MercoPress. South Atlantic News Agency

Chile's economy grows 18.1% thanks to pension withdrawals and state emergency funding

“We have recovered the level of activity we had in February 2020,” Marcel explained.

Chile's Central Bank Thursday reported an 18.1% economic growth in May, which has brought it back to the pace of prepandemic levels.

“The level of activity before the pandemic has recovered,” Central Bank President Mario Marcel announced. “If the level of activity before the social crisis of September 2019 is taken as a reference, it is likely that the level of activity will recover in a couple of months.”

Marcel described that ”what we see in terms of activity is that with the Imacec (Monthly Index of Economic Activity) figure for May we have recovered the level of activity we had in February 2020, that is, we have recovered the previous level of activity to the pandemic.“ He added that ”when we were making our projections at the end of last year, we thought it would happen in late 2021 or early 2022 and now it is happening in May 2021.”

He was also optimistic about a full-scale recovery in light of Chile's high vaccination rate, with 70% of the population having completed either the two-dose or single-dose schemes.

The initial growth projections from 6% for this year have been corrected to between 8.5% and 9.5%. If for the remainder of 2021 Chile's economy grew zero “we would have grown 7.5% compared to the year before,” Marcel explained.

He credited state aid in the form of the Universal Emergency Family Income (IFE) for the successful review. ”In Chile, the monthly GDP is more than 24 billion dollars and by these measures, we are channelling 3 billion dollars a month for the next four months to the economy, so it is a very large effect that helps explain why we are projecting these significant growth rates.” But the high growth in May is also explained by the low base data from May 2020 when the economy sank in a pandemic context.

In seasonally adjusted terms, Imacec registered a rise of 2.6% compared to April and a joy advance of 17.3%. In fact, the increase in the seasonally adjusted Imacec was mainly explained by the performance of the trade. The production of goods increased 7.5%, explained by the performance of the manufacturing industry (15.3%) and, to a lesser extent, by the rise in other goods, which increased 8.2%. In this last item, the growth of construction stood out, while mining fell 0.3%.

Compared to the previous month, the production of goods expanded 0.2%, as a result of “growth in the rest of goods and the manufacturing industry, an effect that was partially offset by the fall in mining,” the bank said. But trading grew 51.3%, “driven by all its components” thanks to “the economic measures to support households and the partial withdrawals of pension funds.”

Therefore, seasonally adjusted figures show a growth of 13.4% compared to the previous month,” the agency added.

Chilean authorities have allowed three withdrawals of 10% of pension fund accounts each to cope with cash shortages ensuing the sanitary restrictions of movement, which resulted in a positive outcome for the time being but has left the most vulnerable sectors without pension savings for later in life.