MercoPress. South Atlantic News Agency

Chile heading for its worst economic contraction in 35 years, central bank

The bank said in its quarterly report that the worst blow dealt to the economy in 35 years was down to a tanking of domestic demand evidenced by economic figures

The Chilean central bank said on Wednesday that the economy of the world’s top copper producer would contract between 5.5% and 7.5% in 2020, taking it to the lowest levels since the Latin American debt crisis of the 1980s.

The bank said in its quarterly report that the worst blow dealt to the economy in 35 years was down to a tanking of domestic demand evidenced by economic activity figures for March and April, which contracted 3.5% and 14.1% respectively, after lockdowns to halt the spread of the coronavirus began.

It said the broadening of lockdowns to cover all of the capital Santiago and the coastal city of Valparaiso in May and June would see more drastic decline in economic activity.

It projected a drop in 2020 domestic demand of 10.4% and saw inflation at 2%, the bottom end of its 2% to 4% target. The copper price that props up the economy would rally slightly to US$ 2.50 per pound in 2020, it said.

The latest 2020 estimate is a significant downward revision from the between -1.5% and -2.5% the bank predicted in April, weeks after the coronavirus arrived in Chile.

Shortly after that, President Sebastian Piñera spoke of a “cautious” reopening of the economy. The government was forced to shelve the plan after the virus moved to the poorer, more overcrowded sections of Santiago and infection numbers leaped into four figures.

The bank said that Chile’s economic pain was replicated around the world and the country was better placed to bounce back because of decades of “sound macroeconomic and financial management.”

It pointed to measures including the extension of funding to banks to support credit lines for small and medium businesses, and a two-year, US$ 12 billion economic stimulus package announced by the government over the weekend.

It foresaw a rallying of the economy with the likely end of lockdowns in the third quarter, and growth of between 4.75% and 6.25% in 2021 and 3% and 4% in 2022.