Economists project recession in Chile as Q2 GDP misses forecasts

By Fabian Cambero and Gabriel Araujo

SANTIAGO (Reuters) -Chile's gross domestic product came in below expectations in the second quarter of 2022, central bank data showed on Thursday, leading economists to forecast a potential recession as pandemic-related stimulus is unwound.

The Andean country's economy grew 5.4% in the second quarter from a year earlier, but showed no growth from the previous three months in seasonally adjusted terms.

Economists polled by Reuters had expected a 5.7% increase year-on-year and a 0.3% rise over the previous quarter.

The performance highlighted Chile's struggle to grow as the central bank aggressively tightens its monetary policy to tame soaring inflation, which reached a near three-decade high last month.

"Chile's economy merely stagnated in Q2 and the chances are high that it will fall into recession over the second half of the year," Capital Economics' Latin America economist Kimberley Sperrfechter said in a note.

She also mentioned that building current account risks were set to keep the peso on the backfoot, with the local currency weakening 2.2% against the dollar following the latest economic figures.

The central bank said in a report that data were mixed among sectors, with personal care and transportation fuelling growth in services activities while mining and agriculture dropped on a yearly basis in the world's largest copper producer.

Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, said Chile's economy performed poorly in the first half, reflecting tighter fiscal and monetary policy while domestic fundamentals deteriorated.

In the first quarter, Chile's economy had contracted 0.8% from the previous three months, losing ground after a solid recovery from the pandemic downturn last year.

"(The economy) is now practically on a technical recession," Abadia said. "The bad news is that leading indicators, including business and consumer confidence, suggest that the downtrend will continue over the coming quarters due to an array of shocks".

(Reporting by Fabian Andres Cambero and Gabriel Araujo; Editing by Steven Grattan, Raissa Kasolowsky and Alex Richardson)