OECD projects 6.7% economic growth for Chile in 2021

RIO DE JANEIRO, BRAZIL – The Organization for Economic Co-operation and Development (OECD) estimated on Monday in a report a 6.7% growth of Chile’s economy by 2021, driven largely by an increase in private consumption that should be promoted with policies to support households.

According to its economic outlook report, the OECD further forecasts a 3.5% economic expansion in 2022, and both growths will be supported by a “recovery in investment, higher copper prices, higher public investment, and favorable financing conditions.”

“Inflation will pick up temporarily, driven by energy prices and supply constraints, and converge to the 3% target by the end of this year,” the organization said.

The document points out that Chile’s vaccination process, one of the fastest in the world – more than 50% of the target population has been inoculated with two doses – “will probably allow a full reopening of activities during the second half of the year”.

Despite the rapid immunization, the OECD added, the country has been experiencing a worsening of the pandemic since March, which has forced the imposition of new restrictions, although these have “a lesser impact on economic activity” than the measures of the first wave in July 2020.

“Households and businesses have now adapted, and there is broad political support,” the institution said.

On the labor market, the report notes that it will gradually recover supported by hiring subsidies but that the high rate of informality will still be a concern.

The covid-19 pandemic, which has left more than 1.3 million people infected and 28,000 dead in the country, caused the Chilean economy to shrink by 5.8% in 2020 according to the Central Bank – the worst drop in four decades – and led unemployment to reach record figures last July (13.1%).

“Strengthening public services, unemployment benefits, and the training system would help ensure that all workers, especially the most vulnerable, have adequate opportunities,” the document added.

As for the third 10% withdrawal of pension funds, a measure approved this year to give liquidity to families, the OECD pointed out that “it has diminished and, in many cases, exhausted” individual savings for retirement and has contributed to worsening future fiscal accounts.

The institution points out that it would be more appropriate to “extend the existing specific support to vulnerable households” and “continue with a reform agenda to prevent an increase in inequality and strengthen the economy”.

With just 19 million inhabitants, Chile has announced more than 18 billion dollars in social aid since the beginning of the pandemic. However, experts point out that only about a third of this amount has been a direct investment to households.

The OECD growth forecasts align with those of the Central Bank, which estimated gross domestic product (GDP) growth in 2021 of between 6% and 7% and for 2022 of between 3% and 4%.

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