70% of companies in Chile state they do not plan to invest next year – Central Bank

RIO DE JANEIRO, BRAZIL – The Business Perceptions Report (IPN) conducted by the Central Bank in the second half of October reflects a slowdown in investment in Chile. According to the report published on Thursday, 70% of more than 700 business leaders surveyed said they were not planning any investments for the next year in their business plans.

This implied a deterioration with respect to January when the majority (53.8%) were inclined to do so.

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According to the report carried out online, the main concerns are that the economic situation of the country and the economic situation is “very uncertain” (both with 56% of the mentions). This is followed by the fact that there is not enough demand to justify embarking on new projects (34%), in the opinion of business people.

On the other side of the coin, the small percentage that said they would invest said they would do so in increasing the capacity to produce sales goods (48.9%), in renovating or maintaining existing infrastructure (45.9%), and in developing new products (40.9%).

Regarding the performance of their businesses this year, the report states that “most companies report an improvement in sales, which is related to the impact on demand of the greater openness of the economy and liquidity measures to households”.

This seems to be a paradox since the outlook for 2022 has moderated due to an increase in uncertainty, which is explained precisely by the doubts about what will happen to demand once the liquidity measures for households come to an end.

In addition to the above, there is the “sustained increase” they perceive in their costs -i.e., in the value of inputs, merchandise, and salaries- linked to the supply of goods and services problems.

THE LEVEL OF POLITICAL DEBATE

The report adds interviews – conducted with some 70 managers between October 4 and November 3 – that show a “significant concern about the evolution of the political and legislative debate”. It is mentioned that the concerns are as much about the effects it may have on the economy as about the impact on their respective businesses.

Thus, investment plans were reduced compared to what was foreseen at the beginning of this year, where financial conditions are “tighter, especially to finance medium and long term projects”.

Among the economic variables that make business people nervous is how the supply problems, both international and domestic, will be normalized since the evolution of costs depends on it.

Regarding the political environment, what was most mentioned during the interviews, according to the IPN, is that large projects were postponed while waiting for greater legal certainty: “You can’t play on a soccer field if the rules are not clear,” stated a manager of the banking sector.

Other variables are the increase in construction costs, the lack of labor, and the lower availability of inputs.

WHAT 2021 HAS BEEN LIKE

All this impacted demand and even those sectors that were lagging. Most companies reported an improvement in their sales so far this year, linking mobility restrictions easing in combination with household liquidity—for example, in entertainment and restaurant services, they are already expressing activity close to what they had before the pandemic.

As a glimpse of improved efficiency, some companies say that even though the curfew was lifted, they did not extend their hours of operation to what they had two years ago. Some managers interviewed stated that sales “have been just as good with more limited hours, allowing cost savings”.

Some commented that they continue to favor flexible hours, the use of digital platforms, and teleworking.

THE LACK OF PEOPLE WILLING TO WORK LED COMPANIES TO INCREASE SALARIES

The difficulty of finding workers to fill vacancies has been a problem. Some companies explain that keeping limited schedules is a way to cope with this labor shortage. Specifically, the report reveals that it is more noticeable in lower-skilled jobs such as technicians, operators, and people working in logistics functions.

By activity, the difficulty is concentrated in agriculture, commerce, and, in general, in services, since they do not know well what will happen when their businesses – due to the usual seasonality – will need more workers.

This lack of people interested in working has led companies to compete for employees by offering higher salaries. This is because, in addition, they recognize that “it is proving difficult to rehire workers dismissed during the pandemic”. One of the factors here is that some have embarked on personal ventures.

But it is not all about increases in liquid salaries: some firms have improved their conditions with performance bonuses or other benefits.

HOW THE PERFORMANCE OF COMPANIES INFLUENCES INFLATION

Variations in the costs that companies have to produce will impact inflation to the extent that they are passed on to their final sales prices, which is what the consumer ultimately pays.

Therefore, the increase in labor costs, the problems in the supply of inputs added to the rise in the value of fuels, the depreciation of the peso, and the fact that freight rates are more expensive, leads most of the companies to estimate that “they will have to continue increasing the sales prices of their products.” This, according to the report, takes place in a scenario in which “they have not yet been able to complete the pass-through of their higher costs.”

According to the survey, more than 90% of the companies estimate that they will maintain or raise their prices in the next three months. Also, two-thirds say that this price change will not correspond to the usual movements for that time of the year. And they recognize that “regardless of the adjustment they have already made to their prices, cost pressures, coupled with buoyant demand, provide room for further price increases.”

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