Coronavirus in Chile ECONOMY

How Covid-19 Will Hobble Chile’s Economy

As Covid-19 makes its way around the world, fear of the future is becoming an increasing topic of conversation, and not just in terms of infection. Individuals, companies, and entire industries worldwide are struggling to survive the economic ripple effects of lockdowns and the practical realities of navigating the pandemic; in many cases, businesses and employment are simply collapsing. With the highest unemployment rate in 10 years, Chile’s future is also uncertain.

With unemployment in Chile already at 8.3 percent, a 1 percent increase from the previous year, Chile is now in its largest lockdown in history. The coronavirus pandemic’s economic consequences have hit the Metropolitan Region the hardest with an 8.7 percent increase in unemployment over the last 12 months. Meanwhile, these numbers do not account for the loss of wages of independent workers, and María José Zaldívar, the Minister of Labor, cautions that these numbers are likely not truly representative since that statistic was only collected after only the first 15 days of the virus’s effects. Looking towards the future, economists theorize about the long-term effects and what to expect. 

The Near Future

At present, the Chilean government is focusing on damage control. With the lockdown in place, the economy has all but screeched to a halt. The sectors most affected have been commercial, education, transportation, and travel. In fact, economic activity fell almost 4 percent in March, and analysts, such as Banchile Investments, estimate these numbers to more than double.

Beyond businesses, protests have erupted  due to food shortages and homelessness after the government implemented its full quarantine.  The protestors are using the slogan “it is not against quarantine, it is against hunger.” Many people in Santiago do not work in formal businesses and therefore cannot provide for themselves or their families when they cannot leave their homes, a fact that they believe the government overlooked when declaring the citywide lockdown.

Governmental Solutions

Decisions to attempt to curb the sociological and economic impact of Covid-19 came almost immediately after doctors diagnosed the first few cases in March. One initiative unveiled to help small businesses was an investment of US$150 million into loan programs. The government also presented a similar program for medium-sized businesses that it hopes will also encourage the banking sector to continue to invest in these companies and thereby slow the negative economic effects.

Despite this, some policies have already reached the limits of their functionality. One was when the country tried to enact a strategy of giving out “immunity passports” to people who had recovered from Covid-19. This was a strategy to stimulate the Chilean economy. The World Health Organization was quick to criticize the endeavor, saying that it was not certain that catching the virus meant an immunity to future infection. When the government walked back this decision it did not cite these concerns.  Instead, the government stated that the decision to halt the policy was due to concerns over workplace discrimination. 

What Is to Come

As Latin America’s economies steadily decline, some organizations, such as Goldman Sachs, are theorizing that it could take at least two years for countries to recover their stability. However, Goldman Sachs does say that Chile has one of the better prospects for recovery within the region, and that Chile’s economy is expected to grow 3.5 percent next year.

This does not mean smooth sailing for the country, though. In fact, the Gross Domestic Product of Chile is predicted to fall by 2.7 percent in 2020, which is worse than what economists initially anticipated. In regard to the exchange rate, projections indicate that the Chilean peso will be 830 to the U.S. dollar and only recover to 800 in the next year. 

As the number of newly-confirmed cases of Covid-19 continues to break records with each passing day, Chile continues to try to mitigate the damage done both to the health of its people and to its economy. The government’s policies have received mixed reviews, but it is difficult to anticipate the true impact of this unprecedented pandemic.

Also read:

The LATAM Dilemma: Should Chile Nationalize the Carrier?

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