Fynsa
It's natural for us to associate red numbers with bad news, since they generally indicate losses, declines, or a worsening situation. However, there are certain situations in which a red number isn't necessarily negative.
The change in economic activity in December is proof of this. Under normal circumstances, a 1.0% decline compared to the same period the previous year would be met with pessimism, but this time, the change came as a pleasant surprise to private analysts and even the government. This was because, for several months, projections had indicated that December’s Imacec would fall by around 3.0% year-over-year, in line with the slowdown in both the aggregate indicator and each of its components. However, this did not happen. Not only did the aggregate figure not decline as expected in the year-over-year comparison, but activity actually grew marginally when compared on a seasonally adjusted basis. Similarly, services, commerce, and manufacturing activity all increased.
Pending confirmation of these figures when the 2022 national accounts are released on March 20, GDP is estimated to have grown 2.7% during the period—more than the market, the Central Bank, and even the Ministry of Finance itself had expected. But that’s history. Important and interesting, yes, but the questions now focus on what 2023’s performance might look like—which is predicted to be considerably less dynamic. HToday, most projections range between -3% and -1%, with even the International Monetary Fund noting that Chile would be the only economy in the region to show a decline. Again, we need to be careful about how we interpret these comments.
Given the scenario described in the latest IPoM, Chile’s GDP is expected to decline by between -1.75% and -0.75% in 2023. I don’t think we can say that the authors of this document are alarmists. However, it’s worth remembering why the economy is currently experiencing this slowdown. Economic aid provided during the pandemic, withdrawals from pension funds, and the global inflationary environment caused significant macroeconomic imbalances, which, if left uncorrected, could have very negative repercussions on families’ well-being. In this context, both fiscal and monetary policy implemented measures aimed at resolving these imbalances, which resulted in a significant adjustment in spending during the year that just ended, along with a TPM that reached its highest levels since the subprime crisis.
Both measures have been effective, but there is still a long way to go. This means that the adjustment will continue, and a reduction in domestic demand is necessary to bring inflation down and reduce the current account deficit to more sustainable levels. Consequently, this will trigger a negative cycle that will lead the country into a recession—not one like the one we saw during the pandemic, but a much milder one. Once again, a development that we might normally view as negative is necessary to restore macroeconomic stability so that we can then focus on longer-term issues, such as our ability to grow in a sustainable and more productive manner.
