Chile economy contracts more than expected on mining drop

Chile’s economic activity fell more than expected on a drop in mining production, as analysts expect the central bank to hold its key interest rate at the highest in over two decades at this week’s policy meeting.

The Imacec index, a proxy for gross domestic product, fell 0.3% in February from the previous month, more than the -0.2% median estimate of analysts in a Bloomberg survey. From a year ago, activity declined 0.5%, the central bank reported on Monday.

Meanwhile, January’s month-on-month gain was revised higher to 1.6% from 0.5% previously.

Chile’s economy is expected to shrink this year as the central bank signals plans to keep its benchmark interest rate high until it becomes clear that inflation is slowing to target. Policymakers tightened monetary policy aggressively in 2022 after stimulus measures during the pandemic triggered a consumer spending frenzy that stoked price pressures.

Mining activity tumbled 3.1% in February from the previous month, while services fell 0.2%, according to the central bank. On the other hand, industry rose 0.6% during the period and commerce gained 0.3%.

Chile’s government sees the economy contracting 0.7% in 2023, while economists surveyed by the central bank forecast a 0.8% decline. Finance Minister Mario Marcel said last week that the country won’t have the “brutal crisis” that many had feared this year.

The central bank will hold its overnight rate steady at 11.25% at Tuesday’s policy meeting, according to all economists surveyed by Bloomberg.

(By Eduardo Thomson and Matthew Malinowski)