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'Social Tsunami' Slams a Top Latin American Economy – The Wall Street Journal



The burned ruins of a Walmart supermarket that was set on fire during protests and looting in Arica, Chile.


Marcela Bruna for The Wall Street Journal

ARICA, Chile—The


store here in the country’s remote northern desert would normally be packed full of shoppers buying toys and food for the holidays.

Instead, what’s left this week are charred, twisted metal beams and busted up concrete in the aftermath of nationwide, antigovernment unrest that has caused the sharpest economic contraction in a decade in one of Latin America’s most prosperous nations. The store, which helped anchor businesses in the neighborhood, was one of 18 of Walmart’s stores in Chile—part of the Lider chain—destroyed by the looting that has accompanied two months of mass protests.

“It looks like a war zone,” said

César Martínez,

whose company was contracted to clear debris after the store was sacked and torched, leaving one person dead, in November. “Thirty days ago, this place was selling bread. It’s madness.”

Few expect a quick recovery in this country of 18 million people. The unrest has paralyzed Chile’s economy, which contracted 3.4% in October, the worst showing since the 2009 global financial crisis. The central bank cut its outlook for next year’s growth to between 0.5% and 1.5%, after previously projecting a 2.75% to 3.75% expansion. Economic output will hit just 1% this year, down from 4% in 2018.

While protests have dissipated with Christmas approaching, the economic fallout is just beginning, experts say. Chile is now embroiled in political uncertainty after the government agreed to hold a referendum in April on a new constitution. Leftist activists seek to overturn the nation’s free-market economic model in favor of one they would like to be more equitable and offer more social support.

César Martinez worked on the site of the fire that gutted the Walmart in Arica.


Marcela Bruna for The Wall Street Journal

That is having an impact on business plans in what had been a stable Latin American nation. A December poll by Cadem found that 85% of business leaders have put investments on hold. About 61% of executives are pessimistic about Chile’s future as they brace for a recession and higher unemployment.

“This is a social tsunami. It will create a more permanent damage to the economy,” said

Ricardo Escobar,

a former head of Chile’s tax agency whose law firm in the capital, Santiago, works with business owners. “They will not invest until they see a clear future.”


How can the Chilean government address the concerns of its citizens and move to rebuild its economy? Join the conversation below.

The chaos began Oct. 18 in Santiago when the biggest protests in a generation erupted over an increase in subway fares and quickly expanded to a range of grievances, from anger over meager pensions to shoddy health care and schools. The government backed down on the fares. Most protests were peaceful, but violent groups wreaked havoc, prompting President

Sebastián Piñera

to cancel an international summit that would have brought thousands of foreigners to the capital, including President


Hotels were set on fire, restaurants were vandalized and subway stations were destroyed, causing $370 million in damage to the modern and efficient metro. The Santiago city center was trashed, with graffiti-covered walls reading “organize your rage.”

The demonstrations quickly spread across this 2,600-mile-long sliver of a country. In picturesque towns in southern Patagonia, banks and public property were vandalized. Here in Arica, Chile’s northernmost city some 1,300 miles from Santiago, protesters tore the heads off sculptures honoring war heroes, and tourism collapsed.

A looted supermarket in Santiago, on Nov. 28.


claudio reyes/Agence France-Presse/Getty Images

In total, the government says 14,800 businesses were damaged and 100,000 jobs were lost across the country in the past two months as business and consumer confidence tanked.

“No one escaped this,” said

Manuel Melero,

president of the National Chamber of Commerce. “These are billions of dollars in losses.”

In response, Mr. Piñera, a center-right 70-year-old former businessman, has announced a $5.5 billion stimulus package to rebuild infrastructure and help small businesses. The boost in public spending is expected to drive the fiscal deficit to 4.4% of GDP in 2020, one of the biggest since Chile’s return to democracy 30 years ago.

The central bank is stepping up interventions to support the peso after it depreciated to a historic low. It could sell as much as $20 billion, according to the central bank, including a quarter of its reserves.

Economists say Chile is in a strong position to recover. It has little debt and its copper mines, by far the world’s biggest, weren’t affected by the turmoil. Officials say they are working to address protester demands, including increasing pensions, that would reduce high inequality.

“There is a social agreement to make Chile a more-just country,” Economy Minister

Lucas Palacios

told The Wall Street Journal. “The process to overcome this crisis that began on Oct. 18 is starting to bear fruit.”

Stores that were set on fire by antigovernment protesters in Santiago, on Oct. 29.


Rodrigo Abd/Associated Press

The stimulus package is aimed at helping people like

Hector Soto,

whose pharmacy in southern Santiago was ransacked. The 33-year-old father of two was at home when looters stole nearly all the merchandise, even a digital scale.

“That left a mark on us,” said Mr. Soto, who has reopened but said sales are half of what they would normally be. “What really hurt was the level of destruction, the capacity to do damage.”

A December poll by COES, a Santiago-based think tank, said 65% of Chileans support the continuation of protests. The poll found that 89% of Chileans planned to back a new constitution. The protests have weakened, but political analysts expect a strengthened resumption in March, the end of the Southern Hemisphere’s summer break and before an April referendum on whether to replace a constitution drafted during the Pinochet dictatorship.

Politicians will struggle to maintain order as leaders across the political spectrum have lost much of their legitimacy during the crisis, analysts say. Mr. Piñera’s approval rating fell to 13%.

“This process is not finished,” said Marta Lagos, a pollster and political analyst. “There is not one single soul who can unify everyone to help Chile get out of this crisis.”

The uncertainty in Chile’s economy weighs on

Rodrigo Hevia,

whose business, supplying  restaurants with imported liquor, has suffered so much he has laid off workers. The 27-year-old and his wife have decided to hold off on buying a home and having children.

“We’re going to have to wait a bit because nothing is clear,” he said. “I’m not sure if my business is going to make it through next year.”

Alejandra Godoy lives next to the Walmart that was destroyed in Arica.


Marcela Bruna for The Wall Street Journal

People are grappling with similar anxiety in Arica.

Alejandra Godoy

said she has barely worked at her beauty salon, located behind the destroyed Walmart. At night, she still hears people scavenging metal and anything else of value.

“Clients don’t want to come here because they’re scared,” said Ms. Godoy, whose neighborhood now plans to buy a community alarm system and security cameras.

Write to Ryan Dube at

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Yellen Says She’s ‘Very Optimistic’ on Economy But Wary of Rates



(Bloomberg) — Treasury Secretary Janet Yellen said a surprisingly resilient US economy has prompted investors to question what it will take to bring inflation down, but she cast doubt on whether that would force interest rates to stay elevated for a long period.

“People are trying to figure out exactly what it’s going to take to keep inflation moving down,” Yellen said Tuesday in a moderated discussion at the Fortune CEO Initiative conference in Washington. “And the economic resilience that they see maybe suggest higher for longer, but we’ll see. I think it’s by no means a given.”

Yellen also said that it’s possible that higher rates of investment spending — such as on the green-energy transition — could imply higher interest rates over the longer haul. At the same time, the structural forces that held rates down in recent decades — such as demographic trends — remain “alive and well.”

“The answer is, I don’t know,” whether bond yields will stay high over the longer run, Yellen said. “It’s a great question and it’s one that’s very much on my and the administration’s minds.”


Yellen also said that it’s critical to maintain a “sustainable fiscal policy.” She said the current level of debt is manageable — as measured by how much the US spends each year to finance the federal debt as a share of gross domestic product, and adjusted for inflation. But she also indicated that higher long-term rates could pose a threat.

“The forecast we’ve made assumes that interest rates will rise toward more normal levels, but we are seeing a pretty significant increase in nominal” rates, she said.

Yellen also said that she’s “very optimistic” about the outlook for the US economy.

Economic Outlook

“Consumer spending remains strong, investment spending is solid” and the housing market has stabilized and “seems to be moving up,” she said. “Short term inflation is coming down in the context of an extremely strong labor market,” she also said.

Yellen’s comments come just a couple of days after a last-minute deal was struck to avoid a government shutdown, something the Treasury chief had warned could threaten the economic outlook.

She said that, now, “it’s urgent that Congress allocate funds for Ukraine — that hasn’t been done. That’s really our focus.”

Yellen declined to comment on the battle for House Speaker Kevin McCarthy to retain his post.

(Updates with further comments on interest rates, starting in headline.)


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Euro zone economy likely contracted in third quarter amid waning demand, survey suggests



Eurozone business activity remained in contraction at the end of the third quarter of the year as an increased rate of loss of orders led to a further decline in activity. The overall reduction in output was again led by manufacturing, but the service sector saw activity decrease for the second month running.

Input costs continued to rise sharply, and the rate of inflation even picked up from that seen in August, in part due to higher oil prices. Output prices, however, increased at the softest pace in over two-and-a-half years amid muted pricing power.

Forward-looking indicators suggest the economic contraction is likely to persist into the fourth quarter. Future business expectations fell sharply and are now running weak by historical standards to hint at an acceleration in the rate of decline in the months ahead. Similarly, new order inflows are falling at a faster rate than output in both manufacturing and services, suggesting companies will seek to reduce capacity in the months ahead. Likewise, backlogs of work are falling at an accelerating rate to hint at production cuts across goods and services in the months ahead. In the goods-producing sector, inventory reduction remains widespread, suggesting no immediate relief to the intense destocking cycle that has exacerbated the recent downturn in customer demand.

However, as well as subduing output growth as we head into 2024, these factors should also play a role in diminishing pricing power and inflationary pressures, both in manufacturing and services.


Output fall gathers pace

The HCOB Eurozone Composite PMI Output Index, compiled by S&P Global, recorded 47.1 in September according to the flash estimate, up marginally from 46.7 in August but still signalling a solid monthly decline in business activity. Output has now fallen for four consecutive months.

The August reading is indicative of GDP falling at a quarterly rate of 0.4%, but combined with the August and July readings means GDP likely contracted by 0.3% over the third quarter as a whole.

For the second successive month, output falls were seen in both manufacturing and services. That said, the rate of contraction in services eased slightly from August and was still much softer than that seen in manufacturing. The reduction in manufacturing production was unchanged from the rapid pace seen in August. Barring a brief period of growth during the opening quarter of the year, euro area manufacturing output has decreased continuously since the middle of 2022 with recent declines being the steepest recorded since the global financial crisis.

Central to the latest reduction in business activity was a further deterioration in demand, as highlighted by a fourth successive monthly decrease in new orders. Moreover, the fall in September was the most pronounced since November 2020 and – baring pandemic months – the steepest since September 2012.

Manufacturing new orders contracted rapidly again, but the acceleration in the overall rate of decline was centred on the service sector, where the drop in new business was the sharpest since the pandemic. In fact, excluding months affected by COVID-19 restrictions, the fall in services new orders was the largest since May 2013.

The data therefore continue to signal a marked cooling of the demand revival seen in the spring for consumer-oriented services such as travel and tourism, which had boomed in early 2023 amid loosened COVID-19 containment measures compared to the prior three years. Note also that new orders continued to fall at a sharper rate than output is currently being reduced, which – in the absence of a sudden revival of demand – suggests firms will come under pressure to reducing operating capacity in the months ahead.

Job market remains largely stalled

Sharp falls in new orders meant that companies often turned to work on outstanding business in order to maintain activity levels. As such, backlogs of work decreased markedly again during September, with the latest depletion the most pronounced since June 2020. Barring pandemic months, the decline was the steepest since 2012, reflecting the steepest fall in services backlogs since 2012 and the largest falling manufacturing backlogs since the global financial crisis.

Eurozone businesses also signalled a waning of confidence in the year-ahead outlook at the end of the third quarter. Future sentiment dipped sharply to the lowest since November last year. Optimism waned across both monitored sectors, with manufacturing sentiment only just in positive territory.

The combination of spare capacity and reduced confidence in the outlook meant that companies were again cautious in their approach to hiring. Although employment rose marginally in September, the rate of job creation was the joint-second slowest in the current 32-month run of growth.

A fourth successive monthly reduction in manufacturing workforce numbers compared with a slight increase in services employment.

As well as scaling back staffing levels, manufacturers in the eurozone also cut their purchasing activity sharply and reduced their holdings of both purchases and finished goods. The fall in stocks of finished goods was the sharpest in two years.

Reduced demand for inputs meant that suppliers were able to speed up deliveries, with vendor lead times shortening for the eighth consecutive month. The rate at which deliveries quickened was marked, albeit the least pronounced since February.

Pricing power falls

There were differing trends in terms of inflation in September as a sharper rise in input costs contrasted with a weakened rate of output price inflation.

Input costs increased at the fastest pace in four months, albeit at a pace that remained well below the average seen over the past three years. Inflation was driven by the service sector, where prices were up sharply amid higher wages and rising fuel costs. Manufacturing, on the other hand, posted a seventh successive monthly drop in input costs.

Despite the steeper pace of input cost inflation, a weakening demand environment meant that companies increased their selling prices to a lesser extent than in August. In fact, the latest rise in charges was only modest and the softest since February 2021. Manufacturing output prices fell at a marked and accelerated pace, while services charge inflation eased to a 25-month low.

Measured across both sectors, the overall rate of selling price inflation has now fallen to a level consistent with consumer prices rising at a rate below 3% in early 2024, down from the 5.2% rate seen in August.

National trends

Looking at growth across the euro area, the euro area’s two largest economies – Germany and France – were the key drivers of the overall downturn in activity during September. Germany saw output decrease for the third month running and at a solid pace, albeit one that was slightly softer than seen in August. German manufacturing production declined at the fastest rate since the opening wave of the COVID-19 pandemic, while services activity was down marginally.

The contraction in France was more severe than in Germany, with activity decreasing to the largest extent since November 2020. Excluding pandemic affected months, the September contraction in output was the sharpest in over a decade. Rates of decrease quickened across both manufacturing and services.

The rest of theeurozone saw business activity remain broadly stable in September. Although manufacturing output decreased for a sixth month running, the fall was the softest since April. Meanwhile, services activity increased slightly, and to a greater extent than in August.

Access the full press release here.

Chris Williamson, Chief Business Economist, S&P Global Market Intelligence

Tel: +44 207 260 2329


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Sub-Saharan Africa Economic Growth to Slow to 2.5% in 2023, World Bank Says



JOHANNESBURG: Sub-Saharan Africa’s economic growth is expected to slow this year, dragged down by slumps in heavyweights South Africa, Nigeria and Angola, the World Bank said on Wednesday.
Regional growth will slow to 2.5% in 2023 from 3.6% last year, the bank said in a report, before rebounding to a projected 3.7% next year and 4.1% in 2025.

In per capita terms, the region has not recorded positive growth since 2015, as African countries’ economic activity has failed to keep pace with their rapid increase in population.
Some 12 million Africans are entering the labour market each year, the World Bank wrote in its twice-yearly “Africa’s Pulse” report. But current growth patterns generate just 3 million jobs in the formal sector.

“The region’s poorest and most vulnerable people continue to bear the economic brunt of this slowdown, as weak growth translates into slow poverty reduction and poor job growth,” Andrew Dabalen, the bank’s chief economist for Africa, said.
More than half of the region’s countries – 28 out of 48 – have seen their 2023 growth forecasts revised downward from the World Bank’s April estimates.
The continent’s most developed economy, South Africa, which is facing its worst energy crisis on record, is expected to grow just 0.5% this year.

Economic growth in top oil producers Nigeria and Angola is expected to slow to 2.9% and 1.3% respectively.
Sudan, which is in the midst of a major internal armed conflict that has destroyed infrastructure and brought the economy to a standstill, is expected to be hit by a 12% contraction, the Bank said.
Excluding Sudan, regional growth would be 3.1%.
“The region is projected to contract at an annual average rate per capita of 0.1% over 2015-2025, thus marking a lost decade of growth in the aftermath of the 2014-15 plunge in commodity prices,” the report stated.
While sub-Saharan inflation is expected to ease to 7.3% this year from 9.3% in 2022, it remains above central bank targets in most countries.
Meanwhile, recent military coups in Niger and Gabon in the wake of army takeovers in Guinea, Mali and Burkina Faso, as well as armed conflicts in Democratic Republic of Congo, Ethiopia, Somalia and Sudan, have created additional risk in Africa.
And mounting debt is draining resources, with 31% of regional revenues going to interest and loan payments in 2022.


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