Chile’s GDP Decline in Q2 2024

SANTIAGO (Reuters) – Chile’s gross domestic product (GDP) fell 0.6% in the second quarter of 2024 compared to the previous three-month period, according to data released by the country’s central bank on Monday, aligning with market expectations.

This decline opens the possibility for the central bank to implement further interest rate cuts by year-end, following a pause after eight consecutive cuts last month.

The quarterly GDP drop resulted from weaker activity in mining, services, and manufacturing, with mining GDP specifically declining 1.0% on a sequential basis.

This figure contrasts sharply with the revised 2.1% quarter-on-quarter growth reported in Q1, which set a strong benchmark for the April-June period.

Chile’s economy had recently been recovering after a severe downturn in 2023, following a rapid post-pandemic rebound that contributed to inflationary pressures that prompted the central bank to raise rates.

As inflation diminished, the central bank has slashed borrowing costs by a total of 550 basis points since July 2023, bringing the current rate to 5.75%.

Economists suggest the GDP decline in the second quarter could be viewed as a correction following a robust first quarter, with expectations for a return to positive growth in Q3. Capital Economics’ emerging markets economist Kimberley Sperrfechter stated that this downturn opens the door for potential additional 25-basis-point interest rate cuts to 5.25% this year.

On an annual basis, the Chilean economy grew 1.6% in Q2, which is below the 1.8% growth anticipated in a Reuters poll. This annual growth was bolstered by mining, utility services, commerce, and transportation, with mining GDP increasing by 5.5% year-on-year.

Scotiabank economist Jorge Selaive mentioned that while the second-quarter figures reflect rising investment, they also show a decrease in consumption, likely easing inflationary pressures and allowing for more flexibility in monetary policy.

Lastly, the Chilean government projects economic growth of 2.6% for 2024, according to estimates released last month.