Healthy economy

IMF increases its growth forecast for Chile

The revised projection has been released amid expectations of strong demand and promising employment conditions.

Friday, August 26, 2011 Category: Business
Santiago is one of Latin America's greenest cities. Santiago, Chile's financial center.

The International Monetary Fund (IMF) has raised its growth projections for Chile's economy on the basis of strong domestic demand. It now believes the country's gross domestic product (GDP) will increase 6.5 percent this year, 0.3 per cent more than it predicted just two months ago.

In its latest report on Chile's economic outlook, the IMF forecast a 7.8 percent increase in demand this year and a six percent increase in 2012. Based on these figures, the report said Chile's GDP would continue to grow steadily next year, expanding by up to five per cent.

At the same time the IMF predicts that inflation rates will remain manageable, peaking at four percent this year before easing off in 2012 to 3.2 percent. Unemployment is expected to remain steady at 7.2 percent until the end of 2012.

The global institution highlighted that consumption levels in Chile are set to benefit from strong employment growth and significant salary increases in recent years, while reconstruction projects in the wake of the February 2010 earthquake will continue to drive investment.

The report said Chile's economic recovery from last year's natural disaster was being sustained by the nation's  flexible exchange rates, its healthy banking system and sound fiscal policies such as sensible inflation targets and robust regulation.

According to the report, the biggest risk to Chile's economy is a sudden deceleration in Asian economic activities, leading to a decline in demand for raw materials. To combat the effects of a possible slowdown, the IMF recommends that Chile should increase the pace of fiscal adjustment while setting more ambitious economic goals in the medium term, saying these measures would bolster the country's macroeconomic stability. The report also said it would be prudent for Chile to maintain a high level of liquidity in its financial system.