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Chile’s economy stagnant in most optimistic scenario for 2023 -cenbank

SANTIAGO (Reuters) -Chile’s central bank on Wednesday lowered the top end of its estimate for the country’s economic performance in 2023, saying it now forecasts gross domestic product (GDP) to show no growth in the most optimistic scenario.

The monetary authority previously expected an economic expansion of as much as 0.25% this year. It maintained the lower end of its GDP forecast at a contraction of 0.5%.

The lowered estimate accounts for the impact of operational issues that have hit mining production in Chile, the world’s largest copper producer, in recent months, the central bank said.

Non-mining activity is expected to show growth by the end of the year, the monetary authority added.

The South American country’s economy should rebound by next year however, the central bank said, with GDP growth expected between 1.25% and 2.25%.

Chile’s central bank has fought to contain inflation, and on Tuesday cut its benchmark interest rate by 75 basis points to 9.5% as price pressures have eased more quickly than expected.

The central bank expects cuts to continue, it said on Wednesday, closing the year with a benchmark interest rate between 7.75% and 8%.

Annual inflation in Chile slowed to 6.5% in July and is expected to fall to 4.3% by the end of the year, the bank said.

It is forecast to come down to the target of 3% in the second half of 2024, it added, taking into account the slowdown in recent months, the peso’s depreciation and high fuel prices internationally.

However, “the external scenario continues to be marked by high uncertainty,” the monetary authority warned.

Investment defined as gross fixed capital formation (GFCF) remains poor in Chile, particularly in the construction sector, said the central bank, which forecasts GFCF to contract 1.2% this year and 0.6% next year.

By 2025, GFCF is expected to resume growth as domestic financial conditions ease, the central bank said.

The bank also maintained its price estimates for copper, which is projected to close out the year at $3.85/lb and drop to $3.70/lb in 2024.

(Reporting by Fabian Andres Cambero; Writing by Gabriel Araujo and Kylie Madry; Editing by Emelia Sithole-Matarise)


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