Chile

Rebalancing

Strengths & weaknesses

Economic overview

Economic growth set to recover

After a period of stagnation in 2023, Chile's economy is set for a modest recovery, with projected growth rates of +1.6% in 2024 and +2.5% in 2025.

Fiscal policy is planned to be moderately expansionary, with public debt remaining under control (around 40% over the forecast period, lower than the EMEs average of 60%). The focus on medium-term mineral demand will boost revenues, supported by new mining royalties, ensuring that deficits remain manageable.

Moderate fiscal deficit; current account rebalancing

Chile's fiscal deficit is projected to improve significantly, falling from 3.2% of GDP in 2023 to 2.4% in 2024. The improvement continues, with a further decline to 1.3% expected by 2028. This positive trend is attributed to higher income and sales tax revenues, boosted by the economic recovery and higher tax revenues from copper and lithium production. However, higher social spending and public works projects will partly offset these gains.

The current account deficit is also projected to improve, falling from 9.0% of GDP in 2022 to 3.7% in 2023, before rising slightly to 4.3% in 2024. This change is mainly due to fluctuations in the trade balance, influenced by volatile copper prices and import dynamics. Despite Chile's relatively large current account deficit, the risk of a balance of payments crisis is low. This reflects a large trade surplus driven by strong mineral exports, especially lithium. The services deficit will also narrow as inbound tourism recovers and logistics costs continue to ease. Robust FDI inflows, especially in renewable energy and mining, will be more than sufficient to cover the current account deficit throughout the forecast period. Chile's foreign reserves are adequate and the country maintains a stable financial position, supported by robust international reserves and access to a substantial IMF flexible credit line (6.2% of GDP).

Relatively good business environment; challenging political landscape

Chile's business environment compares favorably with its peers. Chile ranks 59^th in the World Bank's Doing Business 2020 survey, with high scores for protecting minority investors, enforcing contracts, resolving insolvency, starting a business and dealing with construction permits. According to the Fraser Institute, Chile also ranks first in economic freedom (30th out of 165 countries) compared to other large economies such as Brazil (90) and Mexico (68).

The political landscape in Chile in 2024 is complex. Following the rejection of constitutional reform, President Gabriel Boric's government is focusing on key reforms in the areas of taxes, pensions and state-owned lithium. Opposition from right-wing parties, fueled by the government's low approval ratings, poses a challenge. Reform efforts are crucial, but compromises are expected due to political dynamics, including the upcoming regional and local elections on 27 October, which could further polarize the political environment and affect governability. The outcome of these reforms and elections will have a significant impact on Chile's political and economic trajectory.