By Dr Peter J. West - Economic Advisor
Chile´s Covid-19 inoculation programme has been exemplary, not just in Latin American but also in global terms.
The proportion of the population that has been administered at least one dose of vaccine exceeds all other countries in the region by a wide margin. It is also greater than in all other emerging markets apart from Israel and the UAE, and compares favourably with most developed countries.
However, so far the number of new coronavirus cases has kept on trending upwards, and this has obliged the authorities to tighten restrictions on social mobility again. As of 25 March, 69% of the population will be subject to total lockdown (Paso 1, Cuarentena) versus 33% at the moment. And a further 25% will be under partial lockdown (Paso 2, Transición), meaning that just 6% will face light restrictions (Paso 3, Preparación and Paso 4, Apertura Inicial).
Although businesses are now better adapted to the restrictions, the stricter measures are bound to have some negative impact on economic activity in the short term.
That said, the Chilean economy is still well placed for a comparatively strong recovery, particularly in the second half.
The rapid rollout of the vaccination programme means that the setback should be temporary, and should allow a permanent relaxation of restrictions to happen sooner than elsewhere.
At the same time, the government has just announced an additional fiscal boost equivalent to 2% of GDP, in the shape of a 50% increase in the so-called Covid Fund from USD12bn to USD18bn. The extra spending is aimed at strengthening and extending the social safety net. It will be financed in part by the windfall from higher copper export prices, and in part by withdrawals from the Economic and Social Stabilisation Fund (FEES).
In addition, given that inflation is well under control, monetary policy is set to remain highly expansionary for some time to come – with the policy rate held at the technical minimum of 0.5% until well into 2022 and then only raised gradually.
Political uncertainty constitutes the main downside risk, in light of the constitutional convention elections next month and the general elections in November. However, barring anything on the scale of the social uprising in late-2019, GDP growth in the 6-7% range this year looks eminently achievable after a 5.8% contraction in 2020.