IMF estimates 11% growth for Chile this year but 2.5% in 2022

RIO DE JANEIRO, BRAZIL – In its semi-annual World Economic Outlook (WEO), the International Monetary Fund (IMF) estimated for Chile a growth of 11% in 2021 and 2.5% in 2022, supported by copper prices and the success of its COVID-19 inoculation program that has allowed it to reactivate its economy.

With this figure, which is a substantial improvement on the 6.5% estimated in April, Chile will lead regional growth this year. Still, expectations for next year decline given external effects, such as demand from China, the semi-annual report notes.

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The report adds that Latin American countries will grow more than expected this year, mainly due to the rapid rise in commodity prices that underpin their exports and the recovery, albeit uneven, from the COVID-19 pandemic progresses.

At a global level, the Fund cut its growth projection to 5.9% in 2021 and expects an expansion of 4.9% in 2022 due to the lower momentum of large economies with difficulties in their supply chains and high inflation. However, the outlook for prices remains anchored with a view to improvements in the medium term.

In its report, the agency raised the economic growth estimate for the region as a whole to 6.3%, an increase of 0.5 percentage points with respect to the anticipated projection issued in July and 1.7 percentage points above the estimates in its last official report in April.

The Latin American scenario comes despite a downward adjustment for the economic engines of Mexico and Brazil, both with 0.1 percentage point cuts in their estimates for this year relative to April’s figures. The IMF forecasts that Brazil will expand by 5.2% in 2021 and 1.5% in 2022, amid a rapid cycle of tightening monetary conditions to control inflation.

The report said that Mexico, which tends to essentially mirror the shocks of its leading trading partner, the United States, will expand by 6.2% this year and 4% next year, with slight downward percentage differences versus the outlook in July.

The IMF warned of the disparity that continues to brew in the region’s economic recovery, marked by divergences in COVID-19 vaccination campaigns and the use of financial supports from central banks.

“Emerging and developing economies, facing tighter financial conditions and greater risk of de-anchoring inflation expectations, are withdrawing monetary support more rapidly despite significant declines in output,” the report said.

Argentina, Latin America’s third-largest economy, will see an expansion of 7.5% this year, up 1.7 percentage points from April’s projections, benefiting from the substantial rise in the prices of the grains it exports. However, demand could be affected by the changing dynamics of production and consumption in China.

Meanwhile, the Colombian economy will expand by 7.6% this year, up 2.5% percentage points from April’s estimate. In 2022, Colombia’s GDP will moderate its growth to 3.8%.

In its report, the IMF highlighted the increase in its benchmark for industrial inputs, particularly copper, for which demand will strengthen further as the shift to cleaner energy takes place. However, the current trajectory remains dependent on purchases from Asia.

Peru, where the vaccination campaign is progressing slowly, may see a nearly full recovery in GDP this year as it grows by 10%, following the severe recession into which it fell in 2020, and will mark a 4.6% advance by 2022 according to the Fund.

But activity in 2022 will moderate as the region is affected by global events such as escalating trade disputes, an expanding crisis in China’s real estate sector, and doubts about whether the United States will be able to reach a long-term agreement on its debt ceiling, all of which could shake financial markets.

Among other obstacles, the IMF indicated that developing economies “will face inflationary pressures that will persist due to high food and energy prices and an exchange rate depreciation that will raise the prices of imported goods”.

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