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Commercial Department: Beyond Our Borders: Chile: February 2018

 

Beyond Our Borders: Chile

The Republic of Chile, stretching across South America’s western coast, is one of the fastest-growing countries in Latin America. A recent uptick in copper prices and an economy that is slowly gaining some traction suggest the nation may finally be headed in a positive direction.

Copper plays an outsize role in Chile’s economy. Taxes on copper production make up about a quarter of the federal government’s tax revenue. Past declines in copper prices have hammered Chile’s economy, increasing the federal deficit. Between 2011 and 2016, the country’s annual GDP growth fell from 6.1 percent to 1.6 percent.

Standard & Poor’s downgraded Chile’s sovereign debt in 2017 — the first time it has done so since the 1990s. In response, Chile’s government has adopted a countercyclical fiscal policy, increasing spending and reducing taxes to help stimulate economic growth.

Despite declining GDP growth, the country’s unemployment rate has remained relatively stable, hovering around 6.7 percent, due partly to rising self-employment. Poverty is trending downward, with the percentage of the population living in poverty decreasing from 26 percent to 7.9 percent between 2000 and 2015, according to the World Bank.

The state of Chile’s copper industry is improving. Copper prices rose about 24 percent in 2017 thanks to demand from China. Even so, Chilean officials have expressed caution, noting that prices are unlikely to bounce back to 2011 highs of $4 or more per pound anytime in the near future.

Chile’s central bank has stated that the rebound in the mining sector was balanced by a slowdown in construction. In early December 2017, the bank forecasted GDP growth of between 2.5 and 3.5 percent in 2018.

The office market in Santiago, Chile’s capital and largest city, improved in the first part of 2017, according to a report from Cushman & Wakefield. The report predicts an overall slowdown in office vacancy rates, although new inventory has made it more difficult to keep vacancy rates low.

Chile’s political landscape was in a state of suspense heading into the national election this past December, with conservative billionaire and former Chilean president Sebastian Piñera facing off against center-left Senator Alejandro Guillier. Both candidates pledged to eliminate a tax on Chilean copper miner Codelco — the largest copper miner in the world — to help it make needed upgrades and better compete on the world stage. When the votes were counted in the wake of the Dec. 15 election, Piñera had emerged as the victor, promising a major break in the political and economic trajectory of his liberal predecessor, Michelle Bachelet.


 

Steven Wyble is the former online content editor of Scotsman Guide Media. For questions about this article, call (800) 297-6061 or articles@scotsmanguide.com.

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