IMF report shows Chile can’t escape global economic turmoil

The IMF ’s World Economic Outlook paints a grim picture. Russia’s invasion of Ukraine and the pandemic aftermath are complicating matters especially for countries like Chile. Yet, some positive developments are on the horizon too.

In the IMF’s latest World Economic Outlook report, Russia’s invasion of Ukraine takes a key role. The war causes trouble for countries like Chile that depend on hydrocarbons imports and pushes up prices for raw materials, which puts pressure especially on low-income households.

Chile’s dependence on Chinese imports is another risk factor. “Frequent and wide-ranging lockdowns in China, including in key manufacturing hubs,” could cause new bottlenecks in global supply chains, according to the report.

More positively, Chile’s unemployment rate stood at 8.9 percent, making it one of South America’s lowest. It is predicted to fall to 6.9 percent by 2023 amid the post-pandemic recovery. The government is also planning to align the minimum wage with inflation.

Consumer prices are set to increase this year on the back of economic stimulus programs, but they should stabilize by 2023, the report said. Public spending will increase under the recently announced US$1.34 billion Chile Apoya recovery plan. Funds will go directly to families, President Gabriel Boric said when he presented the plan.

Growth will remain low, at 1.5 percent this year and 0.5 percent the next. Last year’s growth was 11.7 percent compared to pandemic year 2020, when economic activity practically ground to a halt amid national quarantines. Increased public and private spending also helped growth last year.

In a statement, the Central Bank said “the economy will expand at rates below its potential in 2022 and 2023, with contractions in private consumption and investment.”

Global Outlook

Chile is highly dependent on foreign trade, which exposes its citizens to economic developments that are hard to handle domestically. 

The IMF projects global growth of 3.6 percent in 2022 and 2023, between 0.8 and 0.2 percentage points lower than in its January forecast, as inflation will remain high too.

The war in Ukraine “is likely to have a protracted impact on commodity prices, affecting oil and gas prices more severely in 2022 and food prices well into 2023.” Hence, countries should refrain from trying to reduce inflation and focus on cushioning measures, the report said.


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