At the end of 2022, Chile is continuing to battle with the aftermath of the pandemic and all of its ramifications. Reduced economic activity, high inflation, high interest rates, and increasing unemployment signal tough times ahead. Wages continue to decline in real terms, and the Chilean peso has had a rough ride for most of the year.

All these factors, coupled with a high level of political uncertainty, explain low levels of business and consumer confidence. Certainly the “feel good” factor produced by last year’s cash handouts and the subsequent spending boom has passed, and the hard road to recovery has started. Chileans are naturally conservative, and there seems to be a prevailing negative sentiment.

But from an external perspective, Chile is not doing so badly. Comparatively speaking, most of its neighbors and global trading partners have equal or worse economic and political situations. Inward investment has grown in renewable energy, transport, and mining areas. The demand for lithium has rocketed and driven record prices. The service sector remains strong. So not all bad news.

Key Points

• The Chilean economy is set to contract by more than 1.0% during 2023, after growing by almost 2.5% in 2022, as consumption and investment decline and global growth slows.

• After rising to its highest level since 1994, driven by high energy and food prices, inflation has begun to ease. The Consumer Price Index is expected to remain significantly above the Central Bank’s target range for most of the next year.

• In October, the Central Bank lifted interest rates to 11.25%, their highest level in three decades, but could begin to relax monetary policy from early next year as inflation falls.

• Unemployment is expected to climb over the coming quarters as investment falls. Discounted for inflation, real wages have continued to decline.

• Chile’s current account deficit grew to a record 9.9% of GDP in the third quarter, reflecting the fall in national savings (following the pandemic stimulus efforts) and a deficit in the trade balance.

• After slumping to record lows against the US dollar, the Chilean peso has begun to recover, reaching CLP 860/dollar by mid-December. Share prices have fallen in the face of the weaker outlook for the global economy.

• Exports have declined on lower copper prices and production. Copper is expected to average US$3.55/lb next year in line with weaker global growth.

• In November, President Gabriel Boric unveiled the government’s flagship pensions reform which it says will bolster current and future pensions through a new employer contribution and eliminate the AFPs.

• Congress approved Chile’s membership of the Trans-Pacific Partnership four years after it was signed. The government signed a new enhanced trade agreement with the European Union.

• In December, lawmakers agreed the process to draft Chile’s new constitution. The new text will be drafted by a new Constitutional Council of 50 elected members, advised by a commission of experts appointed by lawmakers, and put to a referendum in November 2023.