CHILE Trends and Developments Contributed by: Felipe Díaz Toro, Victor Riadi and Ignacio Ruiz Rodríguez, EDN Abogados
Commodity prices and economic dependence
new government, have heightened risks. These factors have pushed long-term interest rates higher and strengthened the US dollar. Commodities markets have also been affected. Copper prices dropped to approximately USD4 per pound due to China’s economic outlook and the strengthening dollar. Oil prices have declined as well, influenced by expectations of reduced global demand and positive developments in supply dynamics. Inflation and currency stability Inflation continues to be a critical global chal - lenge, influencing both investment returns and overall economic stability. In Chile, inflationary pressures have been driven by supply chain dis - ruptions, rising commodity prices, and domestic economic factors, all of which have significantly impacted investor behaviour. The stabilisation of the Chilean peso in early 2023, following a period of volatility, provided some relief for investors. However, inflation is anticipated to rise in the coming months, primar - ily due to adjustments in electricity tariffs. Since 2019, these tariffs have been set below actual costs, but a law passed in April 2024 mandates a gradual update to align tariffs with real costs. This adjustment will particularly impact inflation in 2025, with annual inflation projected to close the year at 3.6%. According to the Central Bank of Chile, infla - tion is expected to converge to its 3% target by 2026. The Central Bank has reiterated its com - mitment to closely monitoring economic risks and taking necessary measures to ensure this convergence. Reflecting its cautious approach, monetary policy has gradually eased, leading to reduced interest rates for business and consum - er loans, further supporting economic activity.
Chile’s economic outlook remains broadly bal - anced, but risks are increasing, according to the International Monetary Fund (IMF). Real GDP is projected to grow by 2.5% in 2025, underpinned by an anticipated recovery in domestic demand. However, inflationary pressures are expected to persist, staying above the Central Bank’s 3% target until early 2026. This is largely attributed to a cumulative 60% increase in electricity tariffs between June 2024 and February 2025, along - side core inflation driven by higher transporta - tion costs and services inflation that has proven resistant to downward adjustments. The current account deficit is forecasted to nar - row to 2.1% of GDP in 2024 but is expected to widen slightly in 2025 and 2026 as investment activity recovers. Meanwhile, the labour market remains under pressure, with elevated unem - ployment rates reflecting cyclical weakness in labour-intensive sectors like construction. Additional contributing factors include signifi - cant increases in real minimum wages, uncer - tain business prospects, and the effects of new labour market regulations. Externally, Chile faces heightened uncertainty and instability. Volatility in commodity prices – closely tied to the economic outlooks of Chile’s main trading partners and the pace of the global green transition – represents a significant risk. Furthermore, uncertainty surrounding monetary and fiscal policies in advanced economies could result in prolonged periods of tighter financial conditions and increased market volatility. On the domestic front, challenges such as ris - ing crime, migration, and inequality persist, com - pounded by political polarisation, which continues to hinder the implementation of critical reforms.
111 CHAMBERS.COM
Powered by FlippingBook