Chile Faces Economic Downgrade Following Poor GDP Growth

The South American country relies heavily on the copper industry, which accounts for 40% of its exports. Although there is a slight uptick in copper prices, mining firms are not seeing their stock prices rising.

Chile

The economic situation in Chile is not showing any signs of improvement, despite the slight increase in demand for copper in the international market.

In 2Q17, the country’s economy expanded 0.9% compared with the same period last year, sparking new fears of a downgrade by international rating agencies.

About a month ago, Standard & Poor’s downgraded Chile’s sovereign debt by one notch, from ‘AA-’ to ‘A+’, making borrowing far more expensive for the country.

“It would not be a surprise if the other ratings agencies followed suit,” said the country’s Finance Minister Rodrigo Valdes in an interview with Reuters last week.

The South American country relies heavily on the copper industry, which accounts for 40% of its exports. Although there is a slight uptick in copper prices, mining firms are not seeing their stock prices rising. Antofagasta, a major Chilean copper producer, seems to be among the biggest losers in the stock market.

Moreover, mining workers in many parts of the country are striking, demanding higher salaries and better working conditions.

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President Michelle Bachelet has so far managed to fend off her political rivals, but with general elections scheduled for November this year she is feeling the pinch.

Analysts say corruption scandals have sapped investor confidence and that the country’s debt is soaring, which was in fact one of the key reasons for S&P’s downgrade.

Conditions are not at all inspiring for the current government, with economists expecting the economy to grow around 1.5% this year, slightly lower than last year’s 1.6%.

Although Chile is relatively better positioned structurally than many of its Latin American peers, its reliance on copper exports is likely to keep its economy subdued until another boom in the commodity market.

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