Chile has been one of Latin America’s fastest-growing economies over the past decade. However, following the 2010-2012 economic expansion, GDP growth fell to 1.9% in 2014 as a result of the slowdown in the mining sector due to the end of the investment cycle, and the decline in copper prices and private consumption. The unemployment rate rose from 5.7% in July 2013 to 6.6% in June 2014.
The fiscal deficit increased following the economic slowdown, the decrease in copper prices and the implementation of expansionist policies. The fiscal balance of the central government shifted from a surplus of 0.4% of GDP in the first semester of 2014 to a deficit of 0.3% in the same period of 2015 due to reduced tax revenue resulting from weaker domestic demand and lower copper prices.
The tax reform approved in September 2014 seeks to increase fiscal revenue by 3 percentage points of GDP in order to finance additional expenditures in education and to reduce the fiscal gap. This reform focuses on eliminating the Taxable Profits Fund (FUT) that firms use to postpone payment of taxes on revenue earmarked for investments.
Economic growth is expected to recover gradually as private-sector prospects improve, progressively increasing growth to an estimated rate of 3.1% in 2017. A slow recovery is expected in 2015, with an estimated GDP growth rate of 2.2% given the current fiscal impetus. Growth is expected to accelerate in 2016 and 2017 in response to current expansive monetary and fiscal policies and the recovery of private investment and domestic demand.
Last Updated: Sep 29, 2015