Population 17.403 million
GDP 268.278 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
6.1 |
5.9 |
5 |
4.6 |
|
Inflation (yearly average) (%)
|
1.4 |
3.3 |
3.2 |
3 |
|
Budget balance *(% GDP)
|
-0.3 |
1.4 |
-0.2 |
-0.5 |
|
Current account balance (% GDP)
|
1.5 |
-1.3 |
-2.8 |
-3 |
|
Public debt **(% GDP)
|
8.6 |
11.3 |
11.5 |
12 |
| (e) Estimate (f) Forecast | ||||
* Central government and local authorities
** Excluding public companies
STRENGTHS
- Mining (leading world copper producer), agricultural, fishing and forestry resources
- Climatic diversity and reversed seasonality compared with developed countries
- Several free-trade agreements
- Satisfactory budget situation
- Free floating currency
- Good business environment
- International companies operating in distribution, aviation and paper
- Member of the OECD since end 2009
WEAKNESSES
- Small and open economy, vulnerable to external shocks
- Dependent on copper
- Vulnerability of road network and power grid and high energy prices
- Exposure to climate and earthquake risk
- Huge income gap and poor education system
Risk assessment
On-going strong growth
Activity is expected to remain vigorous in 2013. Consumption will continue to be driven by higher income, a flourishing job market and expansion of credit. Investment will still benefit considerably from the reconstruction of housing destroyed in the 2011 earthquake, company spending aimed at reducing pressures on production apparatus, as well as on-going investment in mining. A negative contribution to growth will come only from foreign trade with imports rising faster than exports. Despite robust domestic demand, inflation is expected to remain modest thanks to the favourable impact of the peso’s firmness and more stable oil prices on the prices of imported goods. In these conditions, the Central Bank has room to cut its key rate in the event of unforeseen difficulties, while, with the peso floating freely, it would be allowed to depreciate.
Economy exposed to external shocks but in good financial health
With exports representing 38% of its GDP, of which primary products (over 50% copper, but also molybdenum, cellulose, paper, fruit, fish, wine) account for 70%, and a banking system 40% of which is owned by foreign institutions (especially Spanish), Chile is very exposed to global economic activity. China is its main market (23% of sales), chiefly for copper, followed by the United States, the European Union, Japan, Brazil and Korea. Considering this vulnerability, the public and external accounts have the capacity to resist.
The balance of trade is historically in surplus, despite movements in demand for copper, and is expected to post an even bigger surplus thanks to the expansion of mining activity and sales of agricultural and fishing products. Against this, despite tourism revenue, there is a large services balance deficit due to trade-related freight costs. The revenue balance is broadly negative due to the repatriation of dividends by foreign companies. Flows of portfolio capital are generally in deficit due to the extent of Chilean pension funds abroad, while foreign direct investments exceed Chilean direct investments abroad. Official foreign exchange reserves represent 5% of GDP and are geared towards creating the country’s net creditor position abroad. Private sector debt accounts for ¾ of external commitments.
The public accounts are only just in deficit and if the results of state-owned enterprises are included they are in surplus. Public debt is low, especially since the sovereign fund holds assets representing 6% of GDP. This strong position is reflected in low public sector borrowing rates, which is beneficial too for private companies. Nonetheless, the limited fiscal revenues (22% of GDP) are mainly devoted to current spending. The State compensates for weak public investment by awarding public service concessions.
Good business environment, despite tensions around the sharing of wealth
Sebastien Piñera cannot stand at the presidential elections in November 2013. However, he still has to contend with student discontent over the mediocrity of many, often expensive, educational institutions and the high cost of student loans. His government is keen to respond to these grievances but its room for manoeuvre in Congress is limited now that election campaigning by the ruling centre-right coalition (Coalición por el Cambio) and the centre-left Concertación de Partidos por la Democracia. More broadly, the middle classes believe that although only 15% of the population is poor, income and wealth distribution is still very unequal. The outcome of the next election is uncertain, given the low popularity of both sides. However, if the former President, Michelle Bachelet, were to stand as a candidate for the Concertación, she would have a chance of winning. However her scope to act would also be hampered by clashes between the two blocs in Congress and by the public authorities’ lack of leverage due to the privatisation of social security. Chile offers the most hospitable business environment in the entire region and is ranked 37th in the world. The country is waiting for a decision by the International Court in The Hague relating to a maritime border dispute with Peru.
