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 and 2.1% in 2015, 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 also rose slightly, from 5.7 percent in July 2013 to 5.8 percent in January 2016.
The fiscal deficit increased following the economic slowdown, the decrease in copper prices and the implementation of expansionist policies. The central government’s fiscal balance shifted from a surplus of 0.5 percent of GDP in 2013 to a deficit of 2.1 percent in 2015 due to reduced tax revenue resulting from weaker domestic demand and lower copper prices, despite the 2015 tax reform.
The tax reform 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.
Growth is expected to recover gradually as private-sector prospects improve. The pace of growth is expected to slow in 2016, to an estimated 1.9 percent in light of low copper prices and the lack of recovery of domestic demand. Growth is expected to recover slowly in 2017-2018 thanks to increasing copper prices and levels of private investment. A growth rate of 2.1 percent is forecast for 2017.
Chile has sharply reduced poverty rates and increased shared prosperity in recent years. The percentage of the population considered poor (those who live on US$ 2.5 per day) declined from 7.7 percent in 2003 to 2.0 percent in 2014, and moderate poverty (US4 per day) fell from 20.6 percent to 6.8 percent during the same period. Moreover, between 2003 and 2014, the average income of the poorest 40 percent of the population increased by 4.9 percent, a figure considerably above the average income growth of the population as a whole (3.3 percent).
The country still faces important challenges, however. Macroeconomic management must be fiscally responsible in order to provide a solid foundation for maintaining and increasing the country’s medium- and long-term growth and for achieving more inclusive growth. Despite strong growth over the past 20 years, Chile’s per capita income still falls short of that of higher-income countries (in 2014, the per capita income of US$ 21,980 was still far below the average of US$ 41,035 for OECD countries).
Additionally, structural changes to drive productivity increases and improve access to and quality of social services should be implemented for a more inclusive growth. Energy deficits and dependence on copper exports continue to be a source of vulnerability. Thanks to ambitious structural reforms, Chile has maintained its status as a Latin American reference of progress whose creative public policies have become international models of good governance.
Last Updated: Mar 30, 2016