Chile’s economic activity starts 2023 on a positive note

SANTIAGO (Reuters) – Chile’s economic activity in January beat market forecasts and put an end to a negative string of four consecutive monthly drops, with improved mining results helping the world’s largest copper producer start the year in a positive tone.

The local IMACEC index, a close proxy of gross domestic product (GDP), rose 0.4% in January from the same month last year, the central bank said on Wednesday, while economists polled by Reuters had expected a 0.5% fall.

Chile’s overall economy has been facing a slowdown after a rapid post-pandemic recovery, with high interest rates in place to combat soaring consumer prices affecting economic growth.

The positive January result alone is unlikely to bring major changes to that scenario, with government forecasts released earlier this month pointing to a 0.7% economic contraction in 2023, but showed some economic resilience in the Andean country.

“This is a very good start to the year…but leading activity indicators, hard data and the extremely low level of consumer confidence suggest growth momentum will remain subpar in the near term,” said Andres Abadia, chief economist for Latin America at Pantheon Macroeconomics.

He expects activity to gather speed from late second quarter onwards, driven by falling inflation and interest rates.

Traders polled by the central bank see the central bank kicking off a monetary easing cycle in May, when policymakers are expected to cut the benchmark interest rate to 11% from the current 11.25%. Rates would then fall to 6.5% within 12 months, the poll showed.

In January, when compared with the previous month, the IMACEC index rose 0.5%, the central bank said.

The year-on-year results was explained by services and mining, which were partly offset by a drop in trade, while the monthly increase was driven by basically all groups surveyed, it added. The IMACEC accounts for nearly 90% of the South American country’s GDP.

(Reporting by Fabian Andres Cambero and Gabriel Araujo; Editing by Steven Grattan)