Chile’s economy slowed in Q4 2024 yet achieved full-year growth surpassing estimates. GDP rose 0.4% in Q4, annual growth reached 4.0%, exceeding forecasts. The central bank is expected to maintain interest rates amid inflation concerns. Growth in 2024 was 2.6%, primarily driven by exports, while domestic demand increased by 1.3%.
Chile’s economy experienced a slowdown in the fourth quarter of 2024, yet exhibited year-on-year growth that surpassed official estimates, according to central bank data released on Tuesday. This data comes just before a critical interest rate-setting meeting scheduled for March 21, wherein policymakers are anticipated to maintain the borrowing cost at 5.0% to address ongoing inflation concerns.
In the fourth quarter, Chile witnessed a gross domestic product (GDP) increase of 0.4% compared to the previous quarter, slightly below the 0.5% growth projected by economists. The GDP growth decelerated from the 1.5% expansion seen in the preceding quarter, primarily due to a decline in mining activities, although gains in the services and agricultural sectors partially offset this downturn.
According to Kimberley Sperrfechter from Capital Economics, timely monthly activity indicators suggest that the economy is entering 2025 with renewed momentum. She noted that the combination of above-target inflation levels and robust activity could lead the central bank to maintain its current stance during the upcoming meeting. Annually, the economy achieved a growth rate of 4.0% in the fourth quarter, outpacing the previously forecasted 3.7% growth.
After a lackluster performance in 2023, Chile’s economy regained momentum in the preceding year, primarily due to interest rate cuts. The central bank paused an easing cycle in January, having already implemented a total of 625 basis points in cuts since July 2023, in light of inflation concerns.
Overall, the Chilean economy expanded by 2.6% in 2024, driven largely by exports, while domestic demand grew by 1.3%. This full-year growth rate surpassed the central bank’s December projection of 2.3% and illustrated a significant acceleration compared to the previous year’s growth of 0.5%—marking the strongest expansion since the post-pandemic recovery in 2021.
Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, stated that Chile ended the year strongly, with resilient domestic demand, suggesting growth could pick up this year, driven by strong private consumption. However, he cautioned that risks remain skewed to the downside due to unstable external conditions and restricted financial options, limiting policymakers’ ability to respond in the short term.
The Chilean government forecasted a GDP growth of 2.5% for this year, with average inflation estimated at 4.7%, still above the official target range of 2% to 4%.
In conclusion, while Chile’s economy recorded a slowdown in the fourth quarter of 2024 compared to prior quarters, it demonstrated annual growth exceeding estimates. The positive trajectory points towards resilience in domestic demand and export growth. Nonetheless, challenges such as inflation and external conditions pose risks for the future. Policymakers will likely maintain caution in their approach to interest rates as they navigate these complexities.
Original Source: money.usnews.com
