{
  "title": "New Realities Shaping Chile's Outlook",
  "publication": "IMF News, December 9, 2016",
  "sourceUrl": "https://www.imf.org/en/news/articles/2016/12/08/na120816new-realities-shaping-chiles-outlook",
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  "summary": "Publication: By Patrick Blagrave, IMF Research Department, December 9, 2016",
  "authors": [
    "Patrick Blagrave IMF Research Department December"
  ],
  "publishDate": "2016-12-09",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Publication: By Patrick Blagrave, IMF Research Department, December 9, 2016\n- Main finding: Potential growth in Chile has slowed.\n- Recent GDP performance:\n  - Chile’s GDP growth has averaged just 2 percent since 2014.\n  - Previous years’ rates were about 4 percent.\n  - By comparison, the average growth rate of Latin America’s six largest economies has been just 0.3 since 2014.\n- Causes of slowdown:\n  - Less dynamic external environment and reduced export demand.\n  - Permanently lower copper prices.\n- Supporting strengths:\n  - Flexible exchange rate.\n  - Credible inflation-targeting.\n  - Disciplined approach to fiscal policy.\n  - Recently enacted structural reforms.\n- IMF judgment: An important portion of the recent slowdown is due to weak potential growth and will be hard to reverse; policy should support short-term growth while building on structural reforms to boost medium-term potential."
    },
    {
      "heading": "Risks at home and abroad",
      "content": "- External vulnerabilities:\n  - Chief external risk: any unexpected slowdown in China, which could lower copper prices and demand for other exports.\n  - Other external risks: weaker growth in the region; faster-than-anticipated increase in interest rates in the United States.\n  - Upside scenario: a fiscal expansion in advanced economies could raise external demand, boosting exports and copper prices and improving Chile’s terms of trade.\n- Domestic vulnerabilities:\n  - Consumer and business confidence is depressed, near levels not seen since the global financial crisis.\n  - Confidence could improve with passage of parts of the reform agenda but could be dampened by:\n    - Legal ambiguities in the new labor bill.\n    - Difficulty implementing the new corporate tax code.\n- Financial spillovers:\n  - High debt levels among nonfinancial corporations and strong sector-specific balance sheet interlinkages could amplify shocks.\n  - IMF estimate: a 100 basis point increase in Chile’s Emerging Market Bond Index spread—associated with a tightening of domestic credit provision—could reduce GDP growth by about 0.3 percentage points within the first year."
    },
    {
      "heading": "Policies to support the recovery — IMF recommendations",
      "content": "- Short-term demand support:\n  - Monetary policy should remain supportive, easing further if disinflation pressures become broader.\n  - Fiscal consolidation is appropriate to maintain credibility, but this can proceed slowly.\n- Increase potential growth:\n  - Fast-track creation of a new Infrastructure Fund geared to attract private capital.\n  - Enhance workers’ skills further through more targeted professional and vocational training.\n  - Continue efforts to help small and medium-sized enterprises to grow and increase productivity.\n- Enhance the regulatory framework:\n  - Prioritize adoption of key Basel III regulations.\n  - Implement risk-based supervision for Chile’s insurance sector.\n- Pension reforms to reduce life-time income inequality:\n  - Gradually increase contribution rates to 15 percent.\n  - Increase female retirement age to 65.\n  - Increase both pension and solidarity pillars for current retirees.\n  - Fund a portion of increased benefits with indirect taxes.\n\nSource: New Realities Shaping Chile's Outlook — IMF, December 9, 2016.\n\n---\n\n Content in this bundle\n\n- Country Report (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- https://www.imf.org/en/News/country-focus\n- PRESS CENTER\n- IMF Country Focus\n- Read the press release\n- Latest outlook for Latin America\n- Estimating potential output in Chile\n- Chile and the IMF\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2016/12/08/na120816new-realities-shaping-chiles-outlook"
    }
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    "[Markdown version](/en/news/articles/2016/12/08/na120816new-realities-shaping-chiles-outlook/index.md)",
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    "Authors: Patrick Blagrave IMF Research Department December",
    "Published: December 9, 2016",
    "Publication: By Patrick Blagrave, IMF Research Department, December 9, 2016",
    "Main finding: Potential growth in Chile has slowed.",
    "Recent GDP performance:",
    "Causes of slowdown:",
    "Supporting strengths:",
    "IMF judgment: An important portion of the recent slowdown is due to weak potential growth and will be hard to reverse; policy should support short-term growth while building on structural reforms to boost medium-term potential.",
    "External vulnerabilities:",
    "Domestic vulnerabilities:",
    "Financial spillovers:",
    "Short-term demand support:",
    "Increase potential growth:",
    "Enhance the regulatory framework:",
    "Pension reforms to reduce life-time income inequality:",
    "[Country Report (PDF)](/external/pubs/ft/scr/2016/cr16376.pdf){rel=\"external\" type=\"application/pdf\"}",
    "[https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[IMF Country Focus](https://www.imf.org/en/news/country-focus)",
    "[Read the press release](http://www.imf.org/en/News/Articles/2016/12/09/PR16548-Chile-IMF-Executive-Board-Concludes-2016-Article-IV-Consultation)",
    "[Latest outlook for Latin America](http://www.imf.org/external/pubs/ft/reo/2016/whd/eng/wreo1016.htm)",
    "[Estimating potential output in Chile](http://www.imf.org/external/pubs/cat/longres.aspx?sk=44335.0)",
    "[Chile and the IMF](http://www.imf.org/external/country/chl/index.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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