“There are no surprises in activity” is the title of Gemines’ recent monthly economic analysis. Although the Chilean economy is showing signs of recovery in specific sectors, the consultancy firm warns of the need to maintain realistic expectations regarding economic growth and improvements in the labor market for the rest of the year.
Gemines highlights that the Imacec (Monthly Indicator of Economic Activity) showed a year-on-year growth of 2.8% in May, in line with the consulting firm’s previous expectations.
According to the National Institute of Statistics (INE), this growth is driven by key sectors such as mining (+6.9%), EGA—Electricity, Gas and Water Production Index— (+4.1%), and commerce (+0.7%). However, manufacturing experienced a contraction of 2.2%.
Despite this mixed outlook, according to the commentary of Gemines’ research manager, Alejandro Fernández Beroš, the total Imacec is expected to reflect positive growth, although with a less favorable performance in the non-mining sector in seasonally adjusted terms.
Furthermore, although more dynamic progress is anticipated compared to last year, Gemines does not estimate that economic growth will exceed 3% annually.
“The conclusion is that, although the growth of activity will be noticeably more dynamic than last year (something not very difficult, in any case), it will not reach 3% and that what happened in the first two months was something exceptional and that the speed of sustainable growth is much lower. Nevertheless, we maintain our projection of 2.7% for the year, but with a downward bias,” says Fernández Beroš.
Regarding the labor market, the results are equally moderate. Gemines explains that, despite a slight reduction in the seasonally adjusted unemployment rate to 8.2%, this improvement did not translate into significant employment growth, with only 6,500 new jobs. The reduction in the labor participation rate also contributes to a less encouraging outlook.
It is worth mentioning that the Central Bank, in its Monetary Policy Report (IPoM) for June 2024, forecasts that activity will grow between 2.25% and 3% this year (between 2 and 3% was projected in March). The IPoM points out that the adjustment in relation to the previous range is associated with better actual data on the expenditure side and the initial scope of the rise in the price of copper. However, it emphasizes that, in the medium term, the effects of this last element are offset by the negative impact that the adjustments in electricity rates have on household disposable income. This affects the maintenance of the growth range between 1.5 and 2.5% for 2025 and 2026.
