José De Gregorio, former president of the Banco Central (Chile's central bank), acknowledged that he cannot fully explain the slowdown in the Chilean economy, according to La Tercera. On the newspaper's program Money Talks, he said: "I'm surprised, I find it hard to explain what's happening".
The picture the newspaper describes is complex. The economy is practically in a technical recession (two consecutive quarters of contraction), everything points to growth below 1% this year, and unemployment is approaching double digits, with nearly one million people out of work.
The contrast with a few months ago is stark. On December 17, when the Banco Central published its IPoM (Informe de Política Monetaria, its Monetary Policy Report), it described resilient global activity. There was no war, oil was hovering around US$ 80 and copper was heading toward record highs. That was three days after José Antonio Kast won the presidential runoff.
The first suspect is the war in the Middle East and its effect on oil. De Gregorio acknowledges the impact but plays it down. According to the IMF's latest WEO (World Economic Outlook), Chile is among the countries with the largest cut to its forecast since October of last year, and it is the one growing the least.
"The world has withstood the Gulf problem. There is more inflation, but the world has withstood it," he said. In his view, it is hard to blame the oil crisis as the main cause when the slowdown is not repeated in any other country.
The second hypothesis is the cut in fiscal spending. When the State spends less, the economy normally grows less, like a family that stops buying and the neighborhood store feels it. But De Gregorio rules this out too: the US$ 6,000 million in cuts Kast promised do not show up in budget execution. "This government is going to overspend last year's budget. Therefore, there is no fiscal squeeze," he said.
Mining does weigh. The drop in mining output has dragged down the Imacec (the monthly economic activity indicator), with six months of negative figures this year. Even so, the economist warns that non-mining GDP will also grow less than 1%.
Where De Gregorio puts the most emphasis is on expectations, an explanation also raised by former officials such as Mario Marcel and Alejandro Micco. According to him, confidence fell more in Chile than in any other country. He attributes this partly to the government's initial message: "We were coming from a scenario of announcements that there's no money, that things are bad here (...) and that we were broke".
To that he added March's bencinazo. The government adjusted the parameters of the Mepco (the mechanism that cushions fuel price increases) and caused the biggest jump in history in gasoline prices. "The car isn't something for a minority, so that had a big effect," he said. In your pocket, that meant paying more to fill the tank, and for the economist that blow ended up damaging consumer confidence and, with it, businesses.
Even so, he insisted the picture is not complete: "Something helps explain that too. But it's hard to get a complete picture".
On the government's measures, such as the megarreforma (sweeping reform package) and the capital markets reform, he said they are heading in the right direction, but he does not think they will change the growth curve much. "I find it hard to think that (...) the boom is coming," he said. He said he was more optimistic about next year, although the available text does not detail what growth figure he projects.
