Rhythmic Reasoning_Full Report_Final_EN - Flipbook - Page 42
THE DRUMMER'S EAR | RHYTHMIC REASONING
growth this year, with a projected expansion of 6.0% for the year
resulting from higher imports of capital goods and ongoing mining
projects.
Weakness in labour markets over mid-2025 has been the fly in the
ointment of Chile’s economy this year, requiring a watchful eye for
risks that household spending deteriorates in the months ahead.
Chilean employment growth has materially slowed over the past
year or so, from a post-pandemic peak of 3.6% YoY in April 2024 to
roughly null growth during April to June of this year, only recently
bouncing back in July and August. The bulk of the deceleration has
come in informal employment in contrast to firmer formal hiring.
The latter has, however, slowed in recent months as public sector
headcounts decline.
Fig. 2: Employment growth slowed in mid-2025
6%
Fig. 3: Tight first round election polls
32%
24%
16%
8%
0%
Jan 2025
Mar 2025
Kast (hard right)
Parisi (centre)
May 2025
Jul 2025
Sep 2025
Jara (communist party)
Matthei (centre-right)
Tohá (left)
Kaiser (extreme right)
Source: CADEM, Scotia Wealth Management.
3%
YoY % change
the incoming government will have to make a relevant spending
adjustment in the short term to achieve fiscal targets.
0%
-3%
-6%
2023
Employment
2024
Formal employment
2025
Informal employment
Source: INE, Scotia Wealth Management.
The first figures available
The first figures available for the third quarter show economic
activity grew by 1.8% YoY in July (1.0% MoM), thanks to strength
in non-mining activity, especially in wholesale trade and business
services, along with a partial recovery in mining. With this, nonmining GDP reached historic highs while its annualized quarterly
growth rate stood at 1.8%, which suggests that the third quarter
could close with growth of more than 3% in annualized terms.
November (1st round) and December (2nd round) presidential
elections point to a likelier chance of victory for a more businessfriendly administration that could buoy growth, with private
investment and hiring likely benefiting, after a normal temporary
lull in anticipation of elections and during the executive transition.
Polls have narrowed of late, however, with the left-wing’s official
candidate, Jara from the Communist Part, neck-and-neck with
right-wing Republican Party leader Kast in first round opinion polls
(Fig. 3). The latter still leads second-round voting intention polls
with around 10ppts over Jara, pointing to a likelier but not definitive
victory for the right.
Regarding public spending, the incoming administration will have
to determine the rate of convergence towards a structural balance
in the first 90 days of its functions, while we estimate that
the space for government spending will be limited next year
and concentrated in public investment items. In this context,
We project that GDP will grow by 2.5% in 2026, where investment
will continue to play a fundamental role in the rebound in economic
activity. On the investment side, we estimate positive indirect
impacts on the services and industry sectors next year thanks to
the materialization of mining and energy projects for almost USD
12 billion. Meanwhile, we estimate that consumption will continue
to recover its strength in the first part of next year again thanks
to the massive arrival of foreign tourists from Argentina, a gradual
recovery of employment and a rebound in bank credit during the
second part of the year.
There’s limited additional support to come from Chile’s central
bank (BCCh) over the next few quarters, with services prices
pressures (which could also dampen consumption) limiting
downside room for the central bank. The BCCh recently revised
higher its inflation forecast for this year, pointing to important
upside surprises in goods and core services (Fig. 4). There also
remain important risks derived from higher labour costs due to the
ongoing reduction to workweek hours (from 45 hours in 2023 to
40 hours in 2028), minimum wage increases, and higher employer
pension contributions upon the implementation of the Pension
Reform from August 2025.
We forecast inflation to close 2025 at 4.0%, only converging to near
the 3% BCCh goal in the third quarter of 2026, and closing the
year at exactly 3.0%. Our forecast for next year’s trend is based
on a continued appreciation of the Chilean peso that would have a
disinflationary impact on tradable goods which represent close to
60% of the CPI basket, alongside a frontloading of services prices
increases in early-2026 that eases towards year-end. The latter
would capture indexation and second round effects at the start
of the year, while little room to manoeuvre at firms and a gradual
recovery in labour markets would result in slower inflation readings
over the balance of the year.
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