Did Chile’s Copper Mine Strike Impact Its Economic Growth in 1Q17?



Economic growth in Chile

The economic growth in several Latin American (ILF) economies seem to be affected by structural inefficiencies. In 2017, Chile’s (ECH) economy has experienced subdued growth as it faces weak mining investment (BSAC) (BVN), low trade growth, and slow recovery in non-mining investments.

Chile’s recent copper mine strike (BHP) also heavily impacted its economic growth, as copper constitutes more than half of Chile’s export income. The chart below details Chile’s economic growth over the last year.

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GDP growth in 1Q17

Chile’s economy grew 0.1% on a year-over-year basis in 1Q17, lower than the 0.5% expansion in 1Q16. The country’s economic growth in 1Q17 also underperformed the market’s expectations of 0.2% in the quarter.

Chile’s 1Q17 GDP growth registered the lowest growth rate since the 2009 recession. This sluggishness was mostly due to slower growth in private consumption and a decline in exports due to the six-week strike at the world’s largest copper mine.

The long strike at BHP Billiton’s (BHP) Escondida copper mine in Chile resulted in an ~14.4% slump in copper production in 1Q17. External trade also marked a negative contribution to economic growth as exports declined in 1Q17.

The country’s household expenditures in 1Q17 increased at a slightly slower pace of 2.0% year-over-year compared to 2.4% in 4Q16.

Expectations for 2017

According to a report by the International Monetary Fund, Chile’s central bank forecast a GDP growth rate in the range of 1.0%–2.0% for 2017 and about 2.3%–3.3% for 2018. Several domestic factors are expected to support Chile’s economic growth, including the absence of relevant macroeconomic imbalances and a small negative adjustment for mining investments resulting from the strike.

With respect to external factors, the improvements in the global (ACWI) (VT) outlook and expansionary monetary policy are expected to support Chile’s economic growth in 2017. The iShares MSCI Chile Capped ETF (ECH) fell ~0.07% in May 2017.

In our next article, we’ll look at Colombia’s economy.


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