Chile Economic Activity Beats Forecasts as Markets See New Interest Rate Cut

(Bloomberg) — Chile’s economy expanded at the fastest pace in six months in July as investors bet the central bank will resume its cycle of gradual interest rate cuts to further support growth.

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The Imacec index, a proxy for gross domestic product, rose 1% on the month, just above the 0.9% median forecast in a Bloomberg survey of analysts and the most since January. From the year earlier, activity gained 4.2%, above all economist estimates, the central bank reported Monday.

Policymakers are expected to lower borrowing costs by a quarter-point on Tuesday after having paused their easing cycle in their previous meeting. July’s activity increase comes as good news following a dismal second quarter, when gross domestic product contracted. Both the government and private-sector analysts still see the economy expanding over 2% in 2024.

The July reading “keeps alive the possibility of 2024 GDP growth between 2.5% and 3%,” Jorge Selaive, chief economist at Scotiabank Chile, wrote on the social media platform X.

Industry output jumped 4.4% on the month in July, driven in part by fishing, according to the central bank. Overall services gained 1.6% on the back of both personal and business services. Mining activity declined 2.5% during the period.

Borrowing costs have tumbled from an over two-decade high of 11.25% in 2023 to the current level of 5.75%, supporting consumption. On the other hand, business confidence remains below historical levels, high long-term rates are stifling real estate sales and inflation has also accelerated in recent months.

Retail sales, industry and manufacturing all posted year-on-year gains in July, the national statistics institute reported in a separate release last Friday.

In the second quarter, GDP contracted by 0.6% from the prior three months, marking its first such decline in a year. That downturn was driven by a 1% drop in mining.

This Wednesday, the central bank will publish its latest quarterly monetary policy report with updated estimates on growth and inflation.

–With assistance from Giovanna Serafim.

(Updates with economist comment in fourth paragraph, details from the release in the fifth)