Chile’s economic activity hits 6-month high in July

Chile’s economy outperformed expectations in July, posting its strongest growth in six months. This positive development has bolstered investor confidence that the central bank will continue its rate cut cycle to stimulate economic activity.

The Imacec index, a proxy for gross domestic product, rose 1 per cent on the month, just above the 0.9. From the year earlier, activity gained 4.2 per cent, the central bank data showed on Monday.

Several sectors contributed to the July growth, including industry, services, and retail sales. However, mining activity declined, indicating some challenges in that sector.

While falling interest rates have supported consumption, other factors like low business confidence and high long-term rates are impacting the economy.

Industry output jumped 4.4 per cent on the month in July, buoyed in part by fishing. Overall services increased 1.6 per cent backed by both personal and business services. Mining activity fell 2.5 per cent during the period.

Borrowing costs have plunged from an over two-decade high of 11.25 per cent in 2023 to the current level of 5.75 per cent, supporting consumption. However, business confidence is still below historical levels, high long-term rates are stifling real estate sales and inflation has also accelerated in recent months.

The central bank’s upcoming monetary policy report will provide valuable insights into future economic projections and potential rate adjustments.

Attribution: Bloomberg and The Central Bank of Chile