(Bloomberg) — Chile’s economy is teetering on the brink of recession after unexpectedly flatlining in the second quarter amid soaring inflation and heightened political uncertainty over a new constitution.
Gross domestic product was unchanged in the April-June period from the previous three months, worse than all forecasts in a Bloomberg survey of analysts that had a 0.3% median estimate. It shrank in the first quarter. From a year prior, the economy expanded 5.4%, the central bank reported on Thursday.
Chile’s economy is running out of steam after last year’s boom as President Gabriel Boric’s administration weans the population off of stimulus and inflation hits the highest in almost three decades. Consumers are also getting pinched as the central bank extends aggressive interest rate hikes, while businesses are holding back on investments ahead of next month’s referendum on a new constitution.
Read more: Chile Inflation Tops 13% as Weak Peso Adds to Price Pressure
What Bloomberg Economics Says
“Chile GDP data for the second quarter showed a second straight drop in domestic demand — confirming the economy has reversed trend after the sharp rebound from the pandemic.”
–Felipe Hernandez, Latin America economist
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Falling Demand
Domestic demand fell 0.9% during the second quarter compared to the first three months of the year as retail dropped by 1.2% and manufacturing declined 0.3%. On the other hand, mining increased 3.1%, according to the central bank. The nation’s current account deficit widened to $6.6 billion.
“All in all, the economic performance during the first half of the year was poor,” Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, wrote in a report. “Looking ahead, conditions remain challenging. We expect GDP to fall by about 0.2% in both Q3 and Q4.”
Annual inflation has rocketed to a 28-year high on rising raw material costs and a recent currency plunge, prompting the central bank to extend a hiking cycle that’s added 925 basis points to borrowing costs in just over a year.
Boric has responded with limited aid including a new round of payouts to help the poorest face the surging cost of living without hurting public finances. It’s a turnaround from last year, when billions of dollars from early pension withdrawals and cash transfers were plowed into the economy.
On Sept. 4, voters will head to the polls for a referendum on a new charter that was written in response to social unrest in 2019-2020. Polls show the proposal will likely be rejected, though Boric has said he will back a new constitutional rewrite, a move that could prolong political uncertainty.
Read more: Latin America’s Market Darling Now More Risky Than Chaotic Peru
(Updates with Bloomberg Economics quote in fourth paragraph)
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
