VALPARAÍSO- Rodrigo Vergara, the head of Banco Central (BC), addressed Chilean congress, stating that “a worse external scenario, a deterioration in mining, private consumption, and investment, make it likely that growth in the second half [of the year] will be less than was anticipated in June.”
They are now looking for GDP in 2015 to come in between 2.0 to 2.5 percent, a tighter spread from the previous 2.25 to 3.25 percent forecast in June. They have maintained their 2016 forecast of 2.5 to 3.5 percent. GDP in 2014 came in at 1.9 percent.
The depreciation of the peso has been pushing inflation higher, out of the BC’s target range of 2.0 to 4.0 percent. In the same report they raised year-end 2015 inflation expectation to 4.6 percent from the previous 3.4 percent. The BC expects inflation to stay above the target range until 2017 when it should drop to 3.0 percent.
Copper prices have been hit hard from the slowing in China as they import 40 percent of the red metal exports globally. Copper traded on Tuesday at US$2.30 per pound, down 28 percent from the 52-week high of US$3.18 per pound and down approximately 19 percent year-to-date.
The BC is now projecting that the average price for 2015 will be between US$2.50 and US$2.45 per pound and maintain that range into 2016. Previously, their estimates for both years were between US$2.80 to US$2.90 per pound.
The drop in the red metal has resulted in Freeport-McMoran laying off about 50 percent of their 51 percent owned El Abra mine work force, about 700 workers. Besides the economic effects, the dismissal has drawn the ire of the workers union and is putting pressure on the state owned copper company Codelco that owns the other 49 percent of the mine. Freeport’s share price has dropped almost 60 percent just this year.
On a global basis, the International Monetary Fund (IMF) is looking for slower growth than anticipated in June, when they were forecasting global GDP of 3.3 percent. The IMF believes China will be able to support growth: “The [Chinese] authorities will have the political and financial tools to manage this transition.”
President Vergara characterized the report to Congress: “I think we have a scenario of low growth for this year and moderate growth for next year. More than optimistic or pessimistic, this report is realistic, and is posing a moderate, gradual recovery of growth into next year, but we will continue to grow at lower rates to our potential growth. The external scenario will obviously have an impact. If external factors [in Latin America and China] evolve more negatively than we expect in the baseline scenario, it will have a negative impact on growth. ”