Chile Economy Shrinks as Mining Growth Prevents Deeper Pain

According to the central bank, mining in the world’s largest copper producer increased by 1.1% during the third quarter, while all other activities decreased by 0.5%. Chile’s mining output has fluctuated in recent months as the industry overhauls some of its aging mines in response to deteriorating ore quality.

“The level of real GDP is approximately 2% below its post-pandemic peak in Q4 2021,” wrote Capital Economics’ Chief Emerging Markets Economist, William Jackson. This vulnerability should allow the central bank to reduce interest rates further.

Central bankers led by Rosanna Costa reduced borrowing costs by 100 basis points on July 28 and signaled that further substantial cuts are forthcoming as the economy continues to weaken and inflation approaches the target level.

During the second quarter, the construction industry declined by 0.7%, while wholesale, retail, restaurants, and hotels declined by 3.4%.

Restaurants such as Peru Mil Delicias, which is located near the La Vega open-air food market in the heart of the capital city of Santiago, are suffering from diminishing demand.

“The circumstance is dreadful. Jennifer Polanco, a 36-year-old hostess, was standing outside attempting to attract customers when she remarked, “We used to be packed with people eating breakfast and lunch as early as 6 a.m.” Many restaurants have been forced to terminate waitstaff.

In the future, Chile will encounter headwinds from uneven global growth, including difficulties in China, its largest trading partner. These concerns have affected the prices of basic materials, including copper, the nation’s leading export.

The administration of President Gabriel Boric is working locally to attract more foreign direct investment. In a recent interview, the director of InvestChile, Karla Flores, stated that more than fifty companies from around the globe have expressed interest in participating in Chile’s new public-private lithium model.

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