Bloomberg News

Chile’s Economy Grows at Fastest Pace in 17 Months on Retail

February 07, 2012

(Updates with analyst’s comments in fourth paragraph.)

Feb. 6 (Bloomberg) -- Chile’s economy expanded in December at its fastest pace in 17 months on gains in retailing, mining and communications, reducing the likelihood that policy makers will repeat their January interest rate cut next week.

The economy climbed 1.3 percent from the previous month on a seasonally adjusted basis, the biggest gain since July 2010, the central bank said on its website today. From the previous year, the economy grew 5.3 percent, exceeding the 3.9 percent median estimate made by 15 economists surveyed by Bloomberg.

December’s figure brought year-on-year growth in the fourth quarter to 4.2 percent, compared with 4.8 percent in the previous three months. Chile’s economy may not be slowing at a pace that would justify new monetary stimulus this month following January’s quarter-point cut, Banco Bilbao Vizcaya Argentaria SA economist Alejandro Puente said.

“We forecast a pause as the central bank waits to see if there effectively is an impact from the international situation, which so far hasn’t manifested itself,” he said by telephone from Santiago. “It’s not unusual to have negative price data in January, so any positive data this week will reinforce thinking the central bank should pause.”

Consumer prices will rise 0.1 percent in January from the previous month, according to the median estimate of 59 traders and investors survey by the central bank on Jan. 24. The National Statistics Institute publishes its January consumer price report on Feb. 8.

Bank Poll

Traders in the central bank poll forecast the central bank will leave its key rate at 5 percent on Feb. 14 before cutting it to 4.5 percent by May. Policy makers reduced the rate last month for the first time in more than two years after forecasting in December that growth in the world’s largest copper producer would slow on weaker export gains.

Chile’s economy, which the bank estimates will expand 3.75 percent to 4.75 percent this year, grew 6.3 percent in 2011, the fastest pace since 1997, according to calculations made by Bloomberg based on preliminary central bank data.

“Our economy is moving gradually toward less expansive rates even as spending data still show major growth,” bank President Rodrigo Vergara told Senators on Jan. 31. “Clearly there are differences between sectors. In some industrial areas, especially those dedicated to exports, it’s noticeable there’s less vigor.”

Copper Prices

Since Vergara spoke, Chile’s government raised its forecast for average copper prices in 2012 to $3.85 a pound from $3.50 because of increased demand from China. Copper fell 1.2 percent to $3.852 a pound at 9:56 a.m. Santiago time from Friday.

As a result of the improved economic outlook, including last week’s faster-than-forecast gain in retail sales and an unexpected drop in unemployment, Chile’s government may not need to implement a contingency plan to boost investment and employment this year, acting Finance Minister Julio Dittborn said last week.

“The country truly is showing great capacity to grow,” he told reporters in Valparaiso before meeting with senators. “Obviously, things could change.”

Industrial production grew 5.4 percent last year, about half as fast as retail sales, according to the statistics institute. Retail revenue growth will decelerate to about 5 percent to 6 percent in 2012, the Chilean Chamber of Commerce, known as CNC, said in a Jan. 26 report.

To be sure, Chile’s economy may slow more than estimated if the European sovereign-debt crisis deteriorates further, Vergara said on Jan. 31.

“Major risks persist,” he said during a Senate session on the global economic slowdown. “Among these risks are the possibility that new episodes of international financial volatility end up affecting the expectations of players, global demand and international credit.”

The peso fell 0.3 percent to 480.05 per U.S. dollar at 10:16 a.m. today.

--With assistance from Dominic Carey in Sao Paulo, Sebastian Boyd, Matthew Craze, Javiera Baeza and James Attwood in Santiago and Kristy Scheuble in Washington. 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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