SANTIAGO (Reuters) – Chile’s gross domestic product fell 0.6% in the second quarter of 2024 compared with the previous three-month period, according to data released by the country’s central bank on Monday, in line with market expectations.
This figure should give the central bank room for further interest rate cuts by the end of the year, economists say. The central bank left its key interest rate unchanged last month after eight consecutive rate cuts.
The quarterly GDP decline was due to weaker activity in mining, services and manufacturing in the world’s largest copper producer, where GDP in the mining sector fell by 1.0 percent from the previous quarter.
The result represented a significant slowdown from the revised quarter-on-quarter growth reported in the first quarter, which also provided a strong basis for comparison for the April-June period.
Chile’s economy is recovering after experiencing a sharp downturn in 2023. This followed a rapid recovery from the pandemic that created inflationary pressures and prompted the central bank to raise interest rates.
As inflation fell, the bank reduced borrowing costs by a total of 550 basis points since July 2023, to the current level of 5.75%.
“The decline in Chile’s GDP in the second quarter is mainly a payback for a strong first quarter and we expect a return to positive growth in the third quarter,” said Kimberley Sperrfechter, emerging markets economist at Capital Economics.
However, the weakness of the second quarter means that the central bank could make two more interest rate cuts of 25 basis points each to 5.25 percent in the remainder of the year, she added.
On an annual basis, the Chilean economy grew by 1.6 percent in the second quarter, the central bank said. This is lower than the 1.8 percent growth expected in a Reuters poll of economists.
Annual GDP was boosted by mining, utilities, trade and transportation, according to the monetary authority. GDP in mining rose 5.5 percent on an annual basis, according to the bank.
“The second quarter figures show an increase in investment, but also a decline in consumption,” said Scotiabank economist Jorge Selaive. “This should reduce inflationary pressures and give monetary policy additional room for maneuver.”
According to figures released last month, the Chilean government expects economic growth of 2.6 percent in 2024.
(Reporting by Luana Maria Benedito and Fabian Andres Cambero; Writing by Gabriel Araujo; Editing by Jonathan Oatis)
