Chilean economy surprises in July with 4.2% growth

The Chilean economy surprised on Monday with a growth of the Monthly Index of Economic Activity (Imacec) of 4.2% year-on-year in July, according to the Central Bank of Chile, a figure that almost doubles the market’s estimated increase of around 2.4%. The boost is explained particularly by the service sector (5.3%) and trade (4.9%). In monthly terms, the Imacec has increased by 1.0%, the highest figure since January, and after it disappointed in June with almost zero growth.

Finance Minister Mario Marcel said this morning that such a rapid growth rate is not common. “This speed of 1.0 or 1.5% is very positive. It is not usual for activity to grow at this rate from one month to the next, and this is largely reflected in the recovery compared to the previous month, June, which was quite weak. If we look at what is happening at the sector level, in the annual variation all of them had growth,” Marcel pointed out at a press conference from the Palacio de La Moneda.

Regarding the economic activity data, which excludes the mining component, an annual increase of 4.4% was recorded. The highest figure in the Imacec series since mid-2022. Economist Óscar Landerretche has maintained that this is a “good figure”, which contributes to the slow recovery trend, but has warned in his X account that the “up and down continues, which shows a volatile economic moment, as if the economy does not want to decide where to go”.

The publication of the indicator – an approximation of the Gross Domestic Product (GDP) – takes place before the Monetary Policy meeting of the Central Bank, scheduled for this Tuesday, in which it will be decided whether to continue with the cycle of easing the reference interest rate, which is at 5.75% after the advisors of the issuing institute opted to pause the series of cuts implemented since July 2023. However, the data on economic activity could moderate pessimistic expectations and resume the reduction in the cost of borrowing in the country. In fact, the market expects the interest rate to be cut by a quarter of a point.

For the moment, the Government of Gabriel Boric maintains its projection of a 2.6% expansion for 2024. This week, the publication of the Monetary Policy Report (IPoM) by the Central Bank is expected, which could show new economic projections.

Marcel has pointed out that economic activity is experiencing a sustained recovery, which will be consolidated in the remainder of the second half of this year. “We must be very cautious when interpreting the data from one month to another,” he said.

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