MercoPress. South Atlantic News Agency

Chilean economy contracts for the first time in seven years; minister blames “temporary factors”

Finance minister Rodrigo Valdes said that the 0.40% drop in economic activity in Chile in October was due to temporary factors

Chile's economy contracted for the first time in seven years in annual terms, as manufacturing and mining activity fell, potentially paving the way for the central bank to cut interest rates to spur growth. Economic activity fell 0.4% in October from the year-earlier month, the first annual contraction since October 2009, central bank data showed on Monday.

 However Finance minister Rodrigo Valdes said that the 0.40% drop in economic activity in Chile in October was due to temporary factors.

The decrease in the October Monthly Economic Activity Index (Imacec), which had not declined since July 2009, must be weighed carefully because it was caused by a plunge in mining activity and two fewer work days, compared to the same month in 2015, Valdes said.

“It's a lower figure than might have been expected, but we have to look at it cautiously and not overreact,” the finance minister said, adding that the November number could be more positive.

The Imacec, which is prepared by the Central Bank, incorporates 91% of the goods and services included in the gross domestic product (GDP).

Three of the four sectors included in the index rose in October, and the economic indicator would have risen 1% during the month on a year-on-year basis if mining was excluded, Valdes said.

“We have a healthy country that can grow more, we're dealing with some complications, like everyone else, but Chile can do more,” Valdes said.

Chile's economy is facing headwinds from the slowdown in the copper mining industry and a challenging regional economic scenario, the finance minister said.

The Central Bank expects Chile's GDP to grow between 1.25% and 2% in 2016.

“We've had an adjustment in the copper industry, both in production and investment, which has been much longer and deeper than anyone would have expected. I expect this is reaching the end,” Valdes said.

Latin America is in recession due to the economic contractions in Brazil and Argentina, the finance minister said. Chile has “orderly macroeconomic policies” in place to deal with the situation, Valdes said.