Bloomberg News

Chile Government Sees Growth of 5%, Warns of Global Impact

October 04, 2011

(Updates with peso value in seventh paragraph and minister’s comment in eighth paragraph.)

Oct. 4 (Bloomberg) -- Chile’s government forecast the economy will grow 5 percent next year, while warning that the mounting global crisis may push expansion closer to more pessimistic analyst estimates.

Growth will slow from about 6.5 percent this year, Finance Minister Felipe Larrain told lawmakers in Valparaiso today in a speech on his proposed 2012 budget. The median forecast of nine economists in a Bloomberg survey was for growth of 4.5 percent next year.

“Undoubtedly, within the context of a more complex external environment than we see today, it becomes harder to meet this forecast,” Larrain said. “In other words, if the external situation deteriorates, growing at 5 percent becomes a more demanding challenge.”

The Andean nation’s economy grew at its fastest pace in more than a decade in the first half of this year at a time when much of the world was struggling with a widening European debt crisis and slower global expansion. Growth began to ease in the second half, and the peso and copper prices have slumped since the ministry wrote today’s forecasts, Larrain said.

Chile probably will have a fiscal surplus this year equivalent to 1.2 percent of gross domestic product, Larrain said, estimating a deficit next year of 0.4 percent of GDP.

Wealth Funds

Chile, the world’s biggest copper-producing nation, had more than $18 billion in offshore savings in August, which are turning a “good” profit, Larrain said. Chile has net credit of about 7.5 percent of GDP and inflation will fall to 2.9 percent in December 2012 from 3.2 percent in August this year, he said.

The peso, which fell 1.8 percent against the dollar today to 534.80, will average 472 next year, Larrain said today. The peso was trading at about 460 per dollar when the ministry made today´s forecasts, he said.

“Of course, things are different” Larrain said. “This isn’t a budget written for a crisis, I want to make that clear. This is a budget written for conditions of a deceleration in the global economy.”

The price of copper has tumbled 26 percent since the end of August to $3.11 a pound as of 12:22 p.m. New York time amid concern that demand will drop because of the European debt crisis. Chile’s government estimates copper will average $3.70 a pound in 2012.

“Our economy has the strengths to be able to respond, but undoubtedly will be impacted in a more adverse scenario,” Larrain said. “We’re already being impacted because we´re already seeing an impact in the copper market and stock market.”

--Editors: Philip Sanders, Richard Jarvie

To contact the reporter on this story: Randall Woods in Santiago at rwoods13@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.


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