Economy

Amid protests, Chile's economy faces downside risk

The main demand is the revision of the country's Constitution, promulgated at the time of the dictatorship

Protests in Santiago last 29th OCtober.
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  • In the third quarter of this year, the Chilean economy grew 3.3% compared to the same period last year;
  • The riots, however, could cause the country to close the year with less than 2% growth, Chile’s Central Bank estimates.

The wave of protests that has erupted in Chile in recent weeks is also affecting the market’s view of the future of this booming Latin American economy.

According to Bloomberg, analysts are projecting a shrinkage in the $ 300 billion economy in the last quarter of 2019. They believe the downturn could also extend into early 2020. And two straight quarters of downturn are considered recession by economists.

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According Gonzalo Sanhueza, an economist at financial services firm Econsult in Santiago, the social explosion has brought “a big increase in uncertainty” . “When that happens, investment and consumer demand freezes. And that leads to a slowdown,” he told Bloomberg.

In the third quarter of this year, the Chilean economy grew 3.3% compared to the same period last year. The riots, however, could cause the country to close the year with less than 2% growth, Chile’s Central Bank estimates.

This scenario has been seen several times not only in Chile, but in other Latin American countries, where political uncertainties still have a strong influence on the region’s economic performance, rather than when similar situations occur in developed countries.

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Among the practical effects of this social upheaval in Chile are the drop in sales (retail accounts for 50% of jobs in the country), the decline in agribusiness and exports, already hampered by drought in the country, but aggravated by the closing of ports. Government promises that spending on social programs will be reinforced–a response to some demands from the protests– and this should also increase the country’s fiscal deficit, which usually worries investors, both domestic and foreign.

Last week, the government and the opposition reached an agreement to reform the country’s Constitution, promulgated in the dictatorship of Augusto Pinochet. Finance Minister Ignacio Briones said he was confident the country would avoid the technical recession. Economists, according to Bloomberg, do not yet see a definite scenario