In the latest data released by Chile's central bank, the country's gross domestic product (GDP) declined by 0.6% in the second quarter of 2024 compared to the previous quarter, meeting market expectations. This drop is expected to pave the way for the central bank to implement further interest rate cuts by the end of the year, following a period of rate stability after eight consecutive cuts.
The decrease in GDP was primarily driven by weaker performance in mining, services, and manufacturing sectors, with mining GDP specifically falling by 1.0% sequentially. This marks a significant slowdown from the 2.1% growth reported in the first quarter, which served as a strong comparison base for the April-June period.
Chile's economy has been recovering from a sharp downturn in 2023, which prompted the central bank to raise rates due to inflationary pressures. Since then, the bank has reduced rates by a total of 550 basis points to the current 5.75% as inflation levels eased.
Despite the second-quarter contraction, analysts are optimistic about a return to positive growth in the third quarter. Capital Economics' Kimberley Sperrfechter anticipates two more 25-basis-point rate cuts to bring the rate down to 5.25% for the remainder of the year.
Annual GDP growth stood at 1.6% in the second quarter, slightly below expectations. The expansion was driven by sectors such as mining, utility services, commerce, and transportation, with mining GDP growing by 5.5% annually.
Scotiabank economist Jorge Selaive noted a rise in investment but a decline in consumption in the second quarter, which could alleviate inflationary pressures and provide more flexibility for monetary policy.
The Chilean government's forecast for economic growth in 2024 is 2.6%, based on recent figures.
Analysis:
The latest GDP data from Chile indicates a temporary setback in economic growth, driven by specific sectoral challenges. However, the overall outlook remains positive, with expectations of a rebound in the coming quarters. The central bank's potential rate cuts could stimulate further economic activity and support the government's growth targets for the year. Investors should monitor these developments closely to assess potential opportunities in the Chilean market.