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Treasury raises GDP growth projection for this year and sees higher copper, but cuts that for 2026-2028

A positive scenario for the economy in the short term describes the government’s Public Finance Report for the first quarter. In this text, the Ministry of Finance and the Budget Directorate (Dipres) update the main macroeconomic and fiscal variables for the current year and for the medium term.

On the positive side, the 2024 GDP growth projection was raised from 2.5% to 2.7%placing itself above the latest estimate of the Central Bank’s Expectations Survey, which is 2.5% and at the top of the range that the issuing institute has, from 2% to 3%.

Before the Senate Finance Committee, Minister Mario Marcel explained that “this improvement is a reflection of the momentum accumulated since mid-2023 and a solid first quarter, hand in hand with the reduction in interest rates, a recovery in consumption and greater export dynamism. This growth could temporarily exceed the estimated trend growth, thanks to the space opened by the slack accumulated during stabilization.”

Likewise, Marcel maintained that “in 2023 the Chilean economy overcame the imbalances left by the social outbreak, the pandemic and the oversized policy responses. After the overheating of the economy in 2021 and the adjustment process in 2022, during 2023 activity stabilized, with the contribution of monetary policy and fiscal policy, to resume a growth path starting in the middle of the year.

Minister Marcel highlighted that Country risk and economic uncertainty indicators are at levels prior to the social outbreak, and even similar to 2018.

On the other hand, for domestic demand there was an adjustment, but downwards, increasing its forecast increase from 2.3% to 2%. The most relevant thing there was the correction in the advance of investment, which went from 1.2% in the previous report, now to 0%. In any case, it is above the forecast that the Central Bank has, which is -2%. Regarding consumption, the forecast was reduced from 3% to 2.8%.


In terms of average inflation for the year, the adjustment was also significant and upward, going from 3.1% to 3.8%. Regarding the dollar, the estimate was raised from US$868 to US$928.

Regarding investment, the Secretary of State argued that “to recover investment it is necessary to improve financial conditions, closing the restrictive phase of private banking credit, which manifested itself with special force in 2023.”

For Marcel, this will be possible “to the extent that the normalization of monetary policy continues and the risk perception of private banks is adjusted.” And he highlighted that “the lowering of the Central Bank’s Monetary Policy Rate is being translated into lower market rates for consumer and commercial loans.”

The report delves into the behavior that investment will have this year. The text mentions that investment will reverse the previous year’s decline driven by a less restrictive monetary policy, better financial conditions and greater public investment. “In the last two years, investment did not show the significant decline that was expected. Between the March 2023 and 2024 cadastres of the Capital Goods Corporation, the total amount of private investments for the period 2024-2027 increased by almost US$20,000 million, led by an investment in mining that since the approval of the royalty law It has more than tripled,” he points out.

In this scenario, it is indicated that, despite the improvement in such indicators and an upward revision of the level of gross fixed capital formation in the latest national accounts for the fourth quarter of 2023, “the last three quarters of that year showed a strong downward trajectory.”

However, the analysis adds that “the normalization of monetary policy, the best rates for credit, the reduction of macroeconomic risks and political uncertainty, will contribute in 2024 to investment reversing this trajectory, to end with zero growth in year. Furthermore, the rebalancing of public spending from current spending towards investment will generate direct and indirect impulses on total investment, especially in the construction sector.”

The price of copper rose 30% in the last year.

One of the main variables of the day was the price of copper. The successive increases that the red metal has had during this year led the Treasury to correct its forecast upwards. Between January and May 14, the average price is US$3.99 per pound and, for the same reason, the Executive’s projection rose from US$3.84 to US$4.2 per pound. “The upward adjustment in the price of copper expected for the coming years provides relief in the margin for fiscal figures,” said Marcel, adding that “the price of copper, whose evolution is important, is estimated to have a more persistent impact in the years following”.

As described in the report, the rise in copper “is explained by the decision of the main smelters in China to reduce production between 5% and 10% in 2024, together with a strong push by raw materials investors in metal exchanges, a demand that remains firm, supported by the recovery of the global industrial sector and a restrictive global supply.”

But although the positive was the increase in the GDP projection for this year and the better price of copper, the Treasury adjusted downward its economic growth projections for the medium term. Specifically for 2026, we went from expecting 2.4% to 2.2%; for 2027, from 2.3% to 2.1% and for 2028, from 2.2% to 2.1%.

In short, and considering the projection for 2024 and 2025, for the next five years the projection that the Treasury sees for GDP is 2.3%, compared to the 2.4% it previously had for said period. The projection that the Treasury now makes was aligned with what was forecast a few weeks ago in the Consensus Forecasts report.

Economists agree with the GDP growth projection provided by the Treasury for this year and that copper will be an essential factor that will drive this improvement, added to the external sector. Where there is no single vision, it is for the coming years.

“In general, the updated figures seem quite reasonable to me, in fact, our projection for current 2024 GDP growth is 2.7% and somewhat lower for the following years, 2%,” says Euroamerica economist Felipe Alarcon. The expert notes that “in general, the greatest growth is supported by exports, including copper, given the expected growth in domestic spending that is quite limited.”

Francisca Pérez, chief economist at Bci, points out that “the increase for this year is within possible revisions. Clearly better exports could improve the forecast. We have 2.6%, so we do not believe the revision to 2.7% is disproportionate.”

Regarding the decrease for the period 2026-2028, he states that “from our point of view, it now shows levels more in line with the long-term trend. We even see that by 2025 a growth of 2.5% is still very optimistic.”

Macarena García, LyD economist, also provides her vision. The first thing you maintain is that the upward correction of GDP “is marginal and will not substantially change the economic situation.” For García, what she is concerned about is that “the slowdown in GDP towards 2028 is more pronounced than in the previous report, which shows that our trend growth is very weakened. The authority mentions that in 2028 a trend GDP of 2.1% will be reached, which seems optimistic when compared to the Central Bank’s estimate of a trend GDP of approximately 1.5% for 2033. If the Central Bank’s projections are met , our economic stagnation will last at least another decade.”

Víctor Martínez, executive director of the Business and Society Research Center, mentions that “the current projections align with the GDP growth ranges that experts anticipate. It is estimated that long-term growth should stabilize around 2%. In this context, the Chilean economy is expected to approach this level during the period 2024-2028.”

“As there is greater dynamism, greater growth in economic activity for 2024, it follows that, for the following years, that is, 2025 onwards, they face higher comparison bases, because this year we will end at a higher level.” . Thus, the logical thing is that the growth figures for these coming years should be corrected downwards. Furthermore, it is a completely normal adjustment, given that there has not been a permanent change, let’s say, in the economy’s capacity for growth,” points out Rodrigo Montero, dean of the Faculty of Administration and Business of the Autonomous University.

December 19, 2023 The Minister of Finance, Mario Marcel and the Budget Director, Javiera Martinez, in a Senate committee looking at readjustment to the public sector. Photo: Dedvi Missene

Cristina Torres, former Budget Director and current academic at the Center for Public Policies of the Faculty of Economics and Government of the San Sebastián University, focuses on the upward adjustment of the price of copper: “The criterion that should prevail is to be conservative in the estimates. What is relevant in the case of an improvement in the price of copper is that, by methodology, it is only possible to consider within the expenditure that which is permanent, isolating it from the cycle.”

In any case, he says that “the effect of the price of copper on the expense margin will depend on the difference between the effective price and the long-term price, so a better price, per se, does not give a greater margin for spend more. Although it does reduce financing needs through debt or use of assets.”

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