Chile: Boom ends

Economic activity is projected to contract in 2009. The world economic crisis has hit Chile mainly through a deterioration in its terms of trade, as copper prices have fallen sharply, and through tighter financial conditions.

The investment boom, led by mining and energy, has suddenly come to a halt and plummeting consumer and business confidence have led to sharp adjustments in private consumption and inventories. Inflation is declining rapidly and will undershoot the central bank's target band at the end of the year. After several years of surpluses, the current account has turned negative.

The central bank has cut the policy rate by 700 basis points between January and mid-May 2009. It should not hesitate to use its remaining room for manoeuvre if incoming data suggest that the economy is heading towards a deeper contraction. Fiscal policy has been appropriately supportive, using public assets accumulated when commodity prices were high. There remains room for further discretionary action, if necessary. Fiscal consolidation will be needed, however, once the recovery is under way.

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See also www.oecd.org/chile

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©OECD Observer No 274, July 2009




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