Fynsa
During the week, I had the honor of being invited, along with colleagues far more distinguished than I am, to a meeting organized by the Director of the Budget Office, Javiera Martínez. On this occasion, together with the macroeconomic coordinators from Dipres and the Ministry of Finance, we had the opportunity to engage in a frank discussion regarding our outlooks on the Chilean and global economies, looking ahead to the remainder of the year, but especially to 2023 and 2024. Beyond technical questions raised regarding specific aspects of the budget, the general consensus among those present (well, virtually present) is that macroeconomic conditions will be extremely challenging in the coming months, particularly in terms of growth and inflation.
At its September meeting, the Federal Reserve raised the rate by 75 basis points, in line with market expectations. However, the most significant development was not this rate hike, but rather the harsher anti-inflationary rhetoric, consistent with the tone set at the Jackson Hole meeting. It was made quite clear that the battle against inflation must be waged now and must be relentless, as there is a risk that, if policy remains too accommodative, the costs to be borne in the future will be higher. Thus, the Council raised its projection for the rate at the end of 2022 by 100 basis points compared to the June estimate, by 80 basis points for 2023, and by 50 basis points for 2024. In any case, the wide divergence among council members is striking, especially regarding the level of rates two years from now.
Similarly, our Central Bank raised the TPM by 100 basis points at the beginning of the month, as we discussed at the time. However, with the minutes from that meeting in hand, we have more information about the future course the Central Bank may take. Thus, it seems to me that it is now appropriate to speak of a “pause” in the rate-hiking cycle rather than an end to it, especially given the inflationary risks looming over the economy. As the Federal Reserve notes, the future costs of failing to act decisively now will be much greater than those we would face today.
However, as we mentioned, fighting inflation isn't free (well, just like nothing in economy economy). Growth estimates for the world’s largest economy are falling dramatically this year to the point of near stagnation, and growth of just over 1% is expected for next year. In this part of the world, however, the outlook for 2023 has been most affected; the uncertainty here does not center on whether or not we will have a recession, but rather on how deep and persistent it will be. Our macroeconomic scenario incorporates GDP declines through at least the third quarter of next year, with the first of these occurring precisely in August’s Imacec.
Although the global context is adverse, that should not serve as a consolation for simply accepting a less favorable future in the years ahead. While the Central Bank is doing everything possible to reduce inflation, the public and private sectors must focus on productivity—the only way to generate wealth without undermining monetary policy. Therefore, improving production processes, fostering partnerships, facilitating trade with the rest of the world, and minimizing bureaucracy should be at the top of our list of priorities.
