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The Chilean economy is frozen

The Chilean economy is frozen

Posted by Juan Gavasa on October 06, 2014

The Imacec index, a proxy for gross domestic product, rose 0.3 percent from a year earlier, the central bank said today. The median forecast of 16 economists surveyed by Bloomberg was for growth of 0.6 percent. Economic activity expanded 0.5 percent from the previous month.

Central bank President Rodrigo Vergara said last week that Chile´s easing cycle was coming to an end as inflation accelerates after seven interest rate cuts in a year. Changes in monetary policy, which have pushed the key interest rate down 1.75 percentage points to 3.25 percent, have been a suitable response to the slowdown, he said.

A gradual recovery starting in the fourth quarter and into 2015 will be driven by monetary policy, expansive fiscal policy, a better external scenario and the depreciation of the dollar, Vergara said.

GDP rose 1.9 percent in the second quarter from a year earlier, down from 2.4 percent in the first quarter and 4.1 percent last year. Manufacturing has contracted in ten of the past 12 months.

The central bank cut its growth forecast for 2014 for the fourth consecutive quarter on Sept. 3 to between 1.75 percent and 2.25 percent, compared with a previous estimate of 2.5 percent to 3.5 percent.

The government announced last week that it plans to raise spending 9.8 percent next year, the biggest increase since the 2009 recession, as it looks to bolster economic growth. The increase is over the expenditure budgeted for this year and will be led by a 27.5 percent jump in investment.

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