Chile’s economy continued to contract for a third consecutive month in May, indicating a faltering rebound from last year’s stagnation. The Imacec index, which serves as a proxy for gross domestic product, decreased by 0.4% in May compared to April, and rose by 1.1% from the previous year, falling short of analysts’ expectations.
Economic activity excluding mining declined by 0.5% on a monthly basis and only increased by 0.2% from the previous year in May. Manufacturing and commerce sectors experienced the largest declines, with manufacturing down by 2.3% and commerce down by 0.4%. Despite some positive indicators such as increased copper output, industrial production and retail sales fell short of expectations in May. Manufacturing unexpectedly shrank, even as the jobless rate surprisingly decreased.
In response to the economic slowdown, policymakers in Chile have implemented interest-rate cuts totaling 550 basis points over the past year. This initially fueled a strong rebound in economic growth in the first few months of 2024, but momentum has since slowed. Additionally, rising electricity prices have put further strain on the economy, prompting the central bank to adopt a less dovish approach.
The central bank recently lowered borrowing costs by a quarter-point to 5.75%, marking the smallest cut since the easing cycle began in July of last year. Inflation is now expected to remain above the target of 3% until the first half of 2026, later than originally anticipated based on the bank’s quarterly monetary policy report