Friday, August 26, 2011

Chile Weathering Global Slump With 5% Growth in 2012 as Spending Increases

Chile, the world’s biggest copper producer, is poised to shrug off a global economic slowdown and generate growth of more than 5 percent next year, topping analysts’ estimates, Finance Minister Felipe Larrain said.

The government of President Sebastian Pinera aims to average 6 percent annual growth over its four-year term and is developing 2012 forecasts that point to an expansion of 5 percent or “somewhat” more, Larrain, 53, said yesterday at the Bloomberg Chile Economic Summit in Santiago. The government is establishing a financial stability council made up of central bank and government experts to better coordinate economic oversight as global risks mount, Larrain said.

Larrain reiterated the government’s projection for 2011 growth, which the ministry said would be 6.6 percent. The Andean nation’s economy is expanding at its fastest pace in more than a decade at a time when much of the world is struggling with a widening European debt crisis and slower global growth.

“Chile’s economy has enormous strengths,” he said. “However, Chile is an economy that is part of the global community and we confront a complicated external environment.”

The $200 billion copper-based economy will decelerate in the third and fourth quarters after growing 8.4 percent in the first half of 2011, the fastest pace since 1995, Larrain said.

Copper Nation

The world’s biggest copper-producing nation, Chile has increased fiscal savings to $18 billion, the highest level since 2009 and equivalent to about 9 percent of GDP.

The government, which will post an estimated fiscal surplus of 1.3 percent of GDP this year, has space to increase savings even more to create a buffer against global economic risks, the International Monetary Fund’s executive board said in a report today.

Copper prices, which have plunged 10 percent this month after more than tripling in value since 2009, are underpinned by “robust” demand, Thomas Keller, the chief financial officer of Chile’s state-owned copper company Codelco, said at the Bloomberg conference.

The central bank already is seeing signs of a slowdown in demand growth that helped lead the country’s recovery from the 2009 recession and February 2010 earthquake, bank President Jose De Gregorio said yesterday at the conference.

Policy makers last week kept the benchmark interest rate unchanged at 5.25 percent, noting in the statement accompanying the decision an economic slowdown in the U.S., lower commodity prices and heightened concern about financial risk in Europe.

Growth Outlook

The U.S. on Aug. 5 had its AAA credit rating downgraded for the first time by Standard & Poor’s, and the U.S. Federal Reserve on Aug. 9 pledged to keep rates at a record low through at least mid-2013 to revive a recovery that it said has been “considerably slower” than anticipated. Investor concern has also mounted over debt sustainability in Europe.

Chile will expand 4.5 percent next year, according to median forecast of eight economists in a Bloomberg survey. The IMF estimates GDP will climb 5 percent in 2012, according to today’s report.

The yield on the country’s dollar-denominated bonds due in 2020 fell to 3.15 percent today from 3.79 percent when they were sold in August of last year.

Morgan Stanley in an Aug. 22 report reduced its growth forecast for all Latin American countries except Chile, whose GDP will climb an estimated 4.4 percent. That would be the fastest growth among major Latin American countries behind Peru, according to the report.

The finance minister, a Harvard University-trained economist, has published 10 books, including “Macroeconomics in the Global Economy,” co-written by Columbia University economist Jeffrey Sachs.

“Chile is going to be a country where investors increasingly are going to be able to find opportunities and the security that our country brings,” Larrain said.

Source: http://www.bloomberg.com

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