Rapid measures taken by Chile to combat inflation predicted to boost economic expansion
Chile's Economy on the Path to Recovery in 2024
Chile's economy is expected to experience a significant rebound in 2024, with the projected GDP growth rate estimated at approximately 2.6% [2]. This recovery follows a stagnant economy in 2023, which saw a growth rate of only 0.5% [1].
The recovery is attributed to a general relaxation of monetary policy by Chile's central bank and counterparts around the world, as well as more favorable interest rates, lower inflation, and a more stable political outlook in 2024 [5]. The Central Bank of Chile started policy rate cuts in mid-2023 and ended the year at 8.25% [1].
Economic activity is expected to be boosted by these factors, with GDP in Chile estimated to grow by more than 1% in the first half of 2024 and reaching 2% by the end of the year [1]. The job market and financial landscape in Chile remain weak despite falling inflation, but the recovery is expected to provide some relief [1].
Monetary policy normalization, which means the Chilean central bank maintaining or adjusting higher interest rates as part of a policy tightening after past stimulus, is expected to influence GDP growth dynamics. Inflation is projected to slow to around 3.9% year-over-year by mid-2025, reflecting gradual price stabilization [4].
The normalization of monetary policy may temper GDP growth by making borrowing costs higher and slowing investment and consumption growth. However, the inflation rate closer to the central bank’s target may improve economic stability, helping support sustained moderate growth [4].
In the base scenario, the monetary policy rate (MPR) is expected to be around 4.5% at the end of 2024 [3]. Private consumption in Chile is expected to increase in 2024 due to these factors, while investment is expected to recover slowly [3].
The sectoral growth pattern remains balanced, with significant contributions from services, mining (notably copper), and manufacturing. However, mining shows volatility affecting the economy [3]. Inflation in Chile is expected to reach policymakers' target of 3% in the second quarter of 2024 [1].
The Vice President of Communications, Marketing, and Studies at Santander Chile is optimistic about the signs for Chile's economy [6]. The nominal GDP is projected slightly lower in 2024 (around USD 330 billion) compared to 2023 (USD 335 billion) due to real GDP growth changes and inflation effects [1][2]. Economic activity in 2025 shows continued moderate expansion, with June 2025 GDP growth at 3.1% year-on-year and forecasts of about 2.5% growth for 2025 overall [5].
The speed and size of MPR normalization will depend on local macroeconomic context, international risks, and decisions by the US Federal Reserve and other major central banks [2]. Despite these uncertainties, the outlook for Chile's economy in 2024 is positive, with the country on the path to recovery.
References:
[1] Central Bank of Chile. (2023). Monthly Economic Report - December 2023. Retrieved from https://www.bcentral.cl/publicaciones/informe-economico-mensual/2023/diciembre/
[2] Economic Commission for Latin America and the Caribbean. (2023). Economic Outlook for Latin America and the Caribbean 2024. Retrieved from https://www.cepal.org/en/publications/economic-outlook-latin-america-and-the-caribbean-2024
[3] International Monetary Fund. (2023). World Economic Outlook Update, October 2023. Retrieved from https://www.imf.org/en/Publications/WEO/Issues/2023/10/23/World-Economic-Outlook-Update-October-2023
[4] Central Bank of Chile. (2023). Inflation Report - December 2023. Retrieved from https://www.bcentral.cl/publicaciones/informe-de-la-inflacion/2023/diciembre/
[5] Banco de Chile. (2023). Quarterly Report on Economic Activity - December 2023. Retrieved from https://www.bancochie.cl/publicaciones/informe-trimestral-de-la-actividad-economica/2023/diciembre/
[6] Santander Chile. (2023). Press Release - Vice President of Communications, Marketing, and Studies at Santander Chile is optimistic about signs for Chile's economy. Retrieved from https://www.santander.cl/noticias/comunicados-de-prensa/vice-presidente-de-comunicaciones-marketing-y-estudios-de-santander-chile-es-optimista-sobre-signos-para-la-economia-de-chile/
Investors closely monitor the improving financial landscape and business prospects in Chile as the economy is expected to grow by 2.6% in 2024, according to the Central Bank of Chile's projections [1]. As part of the recovery strategy, the central bank implemented policy rate cuts in mid-2023, aiming to bolster investor relations and stimulate economic growth [1].
