strengthen over a multi-year
horizon.
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: GROSS FIXED CAPITAL FORMATION FORECASTS
TABLE: NET EXPORTS FORECAST
Fiscal Policy And Public Debt Outlook
Fiscal Deficit Will Peak In 2016
Chile's fiscal deficit will peak in 2016 as the administration of President Michele Bachelet continues to support real GDP growth through
elevated expenditures. Thereafter, the government will temper spending growth, gradually narrowing the deficit and returning to
balance by 2019.
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
External Trade And Investment Outlook
Weak Peso Will Drive External Account Rebalancing
Chile's current account deficit will narrow slightly in 2016 as a weak peso drives imports to contract, offsetting sluggish exports.
Investment will begin to flow in to non-extractive industries, as firms leverage the country's robust regulatory environment and increasing
cost competitiveness.
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
Outlook On External Position
TABLE: TOP 5 GOODS IMPORTS IN 2014
TABLE: TOP 5 GOODS EXPORTS IN 2014
Monetary Policy
Elevated Inflation Will Lead To Additional Hikes
The BCC will continue its rate hiking cycle in 2016, as inflation remains elevated due to currency weakness. This will help to anchor
inflation within the BCC's target range in the latter half of 2016.
Monetary Policy Framework
Currency Forecast
CLP: Pace Of Depreciation To Slow
The Chilean peso will remain historically weak in 2016, trading at its lowest levels in more than a decade. However, it will begin to
strengthen modestly in the latter half of the year as copper prices find a base and the Banco Central de Chile continues its rate-hiking
cycle.
TABLE: BMI CURRENCY FORECAST
TABLE: EXCHANGE RATE
Chapter 2: 10-Year Forecast
The Chilean Economy To 2025
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 2025. While obstacles such as high reliance on copper
exports continue to pose a risk to economic progress, especially in light of 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 MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Pace Of Bachelet's Reforms Will Be Tepid
Chilean President Michelle Bachelet's ambitious suite of reforms will be held up by competing demands from businesses, unions,
teachers and opposition parties. However, the gradual enactment of proposed reforms will result in improvements in the country's
operational environment with little downside to businesses or policy continuity.
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. That said, there is a risk that the political
landscape could fracture over the longer term if the leading parties fail to address long-term concerns about an economy reliant on
copper export-led growth.
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: OPERATIONAL RISK
Trade Procedures And Governance
TABLE: EXPORT AND IMPORT DOCUMENTS
TABLE: TRADE PROCEDURES BREAKDOWN
TABLE: LATIN AMERICA – TRADE PROCEDURES AND GOVERNANCE RISK
Vulnerability To Crime
Chapter 5: BMI Global Macro Outlook
Global Macro Outlook
Unfinished Business In 2016
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: CHILE – MACROECONOMIC DATA & FORECASTS

Download our eBook: How to Succeed Using Market Research

Learn how to effectively navigate the market research process to help guide your organization on the journey to success.

Download eBook

Share this report