Chile flag Chile: Economic and Political Overview

The economic context of Chile

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Chile is traditionally considered as a model in Latin America in terms of political and financial transparency. It has also been one of the fastest growing economies in Latin America over the last decade, enabling the country to significantly reduce poverty. However, the World Bank estimates that the impacts of the COVID-19 crisis could reverse years of growth in Chile’s middle-class, reducing its size by nearly two million individuals and pushing new middle-class households back into poverty. Still, in 2021, the country had an estimated growth in GDP of 11%, mainly driven by inventory replenishment, increased household consumption, and economic measures to support income. In the coming years, the Chilean economy should continue to grow, albeit at a slower pace, as well as continue to benefit from strong copper international prices and ongoing fiscal stimuli. According to IMF forecasts, GDP growth is expected to reach 2.5% in 2022 and stabilise at 1.9% in 2023.

General government balance closed at -10.7% of GDP in 2021 following a large fiscal response to the COVID-19 pandemic. However, Chile's current budget proposal targets a significant deficit reduction over the next couple of years, with general government balance projected to decrease to -4% in 2022 and -2.9% in 2023. The government's gross debt was estimated at 34.4% of GDP in 2021 and is likely to rise to 37.3% in 2022 and 39.7% in 2023. However, the government aims to stabilise debt over the medium term. According to IMF estimates, inflation reached 4.2% in 2021 and is expected to remain stable to 4.4% in 2022 and decrease to 3.1% in 2023. Inflation should improve through fiscal austerity measures announced by the Treasury Department, particularly due to 1.6% of GDP in spending cuts over the next four years. In 2021, the fiscal stimulus package that was put in place to mitigate the impacts of the pandemic, as well as pension withdrawals and the country's high vaccination rates, fuelled domestic demand and pushed Chile to a gradient recovery from the COVID-19 crisis. Despite recent efforts to diversify its economy, Chile remains vulnerable to international copper prices, international demand (particularly from China), climate and earthquake risks, inadequate R&D, vulnerable road network and energy grid, high energy prices and a poor educational system (Coface). The long-term outlook for copper prices, therefore, has far-reaching ripple effects for employment, wages, government revenue, and national income in Chile, so the major issue to be tackled by the government in order to revive economic growth is to reinforce commercial cooperation with new trade partners, particularly in Asia.

Chile's relatively high unemployment rate slightly decreased to 9.1% in 2021, influenced mainly by the construction, commerce, and transport sectors, which started to bounce back as vaccination rates rose and people's mobility increased. Moreover, the IMF expects the unemployment rate to continue decreasing in 2022 and 2023, reaching 7.4% and 6.8%, respectively. The country has the highest GDP per capita in the region (USD 14,772; Coface), but also high levels of inequality and informality (OECD). Factors in wealth disparity include the current tax system that handicaps mostly lower and middle-income classes. Chile has notably invested heavily in renewable energy, which is expected to account for up to 20% of its energy generation by 2025.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 279.34252.82331.25352.66374.23
GDP (Constant Prices, Annual % Change) 1.0-5.8e11.02.51.9
GDP per Capita (USD) 14,620e12,99316,79917,70218,607
General Government Balance (in % of GDP) -1.7-2.5-10.7-4.0-2.9
General Government Gross Debt (in % of GDP) 28.232.534.437.339.7
Inflation Rate (%) 2.33.0e4.24.43.1
Unemployment Rate (% of the Labour Force) 7.210.89.17.46.8
Current Account (billions USD) -10.383.46-8.32-7.61-7.81
Current Account (in % of GDP) -3.71.4-2.5-2.2-2.1

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

Main Sectors of Industry

Chile is among the most industrialised countries in Latin American and some of its key industries include mining (copper, coal and nitrate), manufactured products (food processing, chemicals, wood) and agriculture (fishing, viticulture and fruit). The industrial sector in Chile contributes 31.4% of GDP and employs 22.2% of the working population. The mining sector is one of the pillars of the Chilean economy, mainly due to large amounts of copper reserves, which make Chile the world's largest copper producer, responsible for over 1/3 of the global copper output. The production of goods significantly grew in 2021, mainly due to the performance of the manufacturing industry.

According to the latest data from the World Bank, the agricultural sector contributed 3.8% of GDP in 2020 and employed 8.9% of the active population in 2019. Agriculture and livestock farming are the main activities in central and southern parts of the country. Fruit and vegetable exports have reached historic records due to a deliberate strategy implemented in the 1990s targeting the European, North American and Asian markets. Chile is one of the biggest wine producers in the world and its location in the Southern Hemisphere allows the country to offer out-of-season fruits to countries of the Northern Hemisphere. In 2021, however, draughts in the north of the country - a region with key agricultural areas - negatively impacted the agricultural sector.

The services sector contributes 56.4% of GDP and employs around 68.7% of the population. The Chilean economy faces three main challenges: overcoming its traditional dependence on the price of copper, as copper production represents 50% of the country's exports; developing a self-sufficient food supply, as agriculture currently produces less than half of domestic needs; and increasing its productivity, especially in the mining sector. The sector has been consistently growing in recent decades, reinforced by the rapid development of communication and information technology, access to education and an increase in specialist skills and knowledge among the workforce. Among the highest growing sectors in recent years are tourism, retail and telecommunications. Although the restrictions put in place to contain the pandemic have had a strong impact on services, the sector registered an overall growth in 2021, as vaccination rates rose and people's mobility increased. The sector's recovery was mainly driven by education, health, commerce, restaurants, hotels, and transport.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 9.0 22.3 68.8
Value Added (in % of GDP) 3.9 31.4 56.5
Value Added (Annual % Change) -2.6 -3.7 -6.9

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
75,2/100
World Rank:
19
Regional Rank:
2

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
7.65/10
World Rank:
19/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

See the country risk analysis provided by Coface.
 

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Latest Update: June 2022

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