Chile was one of the fastest growing economies in Latin America in the last decade. However, after the 2010-2012 boom, 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, decline in copper prices and decrease in private consumption. Additionally, unemployment rose from 5.7% in November 2013 to 6.5% in 2014.
The fiscal deficit increased following the economic slowdown, the decline in copper prices and expansionist policies. The 12-month fiscal deficit rose from 0.5% of GDP in late 2013 to 1.6% of GDP at the end of 2014 given the reduced tax revenue resulting from weak 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 companies use to postpone payment of taxes on revenue earmarked for investments.
Economic growth is expected to recover in 2015, to reach an estimated 2.9%. Growth is expected to accelerate at the end of the year as a result of current expansive monetary and fiscal policies, the recovery of private investment and domestic demand.
Chile has successfully reduced poverty rates and increased shared prosperity in recent years. The percentage of the population living in extreme poverty (on US$ 2.5 per day) declined from 20.8% in 1990 to 2.0% in 2013 whereas the percentage living in moderate poverty (US$ 4 per day) decreased from 40.8% to 6.8% during the same period. Additionally, between 2003 and 2011, the average income of the poorest 40% of the population rose 4.3%, considerably above the average growth for the total population (2.5%).
Nevertheless, Chile faces major challenges. The country’s responsible macroeconomic and fiscal management provides a solid base to maintain and increase growth in the medium and long term, and to achieve more inclusive growth. However, despite the solid growth of the past 20 years, per capita income in the country still falls short of that of high-income countries (in 2013, Chile’s per capital income was US$ 21,714 as compared with the average of US $38,660 for OECD countries). Furthermore, structural challenges for promoting productivity and improved access to and quality of social services must be addressed to achieve more inclusive growth. Insufficient energy supplies and dependence on copper exports continue to be a source of vulnerability. Thanks to ambitious structural reforms, Chile remains a standard-bearer of progress in Latin America. The country develops creative public policies that have become international models of good governance.
Last Updated: Apr 15, 2015