Chile’s economy has been struggling for a third consecutive month, with the Imacec index indicating a 0.4% decline in May compared to April and only a 1.1% increase from the previous year. The central bank recently lowered borrowing costs by a quarter-point to 5.75%, marking the smallest cut since the easing cycle began in July of last year, but this hasn’t been enough to spur growth as expected.
Rising electricity prices have put additional strain on the economy, prompting policymakers to adopt a less dovish approach. Additionally, policymakers have responded to the economic slowdown by implementing interest-rate cuts totaling 550 basis points over the past year, which initially fueled a strong rebound in economic growth in the first few months of 2024. However, momentum has since slowed and inflation is now expected to remain above the target of 3% until the first half of 2026, later than originally anticipated based on the bank’s quarterly monetary policy report.
In May, economic activity excluding mining declined by 0.5% on a monthly basis and only increased by 0.2% from the previous year. The manufacturing and commerce sectors experienced the largest declines, with manufacturing down by 2.3% and commerce down by 0.4%. Despite some positive indicators such as increased copper output, industrial production and retail sales fell short of expectations in May. Manufacturing unexpectedly shrank even as the jobless rate surprisingly decreased. Overall, it seems that Chile’s economy is still facing challenges despite some efforts from policymakers to boost it back on track.