The year 2021 will likely be remembered as the year with the highest growth in our history. Well, at least since we’ve had data. The Central Bank, the Ministry of Finance, the IMF, the OECD, the market, and, of course, Fynsa, project that GDP will expand by no less than 12% in real terms in the year that is about to end. As if that weren’t enough, our country will be the fastest-growing country—read that carefully—in the world.

The reasons for this expansion are well known. First, increased liquidity among households and businesses has played a key role: withdrawals from pension funds, direct transfers from the government, financing programs for SMEs, etc. Additionally, the tremendous progress made in the vaccination process, which, according to The Economist makes our country the best-positioned to tackle the Omicron variant, has accelerated the lifting of restrictions on the population, increased the availability of services, and enabled the recovery of those sectors that had lagged behind. Last but not least, we must remember that we are comparing ourselves to 2020, a year in which we experienced a severe recession; therefore, the baseline is not particularly high, to say the least.

Thus, as we approach 2022, we must prepare for a return to reality. A return that, even if we don’t like it, will most likely be harsh and trigger an abrupt adjustment in our economy. As we learned this week in the Central Bank’s macroeconomic outlook update, the IPoM projections call for growth of between 1.5% and 2.5% for the coming year and only 0%–1% by 2023. Private consumption will no longer have the momentum provided by policies such as the universal IFE or withdrawals from pension funds, and public spending will enter a full-fledged process of fiscal consolidation following the significant efforts made over the past two years. Investment, meanwhile, in an environment of uncertainty, is expected to be very sluggish and supported only in part by some mining projects and the replacement of machinery and equipment—a decline that public investment will be unable to offset. External demand will be weaker than in 2021, although imports will also decline. 

Inflation will remain high, albeit on a downward trend, which would place the MPR in contractionary territory. Thus, neither monetary nor fiscal policy will be available to act as a countercyclical measure, showing us that, after the holidays, all bills must be paid and the hangover is directly proportional. But more importantly, this slowdown will allow us to see, once again, the reality of the country’s long-term growth potential. For various reasons, under governments of all political stripes, policies aimed at improving productivity have been absent from the discussion; instead, the focus has been on manipulating certain determinants for electoral and political gain. That is why we are projected to grow so little compared to our historical trend. However, we are facing a great opportunity: a new government could make productivity one of its primary objectives, since higher growth—especially long-term growth—is directly linked to improved well-being, increased tax revenue, more permanent social policies, reduced inequality, better pensions (regardless of the system), and so on. Likewise, if this is enshrined in the draft of the new constitution, it will ensure continuity in these improvements and reduce dependence on the political cycle. Continuing to think only in the short term will get us nowhere—only to more and worse hangovers.

Nathan Pincheira

Chief Economist at FYNSA