GDP & Economic Growth

Chile’s Economy is mainly described as a market economy, favourable in terms of income per capital,
competitiveness in the region, globalization and lower corruption. In the year 2006, Chile even had
the highest nominal GDP per capital, leading in Latin America. Chile joined the OECD in 2010. China
is one of the largest producers of fruits like grape, plum, peach, kiwi etc. The major contribution to
Chile’s GDP comes from the service sector with approximately 56% accounting to it, followed by
industry sector with contribution of 31% to the GDP.

The GDP has grown at an

average rate of 2% from
2011-2020. In early years of
the decade, the economy
grew at an average 5% from
2011-13, contributed by
mining investments.
However, it gradually
started declining from 2014
onwards as a result of weak
employment growth and a
reduction in total factor
productivity.
Source: World Bank

However, during the year 2020, Chile’s economy has been hit hard due to the covid-19 pandemic
resulting in the worst recession in decades for the Country. The GDP of the country declined by 6% in
2020, with partial recovery being contributed due to relaxation of the lockdown measures at the end
of the year. In line with the contraction of the economy, the fiscal deficit of the country surged to
7.5% of the GDP which is the largest the country has witnessed in the past three decades.

The World estimates a rebound of about 5.5% in 2021, owning to the vaccination drive being rolled
out rapidly and Government taking initiative by providing stimulus on a continuous basis. The
vaccination rates has been successful in the country, with Chile becoming fourth in the World in
terms of vaccination rates per capita. The robust rebound is also expected due to the monetary
stimuli resulting in accumulated liquidity in the economy. However, the recovery will take some time
and the pre-pandemic level is expected to be reached by 2022.

Unemployment

Chile is going through demographic transition, thereby most of its population in aging. In the past
years, poverty in the country has deteriorated, however, there still remains greater income
inequality majorly due to greater population immigrating to Chile and unfair educational
opportunities. The Gini coefficient is 46.6 as of 2017, indicating greater inequality.

The growth in the population in the country has been an average of 1.13% over the past decade. The
estimated labour force population, which is about 8.8 million in 2021 comprises almost 11% of the
population who are unemployed in 2021. Out of the Total population employed, labour force
comprised 55.3%. On the basis of sector, Labour force in Chile in agriculture, industry and the service
sector in 2020 stood at 8.98%, 22.25% and 68.78% respectively.
The unemployment rate in 2021 has reached an all-time high of 11.51% in 2021, accounting to
almost 1,879,763 people who left working during the June-Aug period of 2020 due to the Covid-19
pandemic which has been detrimental to the Country.

The labour market is showing gradual progress of recovery with unemployment rate declining to
9.5% in June 2021, due to improvement in healthcare and relaxation of restrictions on mobility.

Source: Statista

Inflation & Interest rate

The inflation rate in Chile

has been on a declining
trend since 1998 and has
been fairly stable over the
past decade, with an
average rate of 3.1%. For
the year 2020, inflation
rate was calculated at
3.045%. However, it has
been on increasing trend
over the past few months
reaching rate of 4.6% in
July 2021.
Source: Economic Survey, OECD

Inflation, as an indicator is always seen as a risk to the investors as it reduces the returns that an
investor can get on their investment in the future. The real increase of returns in terms of real
purchasing power is only when the returns on the investment is greater than the inflation rate. In
2020, the current account balance as a percentage of GDP was 1.332 percent.

By raising or lowering short-term interest rates, central banks attempt to manage inflation. Chile's
benchmark interest rate has remained unchanged at 2.5 percent. Since 2010, this rate has fluctuated
between 5% and 2%. Higher interest rates encourage foreign investment because investors can earn
higher returns than they might in their own market.