Country Economic Forecasts > Chile

Notwithstanding a healthy rise in the IMACEC indicator in Q1 as a whole, the outlook remains mixed. In April, both consumer and business sentiment stayed at pessimistic levels, reflecting uncertainty about the impact of constitutional and labor market reforms and a rising unemployment rate. On the other hand, nominal wage growth continues to outstrip inflation and industrial production may be stabilizing. Externally, loose monetary policy in developed economies and some reassuring signs on the Chinese economy have provided relief to Emerging Markets over the last couple of months; however, long-term structural headwinds persist. As a result, we have kept our GDP growth forecast for 2016 at 2%.The stabilization of the peso at stronger levels than at the start of the year has started to ease the upward pressure on the prices of tradable goods. In addition, demand-led inflation is being reduced by the impact of a negative output gap. Hence, we expect CPI inflation to maintain its recent downward trend and average 3.7% this year.As a consequence, we now expect that the central bank will keep policy on hold for the remainder of this year. With inflation starting to converge to the target range (2-4%) and risks to growth skewed to the downside, we see no need for monetary tightening this year