Chile is one of Latin America’s fastest growing economies, with a gradual deceleration observed in 2013. Preliminary figures from the IMF put real GDP growth for 2013 at 4.6% compared to 5.6% in 2012, explained by private consumption, despite its moderation, and net exports, as gross fixed capital formation has decelerated. The Peso depreciation experienced since May 2013 has helped to improve external price competitiveness in a context of lower copper prices.
However, the higher export volume was not enough to compensate the lower copper price resulting in lower copper revenues in 2013. Combined with slower non copper revenue growth and higher public investment, the overall Central Government balance deteriorated to a deficit of 0.6 % of GDP in 2013 from a 0.6% surplus in 2012. For 2014, the Central Bank and consensus forecasts project a 4.2% growth rate, which is in line with potential growth. Most potential risks to Chile relate to changes in the global context, especially to the slowdown in China, which affects not only Chile’s external demand, but most importantly copper prices.
The effects of strong growth on employment and income have significantly reduced poverty rates. Some 7 million people escaped from poverty between 2004 and 2012. Urban formal sector employment grew steadily between 2001 and 2008, and bounced back quickly after declining somewhat during the crisis. Despite the fact that strong economic growth improved employment conditions and employment creation, earnings and labor productivity have been distributed unevenly, and some segments of the labor force, particularly young people, still face difficulties in accessing new employment opportunities.
Despite Chile’s growth over the past 20 years, its per capita income has yet to converge with income levels of high income countries. Its 2012 per capita income at US$15,847 was still about half of OECD average. Another critical challenge is the unequal income distribution (GINI coefficient is 0.52, above the LAC average rate of 0.48). This is connected to increasing social demand: Chile has reached a level of development in which the society’s demand for structural reforms such as better education, health and less inequality is becoming stronger.
The new government, with the return of former president Michelle Bachelet (2006-10), , has a policy agenda that prioritizes strengthening of public services and increasing redistribution. The three key areas of reforms announced by president Bachelet’s team are: educational reform (free for all), corporate tax reform, and constitutional reform.
More broadly, the government will continue to face the important challenge of addressing the rising expectations of Chile’s expanding middle class, as well as its poor and indigenous groups on improving access to and quality of services, particularly education.
Last Updated: Mar 31, 2014