Chile is facing complex times: inflation, uncertainty, economic slowdown, a labor market still in need... To analyze the current situation, FYNSA organized the webinar "Let's talk about Chile", in which its chief economist, Nathan Pincheira, talked about the outlook for the Chilean economy in this context.

"Different factors are coming together today so that we will not have a good year. Not only 2022 but also 2023," he said. "While on the margin there was a surprise with the Imacec, we already have signs of a technical recession on the way." 

For Nathan, we are on the way to return to the growth levels that the Chilean economy had before the social outbreak, that is, 1% or 2% per year. "It is hard to see which sectors would perform well. Services is most likely to maintain or help compensate for the fall of the other sectors, while the slowdown in the commerce sector could have an important effect given its weight. Mining, meanwhile, is not likely to add this year, because investments are at a standstill."

There is little room for maneuver for the government in this situation, given that the budget is already closed. "But in any case it is important to have stressed the will to do everything from a responsible point of view, maintaining fiscal responsibility," he said.

"Beyond the issue of resources, the government should provide certainty on issues such as tax reform or pension reform."

The global context, moreover, plays against us. "We will hardly have external stimuli and the war does not help. We are going to have several difficulties there, in addition to other long-term issues, such as the risk of the world splitting into two blocs again."This would put an end to globalization as we know it, which has been very favorable for small and open economies, and brought many benefits for Chile.

Regarding employment, the return to normality after the pandemic is not so easy: "Companies have reinvented themselves, changed the way they do things, automated themselves. Consumers' needs have changed. What is the need to have physical salespeople in the store versus the need to strengthen their logistics chain? This brings challenges for everyone. Those who are left out have to reinvent themselves, which is not easy. There is still a lot of employment to be recovered. Around 400,000 jobs to recover the employment-to-population ratio, which should be 58%, and today we are at 53%. And we must not forget that the best way to combat inequality is to generate employment".

Although inflation is a global phenomenon, there are elements of local inflation that are not necessarily the same as global inflation. Today we have an inflation rate of 9.4%. There is an important component of food and energy prices, but also of services and goods. "Inflationary pressures are present in all sectors. Some 70% of the products in the basket rose in price, with record levels in January, February and March. This indicates that we have a generalized inflationary situation, 80% of which is explained by local factors".

This explains why the Central Bank has raised the rate by 650 basis points. The rate is already at 7%, a contractionary level after years of expansionary rates (since 2014). The Central Bank is possibly already finishing its homework. We will see further rate hikes, but by the end of the year it could stabilize or see a small decline. 

What about the exchange rate? "In FYNSA we work with an exchange rate of 800 pesos per dollar. It is low for the levels we have today, but if we did not have the armed conflict, possibly the exchange rate would be lower. "If this situation persists or worsens, the exchange rate of 800 pesos per dollar will be too low, but if there is a solution, it could be higher.

Finally, how does the Constituent Convention impact the economy? "We have seen a very relevant lack of listening to expert opinion or reviewing international experiences," Nathan said. "We are going to continue with uncertainty. We have slowed down investment and consumption decisions, which are going to cause us to grow very little". 

You can watch the webinar at the following link.