The Chilean Economy After the World Crisis: Perspectives Hernán Gutiérrez B. Director Department of Economic and Trade Embassy of Chile
Index Framework of the Chilean Economy The Global Financial Crunch Impact of the Crisis in Chile The Performance Perspectives
FRAMEWORK OF THE CHILEAN ECONOMY
An Open Economy Open to international trade of goods and services Over 90% of GDP is trade related 20 FTAs with 56 countries Average tariff: 1.1% Open to FDI Transparent, stable and non discriminatory regime 39 bilateral investment protection agreements Integrated to the international financial system
Solid Macroeconomic Foundations Balanced and rules based fiscal policy Full operation of markets, complemented by the necessary regulation required to ensure its efficiency Independent Central Bank Inflation targeter Exchange rate flexibility Developed domestic capital market
THE GLOBAL FINANCIAL CRUNCH
The international Financial Crisis Unprecedent financial instability Sharp increase of interest rates and spreads Scarcity of international credit Volatile expectations For the first time since 2006, the world economy will shrink IMF: 1,1% (2009) Commodity prices will score an annual average reduction of 20% International trade will fall by 12%
IMPACT OF THE CRISIS IN CHILE
Transmission of the Crisis to the Chilean Economy Sharp decline of exports Chile figured, with Asian economies, among the most injured by the impact of the crisis on world trade Rough conditions for accessing international credit Liquidity restrictions Increase of interest rates Gloomy expectations of economic agents in Chile and in the world Decline of demand Decline of GDP Decline of employment
Active Policy Response Capacity to implement countercyclical macroeconomic policies Payoffs of the buildup of buffers and policy credibility during the upswing of the cycle Gross public debt declined from 70% of GDP (1990) to 7% (2008) Stimulation packages were financed with savings: US$ 42 billion (2004 2008) US$ 40 billion invested in sovereign funds
Countercyclical Fiscal Policy Fiscal stimulation plan close to US$ 4 billion (2,8% of GDP) Diversified strategy Public investment Transfers Employment subsidies Capitalization of the state owned bank and CODELCO Tax reductions
Monetary Policy Easing of monetary conditions Domestic capital market also provided alternative financial opportunities The Central Bank sharply lowered the interest rate Monetary policy interest rate was lowered from 7,25% to 0,5% Transmission to bank interest rates worked well The Central Bank allowed the exchange rate to depreciate In summary: the most outstanding combination of aggressive stimulation package and sharp reduction of interest rates.
THE PERFORMANCE
Performance of Anti Crisis Policies The worsening of financial conditions measured as the maximum variation in country risk, was much less severe that in the case of most emerging economies The peak to bottom variation in GDP during the cycle was one of the smallest in the world The slump experienced in the local stock market was one of the smallest in the world The decline in GDP was less than expected given the degree of Chile s external exposure and the reduction of exports
Recent Performance of the Economy Economic activity is recovering in the 3rd quarter: + 5.5% The economy is showing signs of recovery, especially in the sectors that have been the focal point of fiscal policies Construction Consumption Chile is experiencing a turnaround in retail, supermarket and real estate sales Unemployment data are confirming a tendency towards recovery
PERSPECTIVES
A Favorable International Environment Containment of the international financial crisis Credit flows are close to its pre crisis levels and conditions Increasing levels of commodity prices S&P commodity index in the range of 500 Signs of improvement of the performance of the economies IMF forecast 3,1% growth in 2010 compared to 1,9 forecasted in August Positive forecast for Chile s major trading partners in 201o It seems more probable that the world will experience a V or a U shaped recovery instead of a W or L
Strong Reactivation of the Chilean Economy Inflation in 2009 has been o,6% The Central Bank has announced that interest rates will be kept at a low level for a prolomged period of time Real positive fiscal spending growth in 2010, in addition to the remaining effects of the 2009 period of time Expectations of economic agents are improving signifcantly
Strong Reactivation of the Chilean Economy 2007 2008 2009 (f) 2010 (f) GDP 4,7 3,2-2,0 ~ -1,5 4,5 ~ 5,5 Domestic Demand 7,8 7,4-6,2 6,7 Gross Fixed Capital For. 12,0 19,5-12,9 7,4 Total Consumption 7,1 4,2 0,0 2,5 Exports 7,6 3,1-4,7 4,9 Imports 14,9 12,9-13,8 9,0 Current Account (% GDP) 4,4-2,0 1,9 1,2 CPI 4,4 8,7 1,7 1,5 Source: Central Bank
Investment Projects 2009 2013 (US$Million) 2009 2010 2011 2012 2013 Total Mining 3.062 4.191 3.558 2.869 1.054 14.624 Forestry 86 131 148 42 54 461 Manufacturing 431 379 299 189 150 1.450 Energy 4.525 8.455 6.516 4.652 4.624 28.772 Ports 156 370 714 458 37 1.734 Real Estate 2.334 2.271 2.188 1.828 1.618 10.239 Public Works 799,5 1.654 2.014 1.330 405 6.203 Others 126 146 162 159 129 722 Total 11.520 17.597 15.499 11.527 8.062 64.205 Source: Corporation of Capital Goods
GRACIAS! 감사합니다!