Chile has been one of Latin America’s fastest-growing economies in recent decades thanks to a solid macroeconomic framework, which enabled the country to reduce the population living in poverty (on US$ 5.5 per day) from 30 percent in 2000 to 6.4 percent in 2017.
Following sluggish growth in 2017 (1.3 percent), the economy rebounded in 2018, growing at a rate of 4 percent. This improvement reflected more private-sector confidence, lower interest rates and higher copper prices, which revitalized mining production. Non-mining activities, particularly wholesale trade, commercial services and manufacturing also progressed.
The current account deficit increased from 2.2 percent of GDP in 2017 to 3.1 percent in 2018 thanks to growing capital goods imports and net foreign assets. This deficit was mainly financed by increased foreign investment, which enabled international reserves to remain stable.
The central government debt declined for the first time in six years, from 2.7 percent of GDP in 2017 to 1.7 percent in 2018 due to increased revenue. While spending declined in goods and services, current expenditures remained unchanged as a percentage of GDP as a result of the increase in other expenses, including payroll. This helped contain growth of the public debt, which increased from 24 percent to 26 percent of GDP between 2017 and 2018.
Despite the advances of recent decades, Chile faces significant challenges and opportunities. The fiscal consolidation expected for the medium term will be crucial for stabilizing the debt and consolidating confidence. Government efforts to rationalize the tax system, facilitate employment mobility, reduce bureaucracy, improve the pension system and strengthen the financial system will also be crucial for maintaining growth and reducing Chile’s vulnerability to external risks.
Encouraging innovation, improving the linkage between education and the labor market and promoting the participation of women in the labor market are also essential for improving long-term prospects. On the social front, enhancing the quality of health and education services and reducing constraints to access to well-targeted social policies will be key for reducing the remaining poverty and strengthening the middle class.
Last Updated: Apr 10, 2019